Waiting for the Give-Up

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If we're so vastly oversold and prices, for the most part, only give up eighths and quarters, why can't we rally? I've been looking for this bottom for nearly a week now and it's nowhere to be found. I keep thinking, "it should be there, at least there should be an oversold rally." But nothing. Then I realize that I've got too much company.

Fundamentalists and technicians alike whom I've seen interviewed in newspapers and on TV lately are all calling for a bottom. (Myself included.) We cannot have a decent rally until we all throw in this bullish towel. We need the bears to come out and scream and yell about how awful everything is and how this is finally the big bad bear market they've all been looking for.

Here's how sentiment works and why it's a great contrary indicator. When investors are bearish, they sell. If you didn't like the market, would you keep hanging on to stocks, or would you sell 'em with the hope that you'd be able to buy 'em back at lower prices in the future? You'd obviously be selling.

So let's say you've turned bearish and want to sell some stock. But the market's oversold, so you think to yourself that you'll wait for a bounce and sell into that bounce. Then the market continues to make attempts at rallies but sells off instead. That forces the bears, who are fighting each other to sell stock "up a buck," to eventually capitulate and tell their broker to "forget trying to sell that stock up a buck, just hit the bid and get me out." That's called the give-up phase, and we're just not there yet.

All this takes some time. It's got to get to the point where each day you wake up and you no longer wonder if they'll rally today but rather how much they'll be down on the day. That's bearish.

Once all the selling's been done, we'll have cleaned 'em out and made a better bottom. By then investors will be averse to owning stocks. When I mention that XYZ Corp. looks good, investors will respond with a litany of negatives about why that stock will never go up again. That's when we'll have a good bottom, not when everyone is still reciting all the bullish reasons to own stocks.

Of course the most interesting part of all this is the individual stock charts. Precious few have broken. In fact, many have given up very little ground in this decline. The negative list has grown somewhat but not to the extent we would expect with this awful action. The names that appear most vulnerable just now are

McDonald's

(MCD) - Get Report

in the

DJIA

,

Coke

(KO) - Get Report

because I just don't trust it, and

AMR

(AMR)

, which, after trading in the 70-72 support zone for two weeks, slid rather easily yesterday. Another new name is

Fannie Mae

(FNM)

; it's quite shaky in here and must hold this level to be okay.

There's also a list of stocks that have held thus far but have "stop" levels which are quite clear, and if broken, will turn the chart negative. On most of these you can draw a flat line at their current levels, showing how a break will spoil the chart. They include, with their stop levels in parentheses,

Wal-Mart

(WMT) - Get Report

(61);

Dayton Hudson

(DH)

(47);

Gannett

(GCI) - Get Report

(63 1/2);

Kimberly-Clark

(KMB) - Get Report

(44);

J.P. Morgan

(JPM) - Get Report

(120); and

Sears

(S) - Get Report

(50).

The positive list has many of the usual suspects:

IBM

(IBM) - Get Report

(of course),

Abbott Labs

(ABT) - Get Report

,

Philip Morris

(MO) - Get Report

on a dip,

Pepsi

(PEP) - Get Report

is getting better, and

Anheuser Busch

(BUD) - Get Report

. I have a growing list of technology names that seem to be defying the selling pressure on this leg down. They include

Texas Instruments

(TXN) - Get Report

,

Apple

(AAPL) - Get Report

,

Sun Micro

(SUNW) - Get Report

,

Cisco

(CSCO) - Get Report

,

Oracle

(ORCL) - Get Report

,

Dell

(DELL) - Get Report

, and the new name is

Motorola

(MOT)

. Motorola is the type of chart that will need more time, but seems so sold out that if it even whispers about an uptick in its business the stock will rally.

The market is still in oversold territory, but a market that is oversold and stays oversold is a weak one. The new lows are still expanding, albeit at a much slower rate than before. All this means we can rally at any time, but we will not call for a real bottom until we have rallied off the lows and come back down with fewer new lows, a lesser oversold reading and a lot more bears. That's still two swings away.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets for TheStreet.com that normally appears Fridays. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Meisler trained at several Wall Street firms, including

Goldman Sachs

and

Cowen

, and has worked with the equity trading department at

Cargill

. She appreciates your feedback at

KPMHSM@aol.com.