In the interview below, Wolanchuk calls for a "fast and furious" return to NASDAQ 5000. But, that's only the first level. He's calling for a NASDAQ 10,000 on its way "towards 20,000." He forecasts Intel reaching as high as $75/share, Microsoft returning to $112/share, AT&T reaching $60/share, and Procter and Gamble at $118/share.
From the InvestorLinks.com News Desk
By: Peter Santini, January 11, 2001
Wolanchuk uses numerous historical comparisons in describing the current market conditions and helping explain why sentiment is as it is. In explaining why we should anticipate a major rally in the financial markets, he offers various technical measures, such as the VIX Index, the ARMS Index and the Advance/Decline lines. This may be the most important interview you will read this year.
Investors and curiosity seekers may wish to visit Don Wolanchuk's website for additional information about his market timing techniques at www.wolanchuk.com
INVESTORLINKS: How do you currently feel about the condition of the markets?
WOLANCHUK: When it becomes hopeless to everybody, which it appears to be now… In fact a few weeks ago, with the American Association of Individual Investors, you saw 51 percent bears and about 30 percent bulls. That's a flight. And rather amazing because the DOW is basically where it was a year, year and a half ago. NASDAQ the same way. The market's taken a time out with the DOW about 10,000. The same thing happened in 1991 - went side ways, drove everybody crazy. It's taken a great breather. Interestingly, we get all the bluebirds out and you've heard the words "crash" and "bubble" and every other thing from these bears.
INVESTORLINKS: The word "recession" has been mentioned more than a few times recently.
WOLANCHUK: Yes. After the crash of 1987, we had a recession and the market went straight up. Recession, fear of the stock market, everybody moving into money market funds and talk of bear markets is what bottoms are made out of. Proof of that is in the technical picture. While this has been going on, the base 52-week new highs have been steadily climbing for a year now - the stocks making new 52-week highs. Last week, there were over six hundred. The weekly Advance/Decline line just keeps climbing and climbing and climbing. Technically, we've got a fabulous situation in the moving averages of put/call ratios. We've got numbers that we haven't seen in years. We've got an ARMS index in the moving average - the last time that I saw 130. I can't remember seeing a ten day ARMS at 130. Even while the DOW has been going up here, recently, the five-day trend has been staying above eight hundred. That's incredible! The DOW, where is it? It's over 1000 out of the October low. In the mean time, we've got everybody being chased out of the stock market. It's absolutely a fabulous situation.
INVESTORLINKS: Is it fabulous enough that it's time for investors to rush back in?
WOLANCHUK: They're not going to do it no matter what I say. If I tell them to jump in here with both feet, they're not going to listen to me - just like they didn't listen to me after the crash of 1987.
INVESTORLINKS: For those that do listen to you, what should they expect?
WOLANCHUK: Every time that we have this situation, the stocks are served up on silver platter. The interesting thing is the wipeout in a lot of NASDAQ stocks is typical of an industry that attracted a lot of people - the Internet business. A horde of people went in there for fast and easy money. A lot of these companies, of course, are not going to make it and you had the initial shake out. You had all these troubles with financings that turned into death spirals.
INVESTORLINKS: Where do you see the NASDAQ heading?
WOLANCHUK: When the NASDAQ was at 1800, I said it was going to 5000. It's a perfect correction. I haven't seen anything in the wave structure to negate my idea that it's going to head - the potential is that the NASDAQ is going to start flying up past 10,000 towards 20,000.
INVESTORLINKS: The NASDAQ?
WOLANCHUK: Yes, the NASDAQ. "Is anybody, who was on margin and who got wiped out, going to go near the margin department for probably months or years? Of course not."
INVESTORLINKS: From where to where?
WOLANCHUK: Past 5000 and a clean shot through 10,000 on it's way to 20,000.
INVESTORLINKS: You're going on record that the NASDAQ is going to 20,000.
WOLANCHUK: It's going to go beyond that eventually. There's going to be a lot of washouts in between. This is the best washout.
INVESTORLINKS: Do you think we're ever going to see an opportunity like this again?
WOLANCHUK: Just like we never saw an opportunity when it made it's low in 1998. Here we have a situation where everybody got notoriously bullish in the NASDAQ. The problem there was they were right being bullish, but they were wrong in the way that they executed it. That was by buying stock with borrowed funds on margin accounts. It wasn't anything else, but people were forced out of the market because of margin selling. Now look how clean this market is. Is anybody, who was on margin and who got wiped out, going to go near the margin department for probably months or years? Of course not. This market is very clean in that regard. So we don't have to worry about forced margin selling anymore. We don't have to worry too much about poor sentiment. After the crash of 1987 everybody thought, all through the next two years, that it was bear market rally. There's nobody going to be calling this a bull market for long time even though the weekly Advance/Decline line bottomed out a year ago.
INVESTORLINKS: Do you think we're still in a bull market?
WOLANCHUK: Absolutely. If there's nobody left to sell and everybody's bearish…I got the same thing in 1987. I feel a lot better about it now, because I'm in the minority. What's so funny is that the media said that the NASDAQ had its worst year in history. What they don't say is that, a year ago, the NASDAQ is where it is now. For the first six months it was the grandest six months in the history of the NASDAQ. Then, you had the worst six months and you ended up back where you started. That's exactly what the DOW did in 1987. All it did was go back to where it was in 1986 and the whole process started all over again. It is a hump in a chart that is continuing it's up climb. In the meantime, these stop clock bears who yet have to get religion… Can you imagine some of these stop clock bears who have been calling for the end of Western Civilization for the last fourteen years?
INVESTORLINKS: What about the bears?
WOLANCHUK: This market's not going to let them off the hook. Here we are above 10,000 pressing 11,000. If I'd told you 15 years ago, after the crash of the DOW, when everybody hated it, that they would hate it just as much above 10,000 you would have thought I was a nut. Here we are above 10,000 and everybody hates it. We are at a high level consolidation that's been stretching out for a year and a half or so in the DOW and the NASDAQ - a flawless ABC. What we call an ABC irregular flat correction in terms of Elliot where the B-Wave made the high at five thousand. Until proven other wise, anybody who says we're in a bear market - and at the end and we'll never see these highs again for years, which we've heard a lot of… You've got to remember where all this talk came from. It came from the people who missed the entire advance to begin with. They have really no credentials to be making those kinds of statements. In the meantime I never thought that I would be in the minority bullish camp once again with the DOW pressing eleven thousand. It's a rather fabulous situation. All these companies that have taken whacks like Intel (INTC, Chart, Boards), General Motors (GM, Chart, Boards). There's some of these DOW stocks actually are screaming new highs like the banking stocks. What we've had is a rotational exercise, which is typical of a high level consolidation in the primary market. While the secondary and most speculative market, as you know the NASDAQ, has gotten it's comeuppance because of the margin buying.
INVESTORLINKS: Where does that leave us?
WOLANCHUK: Now we've got a cleaned up market where nobody is going to go near the margin desk. We're set up for a resumption of the bull market. In certain sectors the bull markets been intact for quite awhile.
INVESTORLINKS: What about the market's short-term prospects?
WOLANCHUK: Actually, the markets have been rallying while the NASDAQ is re-testing its prior lows. The Wilshire Small Cap on a weekly basis has a great-looking chart pattern as far as I'm concerned. It's declined and held its 150-week moving average. It's a mile out of its hole made in 1998. It's a classic little consolidation. But, if you look at the NASDAQ it's only declined in three waves off the top. If you're an Elliot Wave Analyst and you're bearish, you've got to say to yourself, "If that's only three waves, and that's the second wave pull back, a third wave blast of historic proportion can absolutely be born out of that." Because of that potential, I'm certainly not going to miss it, if that's going to happen. The wave structure of the NASDAQ certainly allows for that. Here we are with a VIX Index (CBOE Market Volatility Index) still above 30 percent. It's been hovering above 30 percent since September. It's taken a stab to 37 percent during that time frame. This is a long period of high VIX readings without any solid detraction in a primary market. This is bullish. A market that looks ugly and doesn't go down is a market that you want to own.
INVESTORLINKS: What are your thoughts on the recovering telecom sector?
WOLANCHUK: There's no doubt about it, but the telecom sector has gotten awfully oversold, even more oversold than the NASDAQ. A lot of these wire houses couldn't stand it so I think they put out a big buy on AT&T (T, Chart, Boards). Here's a stock that technically appears like it's going to go all the way back to $60/share because of the gap situation. When a futures contract, or a stock, declines or advances leaving lots of gaps in the chart, all of those gaps eventually get filled. Intel (INTC, Chart, Boards) in my view is a prime candidate for that. INTC left all these huge gaps all the way down and Intel has got $75/share written all over it because of these gaps. The same thing with Microsoft (MSFT, Chart, Boards). I'm seeing Microsoft going back to$112, $115 or higher. It's the gap rule. The only reason that the NASDAQ declined in the first place was to fill all the gaps it left, when it initially thrust out of the hole over a year ago. There were three large gaps. They went down and filled them all. We had the S&P 500 futures bottom over a week ago at 1288. The next day it opened on a huge gap.
INVESTORLINKS: How soon should we expect these strong moves?
WOLANCHUK: We've been through some speedy moves here. We've had a bull market and a bear market - people going from extraordinarily bullish to extraordinarily bearish, all within a number of months. These things are moving really fast. Look at the volatility we've seen in the last number of weeks. We went through this 1991. While this is going on, sentiment is improving. It's just like 1991 all over again. It went up and down, drove everybody crazy for over a year. Not much has changed.
INVESTORLINKS: Are you pretty much saying that we should expect more volatility.
WOLANCHUK: I think we've had the bulk of it. My only concern is the cycles. We've got a four-year cycle due in 2002.
INVESTORLINKS: What does that mean?
"What everybody is anticipating, in my view, could prove to be something similar to what we saw in 1987: The market going crazy."
WOLANCHUK: That means it's going to be marked by something. Let me give you an example. We had a four-year cycle low due in 1986. Everybody prepared themselves for it in early 1986 as measured by the daily Advance/Decline line. It topped out and started declining, declining, declining as everybody bailed out in anticipation of a four year cycle that was due in 1986. In September 1986, we got some sort of hammering job, but in December of 1986, the daily A/D line was making twelve-month lows while the DOW was virtually at historic highs. That got everybody really bearish. Then, the market exploded to the August 1987 peak. There were all kinds of technical problems there. The 1986 four-year cycle low basically was met in 1987. The next four year cycle low if you count forward four years was 1990. Remember how ugly that was? Then, four years later was 1994. Remember how ugly that was? Four years later was 1998. So here we are, four years later from 1998, we have 2002. Somewhere between here and there, it appears that everybody is preparing for this four-year cycle, by bailing out of the stock market in anticipation of it. What everybody is anticipating, in my view, could prove to be something similar to what we saw in 1987: The market going crazy.
INVESTORLINKS: Can you clarify how the NASDAQ fits into this?
WOLANCHUK: Basically from the 1998 low, the NASDAQ has retraced exactly 75 percent of that entire advance in a clean three-wave fashion, which is exactly what the DOW did in 1987. It went back to the area of the prior consolidation. It was a consolidation in 1999. All through that year was choppy. It went up very slowly. I'm saying that the NASDAQ is set up, until the wave structure says other wise, to go through 5000 like a hot knife through butter - to go through 10,000 and a move towards 20,000.
INVESTORLINKS: Over what period of time? Five years?
WOLANCHUK: No, the percentage. Remember it is based on percentages. If I'm right, the third wave is going to be a lot faster than the move that NASDAQ made from the 1998 low to this past high (March 2000). It should probably take half the time that it took on that last big move. If I'm right, we'll go through 5000 inside this year sometime.
INVESTORLINKS: Inside this year? Are you serious?
WOLANCHUK: It did it before. It went from 1200 to 5000 in a space of a year (and some). We've had a three-wave decline. If indeed that's a second wave pull back. It still counts that way. A third wave is going to be kind of fast and furious. Because of that potential, I'm certainly not going to say it's not going to happen. I'm going to be prepared for it if it does.
INVESTORLINKS: Could you explain how this works?
WOLANCHUK: At the end of a second wave pull back, a second wave pull back is … they've got a lot of things going for them. People have got to be convinced that they will never see the highs again. People have to be convinced that they don't want any part of it. We're seeing a lot of this. After the markets crashed in 1987, one of the prominent bears said that the chance of the DOW getting above 2700 was 10 percent. Here we are above 10,000. By the way, that bear is still bearish. It is very tough being bullish because the market makes it easy to be bearish.
INVESTORLINKS: So which sectors are going to be hot?
WOLANCHUK: The sectors that everybody hates.
INVESTORLINKS: Such as tech stocks?
WOLANCHUK: Take the technology sector - completely sold out as far as I'm concerned. Retail? Everybody loves to hate retail. In the meantime, we see Home Depot (HD, Chart, Boards) has already gone from $35/share to $52/share over the last number of weeks. Intel has got the kind of formations that I'm just drooling over because of all the gaps left open above the market. I'm rather excited about what I see.
INVESTORLINKS: Do you think the markets will struggle this year?
WOLANCHUK: It's going to be a mental struggle. I don't know about the price struggle. I don't think there is going to be a price struggle. I think there is going to be a mental struggle. People are going to struggle with price.
INVESTORLINKS: Do you mean that investors are going to be looking at an up market and won't believe that it could go higher?
WOLANCHUK: They did that in 1987 after the crash. If you got caught and got wiped out, you're not going to go near the stock market. Investors will listen to high profile bearish gurus who will be telling them it's a bear market rally. We had a prime example of that happening after 1987. Now I'm even more bullish because of the recent correction.
INVESTORLINKS: Is there anything that would change your mind?
WOLANCHUK: Yes, if the American Association of Individual Investors got up to 75 percent bulls and we got euphoric all over again. That's going to come.
INVESTORLINKS: How soon?
"There's going to be a lot of people that will start chasing - if I'm right and we've finished up a second wave correction in NASDAQ and it starts to melt up."
WOLANCHUK: At the top of the next third wave blast. There's going to be a lot of people that will start chasing - if I'm right and we've finished up a second wave correction in NASDAQ and it starts to melt up. There are no sellers left because everybody's bailed out of the stock market. People are going to be chasing stocks. Not everybody is just going to stand around and call it a bear market rally forever. When you chase stocks in a sold out market, you see the net results. It goes absolutely hairy. Look at what the NASDAQ did coming out of the 1998 hole. It was so doom and gloom in the 1998 low. It went from 1200 and it doubled in price vertically in a matter of weeks.
INVESTORLINKS: Which stocks should investors consider at this point?
WOLANCHUK: You just spread it around. Qualcomm (QCOM, Chart, Boards), in my view, is a great situation, Some of the blue chips, like SBC Communications (SBC, Chart, Boards). It wouldn't surprise me to see General Motors (GM, Chart, Boards) take off. Disney (DIS, Chart, Boards) is another. Procter and Gamble (PG, Chart, Boards) is another great looking situation. It got whacked and it came back nicely. It's consolidating. There's huge gaps just above the market all the way up to $85/share. It should take out $118/share or $120/share. It's been there before.
INVESTORLINKS: Should we expect optimism over the coming year?
WOLANCHUK: No. I don't want optimism. I want rising prices against the background of pessimism. Something like we saw through 1988 and 1989.
INVESTORLINKS: Is that the bull market climbing the wall of worry?
WOLANCHUK: Of course that's what we want and that's what we're going to get. You know how we're going to get the wall of worry? It goes up slow. It could be fast. There's two ways of leaving the world behind. The market goes up super fast, catches everybody. Or the markets go up slow with lots of correction. Everybody hates it all the way up because of that. It takes nothing to move this DOW two hundred, three, four, five hundred points anymore. When we see the epicenter of Primary Wave Three, there is going to be a thousand-point up day in the DOW. It's coming.
INVESTORLINKS: Could the NASDAQ make a thousand-point gain in one day?
WOLANCHUK: Absolutely. You can't have the epicenter Primary Wave Three of Three to the upside unless it is broad-based. All sectors going up in unison. That is a broad move. The last time we saw a broad move like that was coming out of the 1982 low.
INVESTORLINKS: Any advice to investors who sold short this market or selling it short?
WOLANCHUK: I hope they stay short.
INVESTORLINKS: Thank you very much!
2003 Update Oops....
Posts
