May 30, 2000

Each day, I receive a few more emails asking me to compare the current market environment with 1998's. My response is usually that it resembles 1994, not 1998. But I think the question about 1998 is more telling for another reason: Most of today's new investors were not around in 1994; to them, 1998 was the worst they've ever seen. That moment in 1998 was over in a few short months, and led to one great bull run. Perhaps that's why no one wants to panic out -- they fear we may have a 1998-type bottom coming.

This is not 1998. The most important thing to remember is that there can be no comparison to 1998 because the

Fed was not tightening then. It's that simple. It was the Asian (and Russian) economic crisis and the collapse of

Long Term Capital

that led to the bottom in October that year, not a too-strong economy forcing the Fed to raise interest rates. There was a world financial crisis in 1998. That is not the case today.

From a technical point of view, the sentiment from August through October 1998 was pure fear. Just look at the slide in the percentage of bulls in 1998. And while not as severe, we had a similar slide in 1999. But now? No way. The bulls are giving up grudgingly and that's not what makes for a bottom.

In addition to that, we had bases in fall 1998. I can remember writing a

column that September about the

head and shoulders bottom in

Intel

(INTC) - Get Report

and receiving some of the fiercest hate mail I've ever received. Most of it told me I didn't know what a head and shoulders bottom looked like because the volume wasn't right, or the shoulder didn't match, or the neckline was drawn too slanted, or a host of other reasons. The emails I receive now all ask, when will be a good time to buy

JDS Uniphase

(JDSU)

,

Cisco

(CSCO) - Get Report

or

Microsoft

(MSFT) - Get Report

. To my ears, that doesn't sound like folks are afraid to buy.

This doesn't mean we'll never rally again, but it does mean that there hasn't been nearly enough of a clean-out to rally well. Some of the indicators, including the oscillators, are saying we can rally by late this week. I've even noticed several technology stocks sitting right on

support. But as soon as I made a note of their support levels, I noticed something else: lower highs on rallies.

Take a look at the

FreeMarkets

(FMKT)

chart. It actually had its first collapse in January, followed by a rebound to

resistance, which failed to make a new high. After that it came down and held support -- for four months! Once it broke support, it went from 185 to 35 in almost a straight line. I'm forced to wonder now if it's worth it to give credit to stocks that are holding support.

Base building takes place when a stock not only holds support and rallies off it but also when it rallies and at least gets to, if not surpasses, the previous rally's high. You can see from the FreeMarkets chart that after that initial rally, it held support but never went anywhere on rallies; the stock just kept making lower highs.

With this in mind, I took a look at several other technology stocks and found similar patterns: Many are holding support but each successive rally has made a lower high. For example,

JDS Uniphase

(JDSU)

has been holding this low 70s support zone since its initial fall in April. But the rally immediately thereafter stopped right at resistance around 110. The most recent rally stopped just below par. So it's bounced off of 70 several times now, but unless this stock can get through its May 1 high (around 110), its pattern will look no different than FreeMarkets' did for four months.

Some other stocks I noticed that are sitting on support but with similar resistance overhead include

Broadcom

(BRCM)

with support at 120 and resistance at 190,

Brocade

(BRCD)

with support at 80 and resistance at 140,

Juniper

(JNPR) - Get Report

with support around 145 and resistance at 230 and

i2

(ITWO)

with support at 75 and resistance at 130.

While these ranges appear quite large, the key is that if they do rally and fail well below those resistance levels, it will not bode well for their next trip down. If these stocks are going to hold and build bases, the first thing they need to do is make higher highs. And we haven't seen evidence of many technology stocks wanting to do that right now.

We can rally from this level. But where are we going on the upside? Not only is resistance sitting overhead, but the

Federal Open Market Committee meeting at the end of June looms. Until the Fed is done, the upside remains limited.

Overbought/Oversold Oscillators

For an explanation of these indicators, check out The Chartist's

primer.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. At time of publication, she was long Microsoft, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback at

KPMHSM@aol.com.