Uh Oh--Now Chartist Says ‘Sell’ Again . . .

Dan Sullivan’s subscribers may need a chiropractor.

Sullivan’s stock-market-timing system, explained in my Sunday column, has flashed a sell signal--again.

That follows the buy signal that Sullivan, the Seal Beach-based editor of the Chartist newsletters, issued on July 1--which, in turn, followed the sell signal of June 11.

Sullivan, a veteran market analyst who started writing his main newsletter in 1969, obviously would prefer not to whiplash his investor-followers. And for the most part, his timing system doesn’t normally whiplash like this.

Since 1987, the shortest duration of a Sullivan buy signal had been 7.5 months--until this latest episode.

The July 1 buy signal lasted just 24 days.

What’s the deal? “Mainly it’s the market’s breadth--it’s really awful,” says Sullivan, 64.

Sullivan’s system relies on three indicators: the stock market’s momentum, or breadth (the number of stocks rising versus the number falling, as explained elsewhere on this page); the market’s trend as measured by the movement of key indexes; and monetary conditions in the economy (i.e., interest rates).

When two of the three indicators are negative, Sullivan’s system says it’s time to get out of the stock market rather than risk getting caught in a sharp decline.

As detailed Sunday, Sullivan’s timing record and stock-picking record combined have earned him second place, in terms of performance, among 29 newsletters followed by Hulbert Financial Digest over the last 15 years.

The June 11 sell signal was triggered after the market’s breadth and trend deteriorated, even though the monetary indicator was positive, Sullivan said.

By July 1 the trend indicator improved enough to flash a buy signal, as blue-chip stock indexes surged and monetary conditions remained favorable.

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But by late last week the trend indicator joined the momentum indicator in negative territory again, Sullivan said.

“Everybody wants the safety of the big-name stocks” in the Dow Jones industrial average and other blue-chip indexes, Sullivan said. But that’s leaving the rest of the market increasingly orphaned--hence, the latest Sullivan sell signal.

What’s interesting is that many other professional market timers still are holding to buy signals--despite what virtually everyone agrees is a miserable-looking trend in the market overall.

James Schmidt, editor of Greenwich, Conn.-based Timer Digest newsletter, which tracks dozens of timers who write investment newsletters like Sullivan’s, says that most of the top-performing timers are still rating the U.S. market a buy.

Schmidt’s list of the top 10 timers, which are those whose market timing records have been the most accurate over the last 52 weeks, now has seven bulls and three timers who say they are merely neutral on the market.

No bears at all--even though, Schmidt says, “I can’t think of one of them who doesn’t mention [in their newsletters] the market’s negative breadth.”

Many of these market timers don’t follow disciplined systems, such as the one Sullivan uses. In other words, their market-timing calls may be based as much on gut instinct as on a specific market indicator or trend.

Admittedly, that’s serving the bulls well this year--provided they’ve kept their subscribers in blue-chip stocks, which is just about the only market sector (perhaps along with Internet stocks) that has been generating gains for investors.

Because of the abrupt rebounds in the Dow and other blue-chip indicators after each sell-off over the last 15 months, “I think they [timers] are reluctant to step to the bearish side” for fear of again missing out if the market should pull the same trick this time, Schmidt says.

BRIEFLY

Speaking of reversals: There were some major reversals among big-name stocks during Monday’s session.

Intel traded as low as $81.75 before rebounding to close up $3 at $86.06. Microsoft fell as low as $110.69, then soared to end at $116.75, up $2.94 on the day.

Is this the start of another record run for the blue chips and the biggest tech names?

. . . Barton Biggs, Morgan Stanley Dean Witter & Co.’s chief stock strategist, is telling clients that a bear market is upon us.

Yes, you’ve heard that line before from Biggs--as recently as last October.

He was wrong then, but nobody ever accused him of being a shrinking violet.

“We may have entered a serious cyclical bear market in the U.S., which could see the market go down 20% to 30% over a period of months or quarters,” Biggs writes in a new report.

He says Asia is in worse shape than most economists believe, and that will be negative for the U.S. economy and market.

. . . Commodity prices continue to sink, with a key index of raw materials prices hitting a five-year low on Monday. Expectations for huge soybean and corn crops this year are pulling grain prices down.