However, in light of the recent strength, and the Federal Reserve's aggressive easing stance, the bottoming process may not take as long this time, and in fact, could be mostly complete. In 1999 and 2000, the Fed was trying to put a ceiling on stock prices to cool the economy, and in 2001, the latest interest rate action is an indication that the Fed is attempting to put a floor under stock prices to help turn the economy around. The indexes' bottoming formations have so far been short term, but some of the major stocks in these indexes have been basing for months. The Philadelphia Semiconductor Index has been moving sideways for four and a half months. So, even though the Nasdaq's base has been short, many of its technology components have been going through extended basing action normally witnessed at an intermediate-term low.
Many stocks are well below their recent highs, and so have a lot of supply to work through.
This dichotomy in chart patterns among the techs and the huge amount of overhanging supply could prevent any sustained advance in the next couple of months. The McGraw-Hill Companies Inc. All rights reserved.