The Chart du Jour

Why March 2-6th Is an Important Period

March 1, 2000

March 6th marks 34 trading days since the DJIA peak in mid-January. In the epic Crash of 1929, a last gasp rally occured just in front of Day 34, with Day 34 itself ushering in significant and accelerating weakness.


Source: Princeton Economic Institute

March 2-3 also marks the exact mid-point between the cycle dates we referred to back on Dec 26-27 and the next important May 4-5 cycle date. At a minimum, the character of the current equity market should mark yet another subtle shift during this window of time. Perhaps a Nasdaq peak? Perhaps the beginning of a final Nasdaq "melt-up" before a dramatic reversal lower in May? Either is certainly possible, although we still favor the former. Just how much more insane can Nasdaq valuations become? We already quite like the look of our Fibonacci retracement levels on the longer term chart of the Nasdaq 100. The "short strokes" of the Fibonacci rhythm on the daily chart now suggest that 4390 on the Nasdaq 100 is possible, but we would hasten to prognosticate that such a marginal new high would likely represent an intra-month March throwover, with the February close remaining the highest actual end-of-month close.

Two charts of individual equities also hold some clues for us. Cisco Systems, that ever-popular $452 billion market behemoth looks like it will be most happy with a Fibonacci extrapolated high between 146 1/2 and 147 1/2 (as previously postulated in the 2/09/00 Chart du Jour: Guideposts in the Nasdaq's Ongoing Wild Ride).

But a chart of another bellweather and market favorite, GE, already looks complete (as does Microsoft, not pictured).

The Dow Jones Industrial Average still sports a Fibonacci rhythm that best "fits" the recent hourly chart action only toward an extrapolated low of 9098.

And the Nasdaq100/ DJIA ratio chart still looks poised to peak toward 43.07%

How do all the pieces of the puzzle fit? How about this: the Nasdaq spikes up to 4390 in the next day or two, with Cisco reaching 146 1/2. The DJIA stands relatively still or drops just a bit, pushing the Nasdaq100/DJIA ratio up to our 43.07% target. The end of this week then serves as the Nasdaq high, with March 6th ushering in the beginning of a dramatic Nasdaq reversal that also sends the DJIA down toward 9098 or so. This is what feels about right to us. There is enough volatility out there that we leave ourselves open to looking pretty stupid if we get any part of the above series of events wrong, but we have to call it the way we see it, and this series of events looks the most probable to us.

Meanwhile, for those of you who subscribed to our analysis "A Fallen Value," the drop experienced by Reliance Group Holdings Tuesday has already served to disappoint. Instead of the nice impulsive move upwards toward 9 1/2 that we had anticipated, the stock has now gone back below 4 3/8. At best, this is now a wave 2 test of the lows. At worst, what we viewed as the beginning of an impulsive reversal higher was only a wave 4, with new lows toward $2 still in the offing. The safest course of action is to exit longs and just watch this stock for awhile. The fundamental story and takeover possibility is still there, but the pattern we thought existed has been abgrogated. Dangerous and volatile times.

We recently finished an in-depth analysis of the longer term risks to equities that is eight pages in length and examines the Elliott wave pattern of the Nasdaq's Price-Earnings Ratio since 1995, as well as various analog pattern matches involving the Nasdaq. The report looks at mutual fund cash levels, mutual fund positioning, and changes in the monetary base. It sketches out a possible path for the Nasdaq that may prove a valuable "roadmap" for trading over the balance of the year. The article offers some powerful evidence that a crash scenario is most certainly possible and perhaps closer than most realize. The article is available for purchase below via credit card at $25. One may also subscribe on a quarterly basis to ALL articles past and present for just $65.

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