Grizzly's Growlings Current Report

Monday Morning Market Musings    11/29/99

OK, OK, we fully and freely admit that our call for a steep crash in the markets in October was incorrect. But is the Bull Market back? Where did the Bear go? Alas, we believe it never left.

The Dow Jones Industrial Average [^DJI] did fall 11.5% from its August peak, and dipped its toes below the 10,000 mark in mid-October before making a slow but steady rebound back up to the 11,000 area.

In Elliott Wave terms, the drop in the DJIA from the August high most likely represents only Wave 1 of a 5 wave crash pattern that will bring the DJIA below 7,000 and probably lower. The rally from the October low is potentially complete at last Friday's highs and has all the markings of a Wave 2 counter-trend move, not the launch of another major wave to the upside. This Wave 2 has been agonizing and costly to us bears.

The Wave 2 gains in the indices over the past six weeks have masked the extreme underlying market weakness, at least as far as the mainstream financial media are concerned. Only a few brave souls have exposed the Stealth Bear Market.

Last week's record run and gain of 78 points in the NASDAQ Composite [^IXIC] was a bear in bull's clothing. The entire NASDAQ saw 2140 advancing issues versus 2487 decliners for the week. On the NYSE, gainers were swamped by losers by better than 2.5 to 1 (964 up vs. 2472 down). 52-week highs were overwhelmed by lows by 121 to 576.

The NASDAQ Composite Index has run an unprecedented streak of 16 record high closes over the past 20 trading days, enough to crap-out a red-hot dice shooter. The tech-heavy NASDAQ 100 [^NDX] has been even hotter, rising an incredible 900 points over the past six weeks. The NDX has more than doubled from its October 1998 low. Truly amazing.

Yet the stodgy old Dow Jones Industrial Average has gone a net nowhere over the past six months. Friday's close of 10,989 puts it right where it was in early May when it first crossed the 11,000 mark. The embryonic infusion of Microsoft, Intel, SBC Communications and Home Depot into the DJIA on November 1st has failed to spark much beyond a twitch in Frankenstein's Monster's little finger.

The stodgy old Dow Jones Transportation Average [^DJT] is actually down year to date! So is the Dow Jones Utility Average [^DJU] .

Despite, or perhaps because of, the huge rally in the tech sector, the broader indices have fared poorly, as money pours into an ever-narrowing elite group of shooting stars at the expense of run-of-the-mill smaller companies. The worst laggard is the Russell 2000 [^RUT], which still hasn't surpassed its April 1998 peak.

Major market launches typically exhibit very bullish technical indicators. As Robert Prechter of Elliott Wave International, Jim Stack of InvesTech Research, Peter Eliades of Stock Market Cycles and many other have pointed out in their newsletters, the market action over the last three weeks or so has been anything but bullish:

• Market breadth is thin as paper.
• Declining issues have just swamped gainers day in and day out. New 52-week highs have been swamped by new lows.
• Various indicators based on the TRIN have been extremely overbought. Daily advancing volume has slacked way off.
• Put/Call ratios have demonstrated extreme bullish sentiment (a contrary indicator).
• The CBOE Volatility Index (VIX) has been screaming "overconfidence and complacency."
• About 65% of all stocks are down more than 20% from their 52-week highs.
• About 65% of NYSE stocks are below their 200-day moving averages.
• Price to Earnings (P/E) ratio on the NASDAQ is an estimated stratospheric 150, though an exact number is meaningless since so many NASDAQ stocks don't have earnings at all!
• The yield on the S&P 500 is a miniscule 1.13%.
• And on and on and on.

These divergences of the major indices versus the lesser stocks as well as the overwhelming technical weakness clearly indicates that money is flowing into fewer and fewer stocks.

The dynamite has been positioned. The fuse has been set. And the Stuarts of the world are out in the back yard playing with matches. (Stuart is Ameritrade's orange-haired, day-trading poster boy.) 

When will it blow? Who knows, but you sure don't want to be in the neighborhood, or long the market, when it does.

US STOCKS REMAIN ON FULL CRASH ALERT!

".. the fundamental business of the country ... is on a sound and prosperous basis."
-- President Herbert Hoover,
Saturday, October 26, 1929,
two days before The Crash of '29.