[CANSLIM] "M" by the indexes

From: "Tom Worley" <stkguru@bellsouth.net>
Subject: [CANSLIM] "M" by the indexes
Date: Sat, 20 Jul 2002 11:45:09 -0400

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Last weekend, I felt I saw some bottoming finally taking place on NASDAQ
(Composite, 100) and elected to put more money into the markets. Both of
these indexes had broken the September lows, and bounced twice off the new
low point.  Logically, since Naz has suffered the biggest losses, and showed
the sharpest downtrend lines, I felt they would also be the first to find a
bottom.

A week later, I see the same patterns on these, and now we have virtually
every other index also breaking thru their Sept lows. Only ones remaining
appear to be the DOW Transportation Index, the Russell 2000, and the NYSE
Financials Index. The drop on Friday on the R2000 suggests it may test its
Sept lows during the next week. At this point, I don't expect to see the
other two go that low.

So far, volume has not dried up like it normally would during the summer
doldrums. Nor, despite the severe price erosion going on, have we gotten one
or two solid capitulation days on volume. Rather, we seem to be just slowly
(and not always so slowly) bleeding to death.

We continue to get news that gives investors the jitters, latest being
Friday's news on JNJ. While a complaint and lawsuit from a disgruntled ex
employee about manufacturing defects is hardly news to a drug maker, the
study showing serious and rare health problems by a high percentage of users
of a drug made only at that plant just might be. I guess the good news is
that no one (so far) accused them of diddlying the books.

The economy is improving, I have no doubt of that. Layoffs, while still
occurring in large numbers, are well below the rate that cost 1.5 million
jobs last year, and overall employment is not likely to rise much higher
than at present.  Corporate earnings are improving, more companies are
reporting better than expected (granted, many estimates were scaled way
down), and a few are even starting to report earnings better than a year
ago. Yet, the disconnect between this and the declining trends in stock
prices continues largely unabated. There is no gauge to determine when this
disconnect will end, since it is sentiment and psychologically driven.

For now, all you can do is wait (trying to be patient) and protect your
capital. Let the markets tell you when a reversal has definitely been made.
The decline has been severe, there will be plenty of time to make money on
the way back up, and it's likely to be a slow recovery just like the
economy, at least after the initial surge.

Tom Worley
stkguru@bellsouth.net
AIM: TexWorley



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