The Chart du Jour

Wrong Reason to Rally

August 26, 2001

By, Barclay T. Leib

If the stock market had rallied for almost any other reason on Friday rather than slightly upbeat prognostications from Cisco, maybe I would grant it more leg room to the upside. As it is, all we know is that for 18 out of 20 quarterly pronouncements (or thereabouts) Cisco's John Chambers has been almost universally bullish. He recently lost his "visability" for a quarter or two, but now that he's somewhat upbeat again, is this really any great reason to party? Haven't people learned anything on the way down? It would appear not.

We'd rather take our lead last week from stocks like Providian, Capital One, and Americredit -- all credit card lenders -- and all stocks suddenly under considerable equity price pressure last week. Even conservative mortgage lender Countrywide left a nasty looking down move for the week.

The real underlying message from the market here is: while a few already blown-up techs may be poking their head up from purgatory, the underlying market is becoming increasingly worried about the ability of consumers to service their credit card and mortgage debt. Many declines in the financial sector are likely just starting, not ending.

Then there is the stock GAP -- often a leading indicator for the market. An old Wall Street adage is to watch the GAP for true leading signs of the market's health. For some reason, GAP is a retailer that tends to come undone before other retailers and consumer cyclicals, and often bottoms before others as well. This stock, as depicted below, is still exceedingly weak, and in our estimation soon headed to a Fibonacci target near $15.50.

Chart produced using Advanced GET End-of-Day

We have previously mentioned August 26th cycle date of UCLA's Dr. John Vyden as a date to watch for a potential market turn -- if the S&P had reached 1133. Not having done so, we remain bears for now. John Chambers' prognostications alone are certainly not a good reason to buy, and credit-card stocks are sending us a very different message about this economy's true vulnerability.

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