What Correction?

For now, the underlying improvement continues, but stocks aren't ready for a big rush upward.
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There are times when I get so caught up with the daily minutiae of the stock market that I forget to look at the big picture. You know, take the time to step back and have a look at where we've come from, where we are and where we might be headed.

The obvious first place to start is with interest rates. In seven months, they have gone up more than 1 full percentage point, from 4.7% to 5.8%. That is one giant leap. And since we all know that interest rates have a direct effect on the stock market, we should pay attention.

For as long as I can remember, my screen has always had the

S&P

futures and the U.S. Treasury futures side by side. C'mon, don't you watch the employment number the same way you'll watch for

Cisco's

(CSCO) - Get Report

earnings today? Of course you do. You may not trade bonds, but you certainly care what they're doing.

This is why I sit back and ask myself how it can be that interest rates have backed up so much in the past three weeks and stocks have simply moved sideways.

So, it's natural that we should then have a look at the utilities. Should be awful with interest rates here, right? Nope. They're busy closing in on the old highs. OK, so the financials should be losing ground, correct? No way. The

New York Financial Index

is closing in on the old highs, too. Aha! It must be the advance/decline line that's awful. Wrong again. The A/D is chugging right along.

So the backup in rates hasn't had any effect on stocks? Not true at all. It has had very little effect on the averages themselves in terms of absolute levels. Go back to that chart of the S&P above. It has traded between approximately 1360 and 1300 since the beginning of April. It's basically been treading water for a month.

Nasdaq

, too. In the first week of April, the Nasdaq was up 2600. Now it's at 2526.

A correction can come in terms of price and/or time. The first-quarter correction we experienced was more time than price. For a couple of months, stocks digested their gains before taking off again.

However, these days there are a great many stocks in the midst of their own private corrections, down 15% or more from their highs. You know which stocks I'm talking about: the drugs, biotechs, technology and retailers, to name a few. And plenty of others, like the banks, have just gone sideways. At this point, I see no reason for that trend to change; this correction process should continue.

During this process, I continue to see underlying improvement in the charts. The A/D line acts much better on down days than it does on up days. (See how much better the A/D was on Monday's down day vs. Friday's up day). That's where the improvement comes from.

Stocks should head down first before the averages, then begin to show signs of holding and rallying. At some point later on, a piece of news might take the averages down, but by then stocks will be done going down. So they'll hold into the decline, and it's over. (At the low in March, it was

Greenspan's

speech that gave us that last whoosh down.) For now, the underlying improvement continues, but stocks are unprepared at this time to launch a big rush upward. There's still more work to be done.

As for individual stocks,

Chevron

(CHV)

and

Exxon

(XON) - Get Report

are two good-looking oil stocks in the

DJIA

.

DuPont

(DD) - Get Report

is also a big basing chart.

Delta Air Lines

(DAL) - Get Report

has had a rather deep correction and may try the big breakout to new highs on this run. In technology,

Motorola's

(MOT)

base has developed nicely, and I'm tempted by

Lucent's

(LU)

recent higher low.

On the negative side,

McDonald's

(MCD) - Get Report

is still a sale at 42 to 44 if it can ever get back there. And why didn't

General Electric

(GE) - Get Report

fly on the news that it is now an Internet stock?

Anheuser-Busch's

(BUD) - Get Report

chart continues to build a top.

BankAmerica

(BAC) - Get Report

trades poorly and is a sale back at 72 to 74.

Chase's

(CMB)

trading action is not good either.

Dayton-Hudson

(DH)

,

Gap

(GPS) - Get Report

and

Home Depot

(HD) - Get Report

can't seem to rally either. If they can manage a rally, sell them into strength.

So the move up in interest rates hasn't wiped out the gains in the market; it has simply provided individual stocks with much-needed corrections. It has allowed them to take a breather from their bull runs. With new supply coming into the bond market near term and the

FOMC

meeting next week, I expect the stock market will continue in its current corrective mode, getting better into each decline, but not showing the impetus to surge higher just yet.

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 held no positions in the stocks mentioned in this column, 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.