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Chapter 9. A Wyckoff/Lowry Analysis of t... > The 2000–2001 Market Top According t...

The 2000–2001 Market Top According to the S&P 500

It’s springtime 1999, and all seems right in the stock market. Tech stocks and, in particular, just about anything associated with the Internet are making overnight millionaires. Analysts are projecting the sky’s the limit for earnings, the economy is strong, and grandmothers have turned into day-traders to make a little extra cash and maybe strike it rich. But over the summer, observant investors notice something troubling. The rally in the S&P 500 stalls in mid-July, and on the following pullback into mid-October, something unusual happens. NYSE volume shows a distinct rise as the pullback proceeds. At the same time, the Selling Pressure Index begins to rise, in the process breaking a downtrend dating to October 1998 and suggesting sellers are becoming more active (Figure 9.1). These observant investors are likely already aware of the, by now, protracted decline in the NYSE Advance–Decline Line, warning of a narrowing rally. The lack of breadth behind the rally is also indicated by a drop in the percent of NYSE stocks trading above their 30-week moving average (Figure 9.2).

Figure 9.1. S&P 500; buying power and selling pressure

Charts created with Metastock, a Thomson Reuters product.



  

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