june

BUY signal was yesterday. Will be a few days or more before a SELL signal. The S&P500 closed Down at 989 and the 5DMA (note 1) of the OBV (note 2) rose from -359 (million shares) to -97. We did get an upturn in the 200 day moving average (S&P500)(see 6/4 column). Now we need the S&P500 to close above about 1104. for declaration of a NEW BULL MARKET!!!

Dear Reader: Well we have our long-awaited fourth BUY signal. The S&P500 closed up at 991 and the 5DMA (note 1) of the OBV (note 2) rose from -606 (million shares) to -359. As I have said before, we are now going to test the new intermediate term rule which says when we get fourth BUY signal in a row (without any intervening SELL signals), this is said to be “the BUY point of the year”. Only time (a couple months, say) will tell if this rule is correct. Fourth BUY signals are so rare that I believe this rule has possibilities.

Also I have two close friends who tell me they have had it with the market and want out. This (admittedly anecdotal) evidence that the small investors (who are said to always be wrong) want out is possibly another signal of a solid market bottom. Of course both S&P500 and NASDAQ tested their 9/21/01 bottoms yesterday and did not break through. We need about two weeks yet to make sure they will not break down in the near future. Both make lovely double bottoms on their charts.

The VIX.X was about 30.20, as expected backing off its high yesterday; VXN.X was about 63.13, likewise less than yesterday's high, indicating some kind of bottom yesterday (we hope is was the bottom for the year!). See 6/21/02 column for discussion of these indicators.

Dear Reader: I tell you, I have owned MCI/WorldCom stock and am glad to be an EX-stockholder, but SO WHAT if an almost-bankrupt long distance provider is just that much closer to bankruptcy because they footsied their accounting? (By the way, I don’t KNOW that they are going bankrupt.) The opening today makes me feel even more like this next BUY signal will be the BUY of the year! They say it is always darkest just before the dawn.

The market (S&P500) closed down modestly at 973.5, and makes me think we could have a BUY signal soon, and this could turn out to be the BUY point of the year! The NASDAQ closed up slightly at 1429.3, but we do not get signals from the NASDAQ. The OBV (note 2) was down again, making the 5DMA (note 1) even more negative, dropping from -587 to -606 (million shares), a very over-sold value. The VIX.X closed about 32.33, about the same as 6/21/02, and the VXN.N closed about 64.14, another new high since last year (see 6/21 column for discussion of these indicators).

Dear Reader: We hoped for some follow-through today. But, alas, it looks like a further test for the S&P500 of its 9-21-01 closing low of 965.8. We had a 105 (million share) OBV (note 2) subtracting from our 5DMA (note 1) today; that represents a small negative bias to the possibility of a BUY signal. That (when it occurs) will be the fourth BUY in a row (without any intervening SELL signals), but if you are following our scale-in Buy procedure (buy 50% on 1st signal, 25% more on 2nd, 25% on 3rd), then you have no funds left to buy anyway. The S&P500 and the NASDAQ violated their lows set just Friday, with NASDAQ closing at 1424, very close to its 9-21-01 close of 1423.2. S&P500 closed at 976, just 10 points away from its 9-21 close of 965.8. Today we had further erosion in the 5DMA from -424 to -588. But tomorrow and for four additional(!) days we will have a positive bias for a BUY signal in the 5DMA.

Today the VXN.N was at 59.88, a new high since 11/2/01 (when it was 61.13). The VIX.X was at 31.47, not a new high for this run...see 6/21/02 column for discussion of these indicators.

I see a potential new rule in the making here (you get to see “science” being done in real time!). Since fourth BUY signals are so rare, it is possible that their occurrence will coincide with the long term BUY that so many people seek. These are people who do not wish to trade weekly, and who use our BULL/BEAR signals (see 6/4/02 column) as their only market timer. The fourth BUY signal might also be called “the BUY of the year” signal. Of course, so far, this is only a working hypothesis. It will either be proven correct or not. If correct, it becomes a rule (until proven false), otherwise we drop it from consideration. Exciting, yes?

This slow day is a good opportunity to comment on short sales (definition below), which in retrospect would have been a good idea a few weeks ago. If short sales are too risky for you, that’s OK, just ignore the rest of this column today.

Yes, we have short sale rules for a BEAR market. Our last SELL signal was 5-24-02. You would have been allowed to sell short at that time because the market was “short clean”...this is the second of our clean/dirty rules (see About section for another instance of a dirty/clean rule).

The meaning of this is that the SELL signal previous to THAT (on 5-20-02) did not result in a “busted trade”. IF on 5-20-02 we had sold short, and BEFORE THE NEXT BUY signal (where we would cover our short), the S&P500 had closed above the high before (which was Friday 5-17-02)...that point is called the “bogey”, we would have had to cover the short, since we don’t carry shorts into a loss position (based on the market close). That would be called a “busted trade”. And the market would, as a consequence, have become “short dirty”, meaning we can’t make any further short sales until the market becomes “short clean”.

That would occur when the next SELL signal was not followed by the S&P500 going above its then bogey. The bogey is always the most recent high after which a SELL signal occurs, or the most recent low after which a BUY signal occurs.

Shorts are covered on the next BUY signal. So if we had sold short on 5-24-02, we would have covered the short on 6-5-02, for a very nice profit. We do not scale-in sales with less than 100% (although we typically would short no more than 50% of available funds, just for risk comfort reasons), expecting further short sale opportunities, as we do for long purchases. You may short 0% to 100% of your available funds depending on your risk-tolerance. Short selling is VERY risky.

Why, you may ask, do we carry longs into a loss position, but not shorts. The short answer is “experience”. Years ago we checked the rule of dumping longs every time the long bogey was violated, which has occurred several times over the last few weeks. Experience shows the market will come back and redeem our longs (and we avoid a frenzy of buying and selling every couple days). This does NOT mean we will make money on every BUY signal. It means that over a period of years, this is the best rule to use. Carrying shorts into a loss position, on the other hand, can be very loss-making, particularly near market lows, as those prices may never be seen again.

If you need a definition of SHORT SELLING, it is borrowing stock from a broker and then selling it; you are said to be short the stock, since you owe stock to the broker you borrowed it from. Then, presuming the stock price falls, you buy the stock you previously sold, thereby evening out or “closing” the trade. Since you sold the stock for more than you paid, you have a profit. If the price rises above what you sold it for, and you buy it back then, you will have a loss. This may sound illegal to some, but I assure you it is a routine procedure for stock traders. It is like a farmer selling his crop for cash before he plants it. He is short so many bushels. When the crop comes in, he delivers the corn to satisfy the “debt”. TOP

Dear Reader: This was a special day. A bottom reversal, in chartists’ lingo. The S&P500 made a new

low for this eight month period since Sept, 01, then rallied for a positive close. The NASDAQ also fell below (1410 today) the Sept 01 bottom close (1423.2) and rallied.

The volume numbers are over-sold, but today the up volume did not even exceed the down volume, so we had a -130 (million) volume day. This did not generate a BUY signal, as much as we might have expected one. The 5DMA (note 1) decreased from -206 to -424., in very over-sold territory.

The VIX.X today closed about 29.87, the VXN.X at 58.65 (see 6-21 column for the significance of this), both down on the day, lending credence to our estimate on 6/21 that a significant bottom may have been formed.

For us to know the bottoms of last Friday were genuine, we need two weeks period when these bottoms are not violated.

Dear Reader: This being options expiration day, the strong market movement is not surprising. We got neither a BUY nor SELL signal today. Today’s close (S&P500) was 997; it decisively broke the 6/14 bottom of 1007. It looks like the market will be testing the bottom it made on 9/21/01. If that test is successful (meaning the S&P500 average on 9/21/01 of 965.8 is not significantly broken), then we should see the beginning of a BULL market set-up (see column 6/4 below). The "down channel" line in S&P500 average mentioned for the last few days should act as support at about 960-970, while the closing S&P average defining the Sept '01 bottom was at 965.8 is in the same range.

The 5DMA (see note 1 below) of the OBV (see note 2) declined from -115 (million shares) to -206 for today. Now that does not constitute a SELL signal since the 5DMA never got over +20 since the last BUY signal on 6/17.

I still think the numbers are going to show declaration of a BULL market soon after 6/28/02, based on a turn up in the 40 week moving average of S&P500, which had a bottom of 965 on 9/21/01. After 6/28, whenever S&P500 closes above about 1105, a BULL market definition will be fulfilled (see column 6/4).

The VIX.X (the Chicago Board Options Exchange volatility index is a measure of the premium paid for put and call options on the CBOE) hit a high today (32.50) that I have not seen since 11/2/2001 (32.78). This indicator is a good candidate for a component of an intermediate term market timing system, which I have mentioned here before, as the most difficult to develop, but possibly most valuable type of market timing system. The number being high means people are paying higher premiums than usual for PUT options (thinking the market will go down). The more people think something, the more likely it is to be wrong, is a common market aphorism. This indicator is fairly reliable, and I would expect a significant rally within a day or two. The VXN.X (“vixen”) (CBOE NASDAQ market volatility index) closed at 57.93. It has not been this high since 11/15/01 (58.17). This indicator has similar behavior to the VIX.X, but is not as spot-on as a timer (calling the exact bottom). (Neither one is guaranteed as an exact indicator.)

Also, tomorrow is options expiration day, when markets may be expected to be more volatile than usual (can’t predict whether they will be up or down, though).

Dear Reader: I’ll tell you, if you didn’t already know, this has been a bloody stretch of a couple weeks. The market is way over-sold and due for a rally. We got neither a BUY nor SELL signal today.

The 5DMA (see note 1 below) of the OBV (see note 2) declined from -80 (million shares) to -113 for today. Now that does not constitute a SELL signal since the 5DMA never got over +20 since the last BUY signal on 6/17.

It looks like the market is testing the bottom it made on 6/14. Today’s close (S&P500) was 1006.3). If that test is successful (meaning the S&P500 average on 6/14 of 1007.3 is not significantly broken-one point is not significant in the Field system), then we should see the beginning of a BULL market set-up (see column 6/4 below). If ~1007 does not hold, then the "down channel" line in S&P500 average mentioned yesterday could act as support at about 960-970, while the closing S&P average defining the Sept '01 bottom was at 965.8, which is in the same range.

Also, tomorrow is options expiration day, when markets may be expected to be more volatile than usual (can’t predict whether they will be up or down, though).

The 5DMA (see note 1 below) of the OBV (see note 2) declined from -10 (million shares) to -80 for today. Now that does not constitute a SELL signal since the 5DMA never got over +20 since the last BUY signal on 6/17.

It looks like the market is going to test the bottom it made on 6/14. If that test is successful (meaning the S&P500 average on 6/14 of 1007 is not broken), then we should see the beginning of a BULL market set-up (see column 6/4 below).

If 1007 does not hold, then the "down channel" line in S&P500 average mentioned yesterday could act as support at about 960-970, while the closing S&P average defining the Sept '01 bottom was at 965.8.

The 5DMA (see note 1 below) of the OBV (see note 2) advanced from -167 (million shares) to -10 for today, so that takes us closer to the eventual SELL signal, which will occur after the 5DMA goes over +20 (approx). What I would expect is, a rally lasting a few days more, hopefully longer, then a SELL signal.

The fact that the NASDAQ closed down is not important; the S&P500 average gives us the signals. The Dow is even less important than the NASDAQ (for our purposes). We have for the past year been studying whether the NASDAQ should give the signals for the QQQ (for instance) and the S&P500 give the signals for SPY. So far this has not proved true. The S&P500 signals give the correct signals for all the index averages.

The Field System generates BUY and SELL signals, and BULL/BEAR market state, nothing more. We are in BEAR state (but see 6/4 column), and the last BUY signal was yesterday (q.v.).

There is a "down channel" line in S&P500 average at about 1075 (yesterday's S&P500 close was 1036), so that should provide some resistance, although we do not use such things as BUY or SELL indicators in the Field System.

The bottom in S&P500 of 6/14 at 1007 may be tested if the market goes down from here.

The corresponding down channel resistance line in the NASDAQ composite is at about 1650; yesterday's close was at 1553. Another 100 points would be a nice NASDAQ rally! The chart can give an extra feeling of warmth that the signal is good, if it coincides with the regular signal.

Dear Reader: Obviously, today we had a terrific rally. The 5DMA(see 1 below) of the OBV (see 2 below) rose from -335 (million shares) to -168, for a positive BUY half-signal. The S&P500 average also rose from 1007 to 1036, for completion of the BUY signal. This is the third BUY signal in a row (without an intervening SELL signal)-the others were 6/5 and 6/10.

You thus may go to 100% invested (I would put 50% of available funds in QQQ and half in SPY). With the market this certain to generate a BUY signal today (looking at 30 min before the close), you could do your buying today in the last half-hour.

Dear Reader: On 6/13 (see column below) we got a signal called “arm”, wherein the 5DMA (note 1) of the OBV (note 2) turned up, but the S&P500 average did not turn up. On 6/14 the S&P500 did not turn up, so the “fire” did not hit, and the “arm-and-fire” expires. On 6/14 the 5DMA turned down (from -243 to -335 (million shares)), for an even more over-sold reading.

On 6/17 we will have a slight negative bias for the 5DMA, since the 5th day back (which we will be “dropping” from the 5DMA) is a positive 123, so this creates a negative 123, which is not a large negative bias. If the S&P550 closes up on 6/17 and the OBV is greater than 123 then a 3rd BUY signal will be given and you may go to 100% invested.

The averages closing lower on 6/14 also brings us closer to a double bottom as mentioned in 6/10/02 column.

Dear Reader: On 6/13 we get a signal called “Arm”, wherein the 5DMA (see note 1) of the OBV (note 2) turns up (from -369 on 6/12 to -243 on 6/13-these are very over-sold numbers, by the way-the market is over-due for some rally), but the S&P500 average does not turn up. This is the exception to the required simultaneity that I have mentioned before (see 6/10 column). The term comes from the fact that to launch a large missile you don’t just push a button, you first “arm” the missile by turning a key (or whatever), then you “fire” it by pushing a button, or whatever. In other words, it is a two-step process, in this case occurring over a two-day period. If the S&P500 closes up on 6/14, then this will complete the arm-and-fire sequence, and a third BUY signal will be given, and you may go to 100% invested.

Now it is important to know that in the arm-and-fire sequence the 5DMA half-signal must occur FIRST and the S&P500 half-signal must occur SECOND, and NOT the other way around. Also, if the S&P fails to turn up on 6/14, the arm signal will die and does not carry over to the day following. In that case the regular rules apply, meaning simultaneous turn of both half-signals, or a new arm-and-fire may be set up. For instance, if the 5DMA turns up again on 6/14 and the S&P500 does not turn up, a new arm is created for a possible fire on 6/17.

Another possibility is that the 5DMA may turn down on 6/14, while the S&P500 turns up, completing the BUY signal. Even though the 5DMA turns DOWN, still the arm has been set, and only the S&P500 closing up is needed to complete the signal. If the 5DMA turns down on 6/14, ignore it.

The averages closing lower on 6/13 also brings us closer to a double bottom as mentioned in 6/10/02 column.

Dear Reader: On 6/10 we get a second BUY signal. This signal is activated by the simultaneous occurrence of: a) the S&P 500 average closing up on the day (went from 1027.5 on 6/7 to 1030.7 on 6/10), and b) the 5 day moving average (5DMA)(note 1) of the on-balance volume OBV (see note 2), while being below the lower threshold (say, -20), closes up (goes from -439 on 6/7 to -217 on 6/10). Note that no SELL signal came between the two BUY signals on 6/5/02 and 6/10. So this is a second BUY signal. This means we are probably losing money on the stocks bought on the first BUY signal. This is not a worry; you must not sell out until we get a SELL signal. Over a period of years, the occurrence of profitable trades using the Field system is about 65% (see Results_History). In a BEAR market, I suggest on the first BUY signal you invest no more than 50% of your available cash. On the second BUY signal, increase to 75%, and if we get a 3rd BUY signal (very rare) go to 100% invested. Whether these figures include margin is up to the individual.

While charting is not a formal part of the Field system, I do note that the NASDAQ composite is approaching a double bottom (the close on 9/21/01 was 1423.2 and the close on 6/11/02 was 1497.2-this is being written on 6/13). The one year chart of the QQQ (NASDAQ100 tracking stock) looks like a double bottom. If the NASDAQ is able to rally from here and not significantly penetrate the 1423 level, then we have another vote FOR the beginning of a BULL market when the events described in the 6/4/02 Daily (below) occur. The S&P500 was 965.8 on 9/21/01 and 1013.6 on 6/11/02, somewhat distant from a “double bottom”.

Dear Reader: On 6/5 we get a BUY signal. This signal is activated by the simultaneous occurrence of: a) the S&P 500 average closing up on the day (went from 1040.7 on 6/4 to 1049.9 on 6/5), and b) the 5DMA (5 day moving average) (note 1) of the on-balance volume (see note 2 below), while being below the lower threshold (say, -20), closes up (goes from -390 on 6/4 to -272 on 6/5).

Since we are in a BEAR market (see 6/4/02 Daily below), we follow the rule, Invest only 50% of available funds on first BUY signal. On the second BUY signal, increase to 75%, and if we get a 3rd BUY signal (very rare) go to 100% invested. Whether these figures include margin is up to the individual. I don’t usually buy individual stocks. There are so many index related funds available, that the chance of bad news wrecking an individual stock is not worth (to me) the risk. For instance when I get a BUY signal I may buy half (of the money to be spent in that BUY signal) in QQQ (the NASDAQ100 tracking stock) and half in SPY (the S&P500 index stock). Until recently I was also using the Russell 2000 (small cap) index stock (IWM) and the S&P mid-cap index (IJH).

Dear Reader: Welcome to StockMarketScience.com. This is our first day up. If you are a BULL, then you may have only two to four weeks before you see here our official announcement of the new BULL market. This is based on our decades-long observation of the 200 day (both 200 calendar and 200 business) days moving average** of the S&P 500 index, along with the S&P 500 index itself. When the average of the 200 Business days (40 weeks) moving average (200DMA) stops going down and turns UP, AND the S&P 500 index is ABOVE the said 200DMA line, this is the definition of the start of a BULL market. Will you see this in the nightly business news? I doubt it.

This definition has been around at least 40 years, but it is NEVER discussed in the media (as far as I know). You may notice that 36 weeks ago was the market bottom (9/21, Friday S&P 500=965.8). In four weeks any S&P value (Friday close) above that will cause the 200DMA to turn UP. And the S&P 500 itself would also have to be above the 200DMA line calculated at that time. This combination rule I ascertained from the S&P publication “Daily Basis Stock Charts”, wherein they have (had?) a BULL/BEAR market indicator, whose behavior matched that of the aforesaid rule. Dispute on whether the 200 calendar days or 200 business days is the correct indicator has, I believe, been settled by our work (possibly others have independently determined this also). The 200 Calendar day index turned up at the end of March 2002, and the S&P 500 was above the 200DMA line in March. Was that a new BULL market? I don’t think so. Once again (a previous test- in the battle between the 200 Business days and the 200 Calendar days- was a couple years ago--I have to look up exact date), the 200 DMA Business days shows better (we have yet to see if its signal will be correct).

Did you see any announcement of the start of our current BEAR market based on this rule (mirror image of the rule: 200DMA of S&P 500 turns DOWN and S&P 500 is below 200DMA line)? I didn’t. They use the mushy “20%” decline in the Dow or NASDAQ, or whatever. That is easy for the public to understand, but have you seen a statistical analysis to show that EVERY time the DOW (for example) decline 20%, then a BEAR market exists for many months after? Same for the NASDAQ. (Of 32 BEAR markets in the Dow since 1916…by the 20% rule… eight have been for four months or less.)

DISCLAIMER: Past results are no guarantee of future results. StockMarketScience is for information and opinion only, and should not be considered stock or market advice. The user is totally responsible for any actions taken as a result of reading this publication, and StockMarketScience assumes NO liability for any losses suffered by anyone based on anything written here.

TRADEMARKS: Standard & Poor's, S&P, S&P100, and S&P500 are registered trademarks of The McGraw Hill Companies, Inc.

The Dow Jones averages are trademarks of Dow Jones & Co.

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This site written and copyright 2002, 2003 by Richard L. Field, BA, BSME, MSME, PhD. Field holds a doctorate in Mechanical Engineering (Math minor) and worked in the Space program for 20+ years before retirement. He also taught four years at Texas A&M Unniversity.

MAIL: We receive email at rfield55@yahoo.com.

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