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An Unhappy Anniversary

By Mark Arbeter This time last year, the Nasdaq was above 5000 and everything technology-related looked like it would go up forever. Today, we have a mirror image, with the Nasdaq approaching 2000 and no end in sight to the carnage. There will be a bottom to this bear market but it is not here yet.

We get the sense that many investors still believe the glory days of technology will return in the not to distant future, but we doubt that will happen. As we have noted, this sector is still overowned by mutual funds and investors who continue to hold out hope that they will get bailed out by better market action. This is not likely to occur, however, as the road to recovery looks like it will be long and hard.

In better markets, stocks and indexes have a tendency to bounce sharply when they reach oversold levels and then they keep moving higher. In bear markets, the market does bounce sometimes when it gets oversold, however the moves are not long-lasting and rollover with stocks moving to new lows. Rallies have been few and far between, and met with additional liquidation.

Look at any technology chart and the answer to why this is happening becomes clear. There is an enormous amount of overhead supply on these stocks, so as they rally, market participants continue to sell, attempting to cut their huge losses. Until the sentiment towards this group changes, and we have a couple of higher lows and higher highs on the charts, investors will continue to lighten their technology holdings. Until investors throw in the towel on tech -- and it is certainly amazing that this has not happened yet -- the Nasdaq will continue to set new lows.

We had talked about the potential of the Nasdaq putting in a typical

double bottom, where the second bottom goes about 5%, on a closing basis, below the first pass. This scenario is now in serious danger of failing.

In the past, once this downside objective was met, and the market was very oversold, the Nasdaq was set up for a nice intermediate-term advance. The rally last week worked off some of the short-term oversold readings but then failed miserably.

The Nasdaq has moved into an area of chart

support that runs from 1924 to 2061, and this comes from a small sideways consolidation pattern from late 1998. However, as we look further and further back on the charts for support zones, the less importance they have.

Despite the market carnage, many of the sentiment indicators are still not registering the type of readings usually seen at major market lows. The CBOE put/call ratio usually moves to 1.00 or greater near bottoms, but currently it is running below 0.80. The volatility index or VIX, currently below 30, moves above 40, sometimes way above, at most lows. The Investors Intelligence poll of newsletter writers is still showing way too much bullishness. Although the figures have backed up a bit, they are still showing 53.6% bulls and only 34% bears. This poll should at least move to a 40/40 split before a major bottom can be called.

If market participants would close their eyes on the Nasdaq, things don't look that bad. The NYSE remains in a massive sideways consolidation dating back to 1999. Many stocks on the NYSE have benefited from the weakness in technology, with about 70% of NYSE issues trading above their respective 200-day

moving averages. The NYSE

advance/decline line has recently broken above the downward sloping trendline that has existed since April 1998.


breadth statistics are the strongest in about three years as money rotates into stocks that have been neglected for literally years. There are plenty of industry groups that are doing well and they include aerospace/defense, small and mid-cap financials, chemicals, selected healthcare and medical stocks, tobacco, food, transportation and natural gas and oil.

We will let the market tell us when it is time to move back to growth oriented stocks, so for now, it is best to stay under the cover of value. Arbeter is Chief Technical Analyst for Standard & Poor's

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