When is
the Proper Time
to Worry About the Market?
By Joseph E. Granville, editor, The Granville Market Letter
When reviewing the previous market 4-year cycle, I discovered that there are ten specific times when one should definitely worry about the market:
(1) When the market is declining on
good news
When
the market turns a deaf ear on good news something is obviously
wrong. The latest decline from May 21st to June 27th was all
on bad news, so this warning does not apply to the current market.
(2) When the short interest has been
declining for three months
The
monthly short interest has just made a new record high. Therefore
no warning from this indicator is possible any earlier than September.
(3) When the advance/decline line has
been falling for 3-5 months
Here
we are looking at the strongest of all of the technical indicators.
The latest high took place on June 5th. No warnings from this
indicator are possible prior to September 5th.
(4) When General Motors is going down
General
Motors is currently making new highs. According to the GM 4-month
rule, no warning will be forthcoming from this indicator any
earlier than October 21.
(5) When the media announcers are telling
you how great everything looks
Everybody
knows how the media announcers have been badmouthing everything,
the usual negative spin. The very opposite of early 2000. For
example, last year on March 10, 2000 when I called the very day
of the top in the Nasdaq Composite at 5048, Tom Costello on CNBC
said the Nasdaq is now headed for 6000 and Jack Beruggian the
same morning said we can now throw away all the textbooks on
technical analysis. On that day there were zillions of charts
showing extreme parabolic advances but no warnings forthcoming
from those on CNBC claiming to know how to read a chart. Every
day back then the media announcers were telling you how great
everything looked. Don't you wish you had your TV turned back
then as I suggested?
(6) When there is no wall of worry upon
which to climb
Last
year the economists and the media couldn't wait to tell us how
great the economy was and how much money everyone was making
in the stock market, but the very lack of bad news WAS bad news.
Now we have worries out the kazoo and all the bad news now is
good news, something for the market to climb on.
(7) When there is a retest of the lows
A
technically genuine advance off of the lows seldom requires a
retest of the lows. If there is one it is more probably a signal
that new lows lie ahead. Coming off the recent bottom at 10394
on June 26th should not see another test of that level.
(8) When an initial upswing is met with
total belief
All
technically genuine upswings are always met with disbelief.
(9) When the number of new stock lows
expands beyond a key previous number
The
one is an obvious warning that something is wrong, making lower
highs and lows. Today we have no concerns from that source.
(10) When there is widespread evidence
of stocks making parabolic advances
This
was the key warning in early 2000 that should have alerted everyone
of the major market top at hand. This mostly applied to the Nasdaq
stocks rather than the New York Stock Exchange issues. Warnings
to the public by the media were conspicuously absent.
All
of the ten points above apply when the market is seen to be headed
down. But instead, not one of them apply in the current market.
This offers incredibly good odds that this market is headed sharply
higher over the next several months.
Editor's Note: Joseph
E. Granville is editor of The Granville Market Letter,
in continuous publication since 1963, P.O. Drawer 413006, Kansas
City, MO 64141, 1 year, 46 issues, $250.
