Stocks - Buy the Dips or Sell the Rallies?

By: Douglas R. Gillespie | Fri, Mar 26, 2004
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Sometime not too far off, there will likely be a stock rally that will last for a while. I doubt, however, yesterday was its beginning.

Yesterday's rally had the CNBC crowd frothing at the mouth, extolling the advance as the start of something "big." As you would expect, there was congratulatory banter about the wisdom and rewards of having bought the recent dip!

The gains were indeed spiffy -- my tracking group advanced an average 2.1% (median = +1.7%) -- but based on the technical picture I now see unfolding, I don't believe this advance will have much staying power. Based on very rough calculations, here's what I see as the "best case" for the immediate future:

Projected Maximum
Points Price Change
DJIA 10,219   194   10,413   1.9%  
S&P 500 1,109   22   1,131   2.0%  
NAZ Comp. 1,967   43   2,010   2.2%  

I emphasize that as I see the situation right now, the above is best case, and for all I know, "best" may not even be good enough to get entirely through today's session.

Here's what I see setting up for the next few months.  At the moment, this "big-picture" outlook is rough and tentative and will need some tightening up along the way. But here goes:

* New lows (lower than this week's lows), by early to mid April.

* These new lows are then followed by a decent but doomed rally that falls short of taking out the respective highs that were set by the seven components in my tracking group between late January and early March. In other words, I am talking about something that could turn out to look devilishly like a major; "failing rally." For the sake of argument right now, let's say this process runs into May -- perhaps well into May -- before it is complete.

* Then, the stock market segues into what will be a decidedly bad June-July period.

I fully realize that the above template falls far, far outside the current consensus view, which continues to put a lot of faith in the so-called "Presidential election cycle."  I also realize that should the above configuration come to pass, it holds out the strong possibility that the market already has made the highs for this year. Which, in turn, this could surely have an impact on the November election.

Nevertheless, this is how I see the situation at the moment, but be assured I will be carefully monitoring and updating what I have laid out here as the coming weeks unfold.


Douglas R. Gillespie

Author: Douglas R. Gillespie

Douglas R. Gillespie, Sr.
Gillespie Research Associates
165 Sheridan Avenue
HO-HO-KUS, NJ 07423

Doug Gillespie oversees his own financial-market and economic consulting firm, Gillespie Research Associates. For a complimentary sample of Dougs material, e-mail him at

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