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HIGHLIGHTS 2002 March 5, 2002: Checklist For A Top
Is It Up When It Should Be? Yes,
our January 4 edition expected the high for the year around March. This
would be after a correction until late January (4).
So far, the Dow has reached a new high with the S&P not too far
behind.
Indicating decreasing liquidity for the chronically speculative side of
the market, the Nasdaq is behind and will face considerable resistance at
1956, declining to 1900 within two weeks.
The attached page , Previous
Bubbles Continue To Provide Guidelines For The NASDAQ, updates
the ChartWorks study of February 22, which independently called for a
rally until mid/March.
Are There Signs Of Speculation? Yes,
the leading groups are at or approaching a "Double Exhaustion"
high. A broad index of gold shares is up almost 100% from its cyclical low
in October, 2000. Within this, some of the leaders registered such
concluding action in the last half of February.
As noted last Friday, home builder stocks are registering the
"DE" sell.
How Sound Is The Fundamental Story? "It's
the economy, stupid." is again popular, making it awkward to
confront. However, in 2000 both Wall Street and policymakers considered
the financial boom to be manageable and therefore continuous. Then,
surprised that earnings were plunging as fast as the stock market in
4Q2000, the consensus quickly adjusted to the immediate, or "V"
recovery.
More recent shocks included unprecedented large defaults and
malfeasance, but the last few weeks has brought a tremendous surge of
confidence, as we consider, on schedule.
The problem is beyond the professional skepticism for the consensus,
but that it is focused upon the economy. Naturally, at the end of a great
financial boom the major influence is the inevitable credit contraction.
Our Conclusions:
We are within a
few weeks of an important stock market top, which could be the high for
the year. This has been accompanied by expected favourable developments
for industrial commodity prices, credit spreads, and the yield curve (the
important fundamental series of a new financial era).
Regrettably, these are still within the adverse longer trends typical
of a post-boom contraction and rollovers will confirm the vulnerability of
the stock market.
Wrap:
This is the standard form
we use at expected significant trend changes. The last "buy" was
the September 18 "Capitulation" bottom, as measured by the
S&P. Because it was not near an expected low, the
"Checklist" didn't apply.
However, the last one for a top was in late May 2001 (4) and
for a bottom in late March, 2001 (4).
Recommendation:
Lighten up on the
hot and even the moderately hot groups as the financial and economic
contraction has been likely to resume around mid/year.
Home builders; Ryland Group (RYL), has registered a "DE" on
the weekly reading and Beazer (BZH), which has never recorded such extreme
action, is at an exhaustion reading from which 40% drops have followed.
"Buyers' Panic Sweeps California"
- WSJ, June 1, 1988 [Commodity High: May, 1988]
"Real Estate Bidding War Breaks Out"
"Buyers Scramble to Make a Deal"
- The Vancouver Sun, March 5, 2002 [Top Qtr. Front Page Screamer]
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