Is Market’s Movement History Repeating Itself?
Monday’s market action perfectly summed up the way things have been going for Wall Street lately.
Stocks pushed higher in the first 90 minutes of trading on the latest economic news but gave way to selling that picked up in the final hour and left the market down for the eighth time in 11 days.
To technical analysts, who follow price and volume patterns on stock charts, selling as the day progresses is a classic sign of a faltering market.
It demonstrates investors’ lack of conviction and their inclination to bail out of holdings the moment the intraday trend turns negative.
In market parlance, stocks are in “weak” hands.
Some sectors are showing life, such as semiconductors and biotechs. But investors seem to feel that “there’s just not a huge reason, even with stocks that are doing well, to bother to pick them up until the uncertainty over this market is removed,” said Doug Fairclough, chief investment strategist at ClearStation.com, a technical-analysis Web site.
The market’s technical problems start with volume. Volume overall has been languid recently. But on the days with heavier trading, stocks have almost invariably fallen. Up days have been marked by lighter activity.
Another sign of broad-based weakness: The major stock indexes have frequently closed at the low end of their daily trading ranges. And the New York Stock Exchange advance-decline line, a barometer of broad market performance, is nearing its March low.
The Nasdaq composite index now has fallen 8.4% from its July 16 high, while the Standard & Poor’s 500 is down 6.4% and the Dow industrials are off 5%.
Eerily, last year the market peaked out on the same day in July. The blue-chip indexes then fell into a near-20% drop.
Still, some analysts don’t see history repeating. They point to the pockets of strength, such as chip giant Intel, which rose to a new high Monday to lead the semiconductor group.
To some analysts, that’s a sign that the market overall is going to turn around soon.
“If the market were really tanking, you wouldn’t see Intel making all-time highs,” argues Stan Harley, editor of the Harley Market Letter in Camarillo. “When this market turns around and kicks into gear, then that stock, because it has a very strong relative strength, should outperform the market on the upside.”
Harley divides market patterns into cycles such as 27 days, 19 weeks and 39 weeks. His research indicates that price and breadth “oscillators” are oversold and that the market should bottom sometime this week.
But Dodge Dorland, a technical analyst at Landor Investment Management, a New York-based money management and trading firm, thinks investor sentiment must turn noticeably bearish for the market to bottom and turn.
And that hasn’t happened yet: Of the investment newsletter writers surveyed by Investors Intelligence, a stubbornly high 53.6% are bullish.
