Magazine article Modern Trader

Technical Bears, Other Analysts Conflict on Path for Stocks

Magazine article Modern Trader

Technical Bears, Other Analysts Conflict on Path for Stocks

Article excerpt

The range in which stock index futures have traded since the January bottoms might be a result of the battle between the technicians and the contrarians, with the quantitative analysts switching sides.

Many chart watchers anticipate a breakthrough of the January lows the 310 area for Standard & Poor's (S&P) 500 Index futures - due to the appearance of that most bearish of patterns: the double top.

Interestingly, that top, formed by the October 1989 and January 1990 highs, together with the top in September 1987, suggests a double-top pattern on an even grander scale. (Sell signals occur when the base of the formation is broken.)

Even Richard Russell, editor of Dow Theory Forecasts, which is given more to comparing behavior among industrials, utilities and transports than to chart artistry, anticipated the appearance of such a formation months ago. What Russell considers more important is how a break in the industrials will confirm an earlier break by the transports - an index that fell Oct. 13 and has continued to fall ever since.

From an asset manager's perspective, a rule of thumb has been that when Treasury bill rates start going for 50 basis points more than the average earnings of all companies in the S&P 500 Index, buyer beware. Actually, T-bill rates creeping into that territory 10 months ago were met by a sideways-to-weak move, then a full rally in the indexes.

But Craig Corcoran, the cautious editor of the Zweig-Davis Hotline, points out that those rates still outshine stock earnings. …

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