Foreword

On 2/17, I published the original article from which this piece is excerpted. The following excerpted material was published on 2/20, with revisions through 2/19. While it may be a few days stale in chronology, the subject matter reamins highly germane, considering what the stock market continues to do -- or not do.

Introduction

The stock market has made some attempts in recent months at putting in an important top -- is it about to succeed?

Last week, on Tuesday the 17th, I published an article looking not only at the stock question, but also at some of the other markets within the current setting. Following is an excerpt of the stock-market portion. The text is pretty much unchanged. Where revisions were appropriate, you will find them so noted in parentheses (only updated through last Thursday, 2/19.) A summary appears at the conclusion.

* The stock market has taken some stabs in recent months -- all unsuccessful -- at making an important top. The confluence of some technical factors now puts another attempt in play. We should know reasonably soon -- within a week or so, I'd say -- whether the current situation will have a different outcome.

* Five of the seven measures in my stock-market tracking group made 52-week highs last week (all on Wednesday, 2/11), helped a good deal by Alan Greenspan's congressional testimony on Wednesday and Thursday.

(NOTE: In alphabetical order, the seven measures comprising my tracking group are the: [1] Dow Jones Industrial Average, [2] NASDAQ 100, [3] NYSE Composite, [4] Russell 2000, [5] Standard & Poor's 500, [6] Value Line [geometric] and [7] Wilshire 5000.)

* The two measures in the tracking group not making new highs last week (week ended 2/13) were the NASDAQ 100 and the Russell 2000. Both measures have been major momentum leaders in the rally off the March 2003 lows. Could it be they are now leading a market rollover?

* As of last Friday's close (2/13), all but the NYSE Composite stood below not only their closing highs of 2/11, but also below the prior set of closing highs, set on 1/26. It certainly is too early to conclude that Wednesday (2/11) was part of a 'failing-rally' pattern, but it is now on the radar screen as something to think about. Moreover, market levels have now emerged against which to measure such a possibility, as is broken out in the table below.

(NOTE: From 2/11 through Thursday, 2/19, only the NYSE Composite managed to make a new closing high, albeit a marginal one. Its close of 6,770 on Tuesday (2/17) eclipsed the 2/11 close by 19 points or 0.3%.)

* On prima facie examination, the bullish camp should be in control of things this week (week ended 2/20). There's an expiration on the immediate horizon, and these events, by design, are meant to 'help' the equity market to higher levels. Moreover, there is now a whiff of M&A mania returning to the marketplace, with the folks appearing regularly on CNBC and other similar venues pointing to the phenomenon as just another indication of why higher stock prices are a given.

Suppose, however, against this short-term bullish backdrop the market does not cooperate? This surely would suggest the possibility that something on the margin might be in a state of change. In turn, this is what makes this week's performance measured against last week's levels of genuine importance.

* As further indication of the 'nothing-can-go-wrong' mentality currently prevailing, major sentiment indicators remain exceptionally bullish, despite all the talk about that old 'wall of worry.' Markets should always be assessed in terms of what investors are actually doing, not what strategists are saying. Besides, beyond the run of the mill lip service, there aren't many strategists expressing much concern -- about anything!

* Speaking earlier of technical forces, most of the ones I keep close track of do not lack for a solidly overbought condition. Thus, a stiff correction commencing at any moment would not be out of character with this consideration. And something right now just approximating a pullback to 200-day moving averages -- an event increasingly overdue -- would be fairly 'stiff.'

Update and Summary

Most of the influence from this week's expiration probably has already washed through the market, although a four-day trading week may have rearranged normal patterns a bit.

Coming into today's session, the expiration has failed to provide the firepower to propel almost all the bellwether measures to new highs, not even marginal ones. Moreover, this has been against a backdrop of continuing good economic news and earnings reports. If this is the week's final outcome, it will represent at least a modicum of disappointment to the bullish quarter, which, of course, currently constitutes the vast majority of people.

Yesterday's reversal (2/19) certainly had to be disappointing to bulls. At respective intraday highs, the DJIA, S&P 500 and NASDAQ 100 were 0.9%, 1.0% and 2.6% above Wednesday closes, only to finish the day in the red, virtually on their lows at that. While NYSE volume was no barnburner at a little under 1.5 billion shares, decent positive breadth turned into something far uglier at the close. On the day, there were well over 2,000 declines, and up volume came in at a mere 36% of total volume.

Marginal events are always very difficult to detect, but they are generally developments of major import. I certainly define a failing-rally top as a marginal event, and while it remains too early to conclude the equity market is making one, the ingredients do remain in place.