Another 35% Dip On The Horizon?

05/23/00 09:41:39 AM

by Jason K. Hutson

Watch out below! Markets took a dive early on Monday, May 22, 2000 following a week of selling due to interest rate woes created by the Federal Reserve Bank. Hold on tight- this could be a bumpy ride.

Security: NASDAQ
Position: Hold

Most major indices were on the decline in a large fashion early in the week. In the last few days several popular stocks have fallen below major support lines. Microsoft Corporation (MSFT) dipped below 65, Cisco Systems (CSCO) fell below 56, Dell Computer (DELL) trickled down under 47, and General Electric (GE) began to stumble below 50.

A large percentage of stocks are at the bottom, or slightly below the bottom, of their three to four month trading ranges. With the prices so low, you may think that now may be a good time to purchase your ideal stock, and place a tight stop below the May 19, 2000 support levels for a short-term trade.

Here is the daily data for the Nasdaq index. The green line looks to be the current support. If that support does not hold, look for the red line to become the new support.

Graphic provided by: CQG.

All signs, however, point downward: low volume, lack of interest, loss of support levels, bad interest rate news, summer months ahead, and no real direction. And, if truth be told, the trend started back in March, and it is DOWN.

Keep an eye on your investments and look for ways to profit from the market. Try using some different strategies to enter into your positions without tying up all your capital in a downtrending market. Do not try and pick the bottom- no one knows how low it can go. But if you believe prices are heading back up in the fall, you could place calls and buy option contracts on your favorite stocks, and exercise those options in a couple of months. If you already own shares of a company that you are emotionally attached to, consider buying a put for insurance against further price declines.

Prices always fall faster than than they rise, so another 35% drop is not out of the question. The Nasdaq may have started on it's second large dip heading below 3000. Having mostly cash, a few options contracts, and a high money market yield doesn't sound bad when you are considering the risks versus the rewards.

Jason K. Hutson

Traders.com Staff Writer. Enjoys trendlines, support and resistance, moving averages, RSI, MACD, ADX, Bollinger bands, parabolic SAR, chart formations, and volume analysis.

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