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INSTITUTIONAL ADVISORS
JULY 15, 2002
BOB HOYE
STOCK MARKETS
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Our long term post-bubble model which clicked in in July, 2000 has been
reliable. It expected the high for this year to be set around March (4) with
new lows for the bear being set around June.
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Our July 5 Pivotal Events and ChartWorks noted the huge number of stocks
registering capitulation at close to the end of the month, which was a short
term target made in early May. The July 5 editions made the point that the
recent lows needed to be tested.
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The liquidation, both voluntary and involuntary, is reaching the severity we
expected. But it is achieving it somewhat later than we thought on the near
term view made in May.
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On the long term target made two years ago, it is close enough to be an
outstanding call.
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Obviously, the trading entry is difficult and two tools can provide some
guidance on extreme conditions.
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On a closing basis, the Nasdaq has tested the low of 1357 on July 2. In
turning up, the MACD is providing bullish divergence, confirming the likelihood of a
tradable low. This was a critical part of our similar conclusions made at the
critical low at the end of March, 2001.
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Outside research such as Lowry's 90% reading would confirm the low for this
move.
WRAP:
We are in a speculative spike to the downside, in which case to get the
turning level and the day ahead of time is next to impossible. However, the above
tools should help.
Leading Wall Street strategists who did not anticipate the plunge are staying with
their year-end targets for the Dow. This would require rallies of up to some 40%.
The April 30 ChartWorks noted that from the two-year complacency level (i.e.
March 1931 Dow), the return to that level took 54 months. On the similar condition for the Nikkei in late 1992, it took 49 months to reach the breakeven.
CAPITULATION:
On this model, the ultimate discipline to bring in the "buy"
is an improvement in demand and price. Generally, this has yet to occur.
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