Mkts in trading range: Jeffrey Weiss

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 Booms and bursts, tops and turning points - he has seen them all; widely quoted, widely followed in the street is the Chief Technical Analyst for Jesup & Lamont , Jeffrey S Weiss . Jeffrey feels that the price of oil going up or down is not the key for the market, neither is interest rate. The real action is what the market is itself. Saying just because the interest rates are going up or down or oil is going up or down does not necessarily translate into a market that does the same thing, he added.

 

On outlook on the markets, he said, "In this market, we are looking at the maximum number of new weekly lows as a percentage of the total issues traded. The highest or the second highest number was in August 2007. Right now, the markets are basically in a trading range. Other averages have broken their 30-month and the Dow really is in the market. So, in terms of the overall markets, it is a trading range market."

 

Excerpts from CNBC-TV18's exclusive interview with Jeffrey Weiss:

 

Q: Even as a kid you were mesmerized by the green and black tape, weren't you?

 

A: When I was a kid, my father used to take me into the brokerage office. The green letters embossed on the black tape was mesmerizing. I saw those numbers on the tape and then someone say "when those numbers change, you make money or you lose money", I kind of enjoyed that.

 

Q: And you found your calling?

 

A: I started to make money without ever having learnt how to manage the downside.

 

Q: Everyone is a genius in the bull market and you were in a bull market at that time?

 

A: They say that you can confuse brains with the bull market and this went on for a year, and then another year. I had more money, seem to have more friends, I bought good companies, and they became good stocks.

 

Q: In 1974, you ran smack into a bear market, didn't you?

 

A: After making money and making money without ever having learnt how to look at the downside 1973 happened. The Vietnam War ended; there was a major periodical coming out with their banner headline entitled '1,200 on the Dow'. That time, Dow was approximately 1,050, which you basically get by adding up all the closing prices of 30 Dow stocks and dividing by a number.

 

That didn't go to 1,200, or 1,150 but it did in the October-December period of 1974. The following year was called 'Dow under 600' and I learnt that there is no such thing as a market expert except the fact that the market is the expert.

 

Q: In fact the Dow did not cross 1,000 till 1982 a period of almost 16 years?

 

A: 16 years from 1966 to 1982 the market formed a base. If you want to see how big a market could go up or how much a bear market could go down, look at the foundation it is built on the bottom or on the top. Like most people believe, good companies become good stocks. First and foremost company and a stock are not the same thing at the same point in time. I did not have any basic training in the downside part of the investment equation and people really have to search themselves and say emotionally how will they deal with taking low assets.

 

In Wall Street what goes up, comes down but what comes down as people have unfortunately found out, does not always go back up.

 

Q: What does technical analysis mean to you though after 30 years of watching it, what does it tell you?

 

A: Action of the stock market speaks louder than any individual analyst or anyone else because it is the collective voice of everyone in the stock market arena. Ultimately supply, demand and the stock, not the performance of the company decide how well you are going to do. The firm says look your equity is down, put up more money. It is purely technical.

 

So to invest in a company, one has to visit that company, talk to them, see the management. But in the stock market you figure out whether you are in a bull market or a bear market because the majority of stocks are going to go with the trend.

 

Q: What are the tools that you use in technical analysis give us the one-two-three tools that are important for all analysts?

 

A: The three tools would probably be the price action of the stock like bar chart which includes the high and the low. With this market volatility, to try and cut down on some of the whipsawing actions of the stock market are daily closing, weekly closing and monthly closing charts as well. And on those charts much like an illustrator of cartoons, movies, I add in things, add in ingredients much like a chef; moving averages, trend lines, price pattern recognition and then other things like gap analysis.

 

Q: How do you use price, what does a simple statistic of the price of a stock tell you, should you be buying or should you be selling it?

 

A: Only based on price it is hard. But on price I look at things like gaps, where a stock is low one day, when it is above its high the day before and so you have a space there. Of a negative, a downside gaps is seen, where a stock is high for one day and is still below its low from the prior day creating a space that's like an infection. If that gap doesn't get filled in, it could be a problem.

 

Q: There is a saying on Wall Street that 'you don't fight the Fed'. Given what the Fed has done to ease liquidity is it a possible scenario that the Dow makes a new high in '08?

 

A: Anything is possible. The fed was hiking rates for quite some time and the market didn't really fall out of bed. So what I am looking at is not what the Fed is doing. Whatever the Fed has done we are still below the 12-month moving average in the number of indices. You mentioned the Dow. There is also another big average in America, the Standard & Poor's 500 index and the 12-month moving average; it is at a number 1,450 versus where the S&P is now in the low of 1,300 areas. So the market could have a decent rally and still not have broken out on a long-term basis.

 

Q: You were bloodied in 70's in the stock market and something that is almost certainly above its moving average is oil USD 110 per barrel plus or minus a barrel. How does the chart look of oil?

 

A: The chart of oil versus its moving averages on a longer-term basis has been rising. I will be watching the action of one of the oil indexes which looks at the oil stocks because when I grew up in this business I was told to look at the action of the stock. If you look at the oil stock index that I look at which is Amex Oil Index (XOI), the index has not kept pace with the price of oil.

 

So I am really on the sidelines waiting to see if we have something like a negative outside day. We did have a negative outside week several weeks ago in the price of oil. Technically speaking, in general, if something is above the moving averages, the moving averages are rising and they are above trend lines, it would occur until the trend stops. Sometimes we can get quite frothy but the fact that the oil stocks don't seem to be performing as well as the price of oil just gives me a moment of pause.

 

Q: Can the price of oil derail stocks?

 

A: In certain markets anything can happen. Price of oil going up or down to me is not the key for the market, neither is interest rate. The real action is what the market is itself. Saying just because the interest rates are going up or down or oil is going up or down does not necessarily translate into a market that does the same thing. If we were back when oil bottomed between USD 10-11 per barrel, it was the fourth quarter of 1998, the Dow was under 10,000. If someone would have said to you that oil is going from just above the USD 10-11 per barrel to over a USD 100 per barrel and during part of that rise the Fed was going to be hiking interest rates more than a dozen times. They did hike it quite a few times; you would have said the market cannot survive. But so far it has. And conversely lower oil and lower interest rates do not necessarily have to be plus for stocks.

 

We are living in a time where old adages are not following that pattern and a lot of indicators that worked quite well for years have come under scrutiny and have not been as good as they have been in the past. So the number one thing you need to hang your hat on if you can hang it on anything, is look at your indicators, which should include and encompass all these other things - metals, oil and everything else.

 

Q: And above all prices, right?

 

A: To me the price is everything because if I am not mistaken it was Livermore (Jesse Livermore) who said "don't back up your judgment until the price action tells you to move into that direction basically."

 

Q: Let's talk about price action of a different generation and see if we can link that back to what's happened. We've talked about the Dow making a new high. But there's been a subprime problem, a housing problem and Bear Stearns going bust on Wall Street. Does it occur to you as a technical analyst that since history does repeat itself that perhaps we will see 1929 all over again?

 

A: If we are going to see something much worse than we are now, we will see new lows expanding. We have already broken one of the moving averages, the 12-month moving average. One of the things that is great about technical analysis is I don't necessarily have to know how great something is going to get on the way up or to the extent that how much something is going to go down, the key is that if you are on the right side of the trend, just stay there and wait.

 

So, if something is bearish in the market and the stock breaks down you don't need to know whether it is going to go down eight-points or twelve points. But the key is that you don't want to be investing in the stock and you want to have a risk management approach on the downside. The great thing about the technical analysis, is you don't need to gauge the exact extent of what you think is going to happen, the key is to be on the right side and if you don't know then do not be on any side and be on the sidelines.

 

Q: And do you foresee a situation where you will tell investors to be on the sidelines or is it too premature at this point?

 

A: In December, when the S&P 500 closed below its 12-month moving average, we did break some trend lines in the mid 1,400 area. It was time for the market to take a pause and for us to say that the bears have come out of hiding, better and more growling than they have in a while. I was looking at the S&P futures on the downside having some potential support in the 1,250 area where so far they have managed to hold and it is going to be quite a bit of resistance ending just below 1,450 on the S&P. So, we are basically between those boundaries and that's why it's hard to get very excited either way right at this juncture.

 

Q: Lets' talk about two things that are very central to any technical analyst. One is timing and the other stop loss. How do you time this market, timing is notoriously difficult in the stock market?

 

A: It's rough and what's rougher still is that what used to take 6 months now seems to take 2-3 months, what used to take 2 years now seems to take 6-9 months and what used to take a few months now it seems that it could be accomplished in a matter of number of days or few weeks.

 

Time compression means that targets are being reached quicker both on the Northerly and on the Southerly side. But to answer your question what I do is have spreadsheets and still do my work by hand. I do my daily charts and I do my weekly charts. I put them on the computer but I still do them by hand. I still draw all my trend lines by hand because I want to get that feel. If I am an auto mechanic, I don't want to use a robot to do an oil change, I want to get my hands dirty and want to unscrew the oil filter and want to put the cap back on and fill it up with oil, much like John Madden does a football play. He has his Xs and his Os.

 

Q: Let's just talk about bull markets and bear markets. You made a great call in August 2003 when you said the Dow would go up, what are the signs that show that a bull market is starting?

 

A: First the market has to stop going down. So, what I want to look at is the number of weekly new lows as a percentage of total issues traded.

 

Q: Will that shrink?

 

A: In this market, we are looking at the maximum number of new weekly lows as a percentage of the total issues traded. The highest or the second highest number was in August 2007. Momentum lows occur well before price lows, as you have a lower momentum, it doesn't mean that you can have a bit of a price paying.

 

When new weekly lows or new weekly highs get to be a third of the issues traded, it is telling you that its getting too easy for the bears to make money, or too easy for the bulls to make money and I use that as a contrary indicator. What the market's saying about it self through its technical action is more important than what people are saying about it.

 

Q: Is it what they do rather than what they say?

 

A:  It always comes first. In this case, the 12-month moving average of the S&P 500 index of 500 large companies has been a very good indicator in the last 7-8 years of the underlying trends of the market. I also look at price patterns to see a reforming type of a "W" pattern or a saucer pattern as opposed to a top formation.

 

Q: Nasdaq 2000, was that an easy talk to call?

 

A: It didn't necessarily mean it was going to come down so I usually don't use the term. I don't use the term "over bought" or "over sold" because in a big bull market, you want the market to get over bought and stay overbought. In a bear market, it gets oversold to get more oversold. Don't trust any basing efforts as long as those basing efforts are below your trend-lines or moving averages. It's often just a temporary sideways move before another move in the direction of the trend.

 

Q: What is your forecast for the Dow for the year-end?

 

A: Right now, the markets are basically in a trading range. Other averages have broken their 30-month and the Dow really is in the market. So, in terms of the overall markets, it is a trading range market. Within the market if you look at the S&P 500 sectors, there are 100 groups, which comprise the S&P 500 sectors. Just in closing, if you want to look at a stock, first look at the market and then look at the sector. Just like the indices kids come from maybe the indices most generous families, so sometimes the stronger stocks come from the stronger groups, the weaker stocks come from the weakest groups.