Second Anniversary – End or New Beginning?
by Trace Johnson
06-OCT-04
For all of the hemming and hawing about market direction, we are higher
than the last total capitulation, and what some would call the beginning
of the current bull market, that began on October 9th, 2002. A number of
fundamental factors are clearly threatening the advance of the market
throughout the rest of the year, and the Experts are devising strategies
to account for those obstacles. The charts bear out these dangers in the
form of trends of lower highs and lower lows, though some crucial
resistance level tests are in the immediate offing. Read about the
targets that will indicate it is safe to reenter the market and the
portfolio strategies and stock picks you can’t live without.
Top or Bottom? Technician, Dr. Melvin Pasternak and
Dow Theorist,
Jack Schannep also both have a degree of optimism shining through their
caution. Pasternak, editor of StreetAuthority Swing Trader tells a
little tale of the S&P 500 that leapt from 1063 on August 13th to an
intra-day high of 1131.54 on September 21st. Over the following week, he
observes the index gave back 30 points, or 42% of the gain; the rest of
which was given away plus more by October 1st. The market rallied on the
first few trading days of the first quarter, and is now approaching the
downtrend line at 1135, which the S&P has approached and failed to break
through three times over the last 7 months. Should the S&P break that,
and resistance just above at 1144.06, Pasternak would expect a seriously
bullish tone to take hold.
Jack Schannep, editor of Schannep’s Timing Indicator
& theDowTheory is the man who labeled the capitulation as such hours
after the close on October 9, 2002. Schannep follows the various Dow
indices, including the Industrials, Transports and Utilities. The first
full year of the bull market born that day delivered 32.9% returns on
the Dow Industrials, but the index is up only 4% since. Schannep is
keenly aware of the pattern of lower tops and lower bottoms since, and
is also looking to August lows, particularly 9814 on the Dow, the same
1063 level on the S&P and 6217 on the NYSE. The markets have remained
within 6-8% of their highs, which convinces him of this being a bull
market consolidation. Schannep is most recently optimistic, though,
based on the NYSE’s move toward a new high and feels the odds are 3 to 1
against a bear market taking hold.
 (Editor's note: Trace Johnson is a market commentator
for Zacks Investment Research. He's also a regular contributor on WebFN,
First Business and CNBC-Europe. He can be reached at tjohnson@zacks.com.)
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& TheDowTheory.com
