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Just a bounce or a new uptrend?

(April 10, 2002)

The Dow had a massive rally today-tallying over 173 points. The Dow now stands at 10,381.73.

To make the story short, let's take a look at the following chart:

Current and Key Support Level of the Dow Jones Industrials (September 2001 to Present)

A picture says a thousand words. The Dow Industrials has been testing its uptrend line (which had been in place since September 21, 2001). For the last few days, and considering the oversold condition of the market in general, the Dow was ready for a massive ramp. Early on, the P/C ratios were high, but towards the end of the day, it trended down until it closed at 0.8.

Meanwhile, stocks like NT, LU, Q, and WCOM were their usual leaking selves - on their trip to zero by the end of the year? Another telecom stock, AT&T (T) announced a 1-for-5 reverse split. This just about sums up a typical day in the telecom sector. While numerous analysts are now claiming these stock prices have priced in the worst-case scenario, we still do not believe it is time to buy yet. Worst-case scenario? Try bankruptcy.

The fact that the Dow Industrials bounced off its short term support levels is very encouraging for the bulls (and this is on a high P/C ratio). The obvious case right now is to assume a continuation of the uptrend. Unless this is a new bull (which we highly doubt), however, the Dow Industrials has to break below its uptrend line at some point in time (by definition). When that will happen is anyone's guess but unless the Dow makes a higher high from here, we believe that time will be soon.

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