Ralph Bloch’s Weekly Commentary
August 26, 20044
“‘Climactic’ Low Working!”
Monday: 8/23
Talk about a dull summer session that was the day after expiration! We got it in spades yesterday. The market opened 4 lower and just drifted back and forth across the flat line until real late when traders saw the market wasn’t going anywhere, so they sold stock into the bell. Also, of course, it was the day after expiration that often goes opposite the next trading session. These were, in my opinion, the factors motivating a market that lost 37 points on volume of all of 1 billion! My heart couldn’t stand the excitement! All of this with oil closing at $46 – could it have had a buying “climax”? NASDAQ outperformed as it was plus all day until the bell when it ended flat – still better than the DJI. The plus of the day was the SOXX, which closed 4 higher. We made the comment yesterday that we need to see the SOXX start to improve – yesterday it did! Losses in UTX and WMT hurt the DJI by 14-3/4 points. Breadth was the weakest indicator, losing 854, but may I point out that it recently posted a new recovery high above its July peak – a good plus!
I am now trying to figure out whether the low–rally–retest sequence has to play out just that way. We’ve gotten the first two parts, and does the market have to go through part 3? The answer is two-fold: No is the first part, and the second is that I don’t need to guess at this time. The market will either engage in a retest or go through a period of “backing and filling”. The likelihood of a “V”-type straight up move (while anything is possible) is highly unlikely. So, a successful retest would greatly strengthen the bottom if it unfolds that way. We have time to see how it starts to unfold and then take action. “Never anticipate my command,” my basic training sergeant used to scream – he never spoke, he just screamed. As of 6:30 a.m., futures were all above fair value.
Tuesday: 8/24
A bounce back from Monday’s session as the market rose 57 by 10.00 a.m. That proved to be the day’s high, as prices went lower and finally finished plus 25 points on real low volume of 1 billion shares – wait until half of NY leaves the city to avoid the zoo-like atmosphere of the convention and the high quality protesters that it will draw. NASDAQ opened 7 higher but quickly faded to finish off 2 points. The real source of tech weakness was the SOXX index, which lost 10 points – that did not make me happy. This group must start to stabilize before anything serious can start and last on the upside. The A-D index was in good shape all day with 1020 net plus at 10:00 a.m. and a close of 411 net advances. The price of oil fell to $45.21 – a plus. Some firm lowered its target on CSCO by $1 – now that’s fine tuning!
Nothing much was delineated from yesterday’s low volume dull action, and there is little further I can add beyond our recent discussions about whether a full retest is likely or the market just moves laterally for a period of time – after Labor Day, at best. I will express the opinion that another significant leg South is not a likely occurrence. The price of oil is falling, the Olympics (so far) have been safe, and the world is grateful. My guess is also that a great many players are waiting for the employment report – any excuse for doing little or nothing.
Wednesday: 8/25
Fueled by a sharp drop of $1.74 in the price of oil to $43.47, the market, having been minus 18 at 10:00 a.m., got a set of legs to close plus 83 points on volume of 1.19 billion. Oil has fallen 10% in just the past four days, and we once again remind you that the market started to ignore oil several days before – how it know? The A-D index continued to trade well to finish with 1282 net advances. Also, and this is important, the techs were up nicely (24), and the SOXX picked up some good action late after being fractionally lower all morning – it finished with a gain of 4 points. We’ve been saying that we need the tech sector in play if we’re going to get a healthy and lengthy rally going – let’s hope yesterday was the start of the bounce back from all the fundamental calls that occurred 30%-40% from their peaks. These late calls caused what we labeled a “selling climax”, and that took place about two weeks ago and marked the bottom as “climaxes” usually do. Gains in BA were nearly 12 DJI points.
Conclusion:
The latest I.I. figures are of interest. I remind you that these are sentiment indicators, so they’re contrary opinion.
This Week
Last Week
Bulls
39.6%
43.6%
Bears
30.2%
28.7%
Correction
30.2%
27.7%
The bullish contingent is the lowest since October 2002. Interestingly, October 2002 was exactly the time when the DJI posted its bear market low at 7200! So, the market posts its 10700 peak last February – drops to 9800 two weeks ago, and the bulls finally give it up – don’t you just love it? The likelihood of a full retest is getting a bit less likely unless the terrorists pull off one of their nightmare attacks. As of 6:00 a.m., futures are quiet and slightly below fair value, and a pause day is perfectly O.K.
Ralph Bloch
Senior Vice President
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