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[Ulisses Pereira]

"A Low Is Not a Bottom"

By Helene Meisler
RealMoney.com Contributor
4/14/2008 8:15 AM EDT


"Well, GE (GE - commentary - Cramer's Take) surely didn't help the market's mood on Friday. In fact, I kept thinking of the slogan, "We bring good things to life" -- all I could think of was that this time they brought "bad things" to light as they once again reminded us this crisis is not over.

What I thought was most interesting was how Mr. Immelt told us that the credit markets and financial business fell apart in the final two weeks of March (which must have been right after he bought his shares!) and yet the financials weren't the stocks that got beaten up on Friday.

Oh, don't get me wrong, the financials weren't exactly the highlight on the upside, but the Bank Index relationship with the S&P actually ticked up on Friday, when surely we would have expected it to fall apart on that news.




However, I was thinking this weekend about the bottom after the 2000-02 decline and how long that bottom took to form. The initial low of the bottom came in July of 2002. We then rallied and came down again -- to a lower low -- in October 2002. We then rallied one more time and came down one more time -- in March 2003. My calendar says that July to March is eight months.

Now step back from that bottom and note that the bottom didn't start forming until the market had already been in a downtrend for more than two years. The highs in the DJIA were made in January 2000, Nasdaq and the S&P made their highs in March; the bottom finished forming in March 2003. So from start to finish it took three or four years.

We measure a top in terms of time from when it actually began to form, and we do the same for bottoms. So, as I've described before, the exact high is not the point where the top begins to form, it is simply the top tick. So if we measure the top in this particular market, it began to form in the fall of 2006. It might be easier to see on the chart below:



We broke down out of the top in January. So first think about this: If we only broke down from the top in January, then how can we have the bottom in place in January too? We can have a low, but a bottom? Doubtful.

Let's look at the S&P's top from the 2000 high. I see that the top took two years to form. We broke down out of that top in late February of 2001, and by late March or early April, we'd made a low. And we had a great rally off that low (much better than the rally we have now). But was it "the" low? No.



Now, maybe January or March will turn out to be "the" low, but I've said before, I surely won't know it's "the" low until well after the fact. I keep trying to figure out how it can be that three months of basing -- or potential basing -- can overcome more than one year of resistance (the top), and I think the answer is that it can't.

If that was "the" low, then bases will need time to rebuild, and three months seems rather skimpy in terms of time.

In terms of the indicators, there wasn't a lot of damage done on Friday. One decent up day will get the McClellan Summation Index from the now flat to up. The 30-day moving average of the a/d line is still oversold. Even with GE's massive volume decline on Friday, there wasn't much overall volume in the market. Heck, if you take out GE's volume -- something I don't like to do because it's rationalizing an indicator -- it was the lightest volume day of the year.

However, we're not yet maximum oversold, so it seems to me that a rally in here would simply be the market saving itself. Hope is a lousy market emotion, and it goes hand in hand with saving the market. "

(in www.realmoney.com)