Friday, December 03, 2010

Reposted BUGnotes: Fumarole March - December 6, 1999

The money that has been lost "feeling" for the bottom or top never has been generally appreciated. The totals, if they could be known, must be staggering.

Gerald Loeb, The Battle for Investment Survival, originally published 1935

The following re-posted BUGnotes was originally published to at the end of 1999. BUGnotes ran from late 1999 to early 2001 and were edited by, and the more fantastic material co-written by, Jay Jurisich.

The end of 1999 is a fascinating period for studying markets and included one of the most amazing technical divergences you're ever likely to see. Beginning as early as 1998, the average NYSE and even Nasdaq stock began to trend lower in price, and continued to lower in price, throughout one of the greatest advances in US market history. Nasdaq moved from 1,492.40 in September, 1998 to an ultimate peak of 5048.62, one and a half years later, but the average stock was declining virtually throughout.

NASDAQ A/D Line, April-1998 to March-2000; Credit: Optionetics

BUG notes
December 6, 1999

Fumarole March

The NASDAQ continues on its relentless upward path, but cracks continue to grow larger under the surface. The pied, sandpaper Pan piper still plays sweet music. Investors everywhere know that. But his breadth is getting more fowl as everyone gets into line.

With Friday's wiz-bang rally you'd have expected breadth to be on the sweeter side, but in the end it was not much better than a freshly Lysoiled Greyhound bus interior. The cumulative breadth of this rally could now be characterized as pathetic, medically speaking. Eventually the market is going to get clocked again, the question remains from what level? Nobody knows for sure, not even Mr. Piper, I suspect. So stay with the market leaders as long as they're singing. Never underestimate the power of a December NASDAQ rally. This time of year warrants holding onto the winners, at least through December 31st. Just be ready to get out if stocks violate your mental benchmarks or the momentum ends. Don't get patriotic if stocks start failing first. Drop them like hot lava, in that case.

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