Zeev's Turnips Patch-No Politics (ZEEV)

[muteryuin]

fair take
http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&gui...

TOMI KILGORE'S MARKET MAP

Bulls are still alive; are they stronger?
Commentary: Caution at a crossroads is a good thing

By Tomi Kilgore, CBS.MarketWatch.com
Last Update: 12:01 AM ET Jan. 20, 2003







NEW YORK (CBS.MW) -- I've always been told that what didn't kill me would make me stronger. It never made me feel better during the bad times, but I understood what it meant once things got better.





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Despite all the negativity last week and through most of December, the stock market's technical condition is still flashing green.

"The market's technical condition is constructive, and the S&P 500 is set up to gain on good news," said John Schlitz, chief technical strategist at Instinet Research. "But it's just not getting it -- the set-up itself won't do it."

Recent consolidation has once again brought the market to a crossroads. Instead of green, this time bulls are seeing yellow.

Be it apprehension from the latest rally's unfinished business or fear itself, the bulls are no longer willing to bet on the hope that something good will happen. They have been painfully reminded that losses are much worse than missing out on potential profits.

That's not a bad thing.

The benefit of experience most likely kept bulls from committing too much to the October rally, which in turn kept them fresh enough to keep the December pullback within bullish boundaries.

What hasn't killed them may have made them stronger.

Good to go

The December decline felt like the worst of times, especially since many were anticipating a seasonal rally. But as bad as it was, Schlitz feels the historic rally off the October lows is still alive, given the pullback had failed to retrace even half the move up.

Technicians are very keen on assessing retracements because it helps them put reversals in perspective without being clouded by the negative sentiment. It also helps understand the strength of the initial move.

Many use retracement levels based on the Fibonacci ratios of 0.382, 0.50 and 0.618 as a guide. The idea is that as long as a pullback (or bounce) stays within 61.8 percent, the original move is intact.

The S&P 500's ($SPX: news, chart, profile) decline to the Dec. 31 intraday low of 869.45 gave back just 46 percent of the gains off the Oct. 10 low of 768.63 to the Dec. 2 high of 954.28.



Steve Nison, president of Candlecharts.com, added that the bounce off the Dec. 31 low confirmed "really good support" for the index, since it coincided with the lows of Oct. 29 (867.91) and Nov. 13 (872.05). The market's disdain for that level suggests bulls are lurking, and may keep bears from attempting another foray.

Constructive consolidation

Just as recent moves should be put into perspective, positive technical signals need to be put into context. It's not enough to be good -- 'where' is important, too.

In the S&P 500's case, support has kept the index hemmed in a trading range for the last few months. Schlitz sees this as constructive, given that the consolidation is occurring at the high end of the October rally's range. If the consolidation were much lower, bulls would have farther to travel before breaking into new ground.

Schlitz pointed out that new ground is fairly close, even after the 30-point sell-off over the past three sessions to 902. The 200-day simple moving average, which many use as a bull-versus-bear barometer, came in around 940 on Friday. A move above that level would surely draw in buyers, at least enough to successfully attack the Dec. 2 high of 954.28.

(See interactive java chart. Change "# of Days" to 200.)

The S&P came within 10 points of that line in intraday trading on Dec. 13, before backing off.

Good support is nice to have, but it won't take out resistance. So what's keeping the bulls from stepping on the gas?

Seeing yellow

Restraining the index at the moment, said Nison, the godfather of Western candlestick charting theory, are two short-term bearish patterns.

The first is a "doji" -- Japanese for "at the same time" -- that appeared on Jan. 10, just one day before the index topped out. On that day, the index opened (927.58) and closed (927.57) at virtually the same rate, suggesting supply and demand had reached equilibrium.

(See java chart. Go to "Price" and select "candlestick.")

The other is a "bearish engulfing" that reared up on Jan. 15. The index opened at 932.17 and closed at 918.22, enveloping the spread between the previous day's open and close (926.15 and 931.66).

This suggests that bears withstood all the bulls had to give them, and came back even stronger.



Nison, the godfather of Western candlestick charting theory, feels these signals suggest the S&P will now go back to test the bottom of the recent range at around 870. While there should be "good" support there, too many tests can spoil its effect. Bulls may get tired of defending a level, since it means they are not making money, and bears will become less fearful of something they've become familiar with.

Nison reminded, however, that all of these signs are short term in nature. In the long-term charts, the readings still carry a negative bias. Well, at least not a positive one.

Many technicians hailed the October low, given that it roughly matched the one hit on July 24 (775.96), as a "double bottom" reversal pattern (see previous column).

But two lows aren't technically a "double bottom" until the crest in between them is surpassed. In this case, it is the Aug. 22 high of 964.84. And the Dec. 2 high fell about 10 1/2 points shy.

Playing it smart

"The market is in a 'wait-and-see' mode," Schlitz said. "Why buy now and risk the downside? It's better to play it smart and wait for the break out."

Perhaps the market has finally unlearned what got them into trouble three years ago -- it's OK to be hopeful and exuberant about the future, but within rational bounds. Prepare for the best, but keep an eye out for the worst-case scenario.

The light may look green, but it can quickly turn to red. So no matter how clear a crossroads in the market appears, slowdown -- you may need to change direction very quickly.

This way of driving may not get you where you want to go as fast as you'd like, but it will keep you on the right path. And it will keep you strong and intact when you get there.

Tomi Kilgore is a reporter for CBS.MarketWatch.com in New York.








More TOMI KILGORE'S MARKET MAP
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