In your Jan 22 daily newsletter you indicate the possibility of a 50% retracement for all the indices. Yet at market close on the 22nd, the retracements were S&P 500 24%, the Dow/Jones Industrial Average 28%, NASDAQ composite 30% and the SOX a 40% retracement. Given these values doesn't it seem likely that each index will have its own retracement level? It seems unlikely that the SOX will wait for the S&P to catch up! What should an investor look for in the retracements that you believe that are coming? (January 29, 2002)

  First I want to say that I did not see this email until after tonight's summary was written. With that said, it is a very good question. The indexes ARE selling down at different rates, and the S&P has retraced 76 points (65%) of the 50% of the move off the bottom (about 232 points; 50% is 116). It is moving down hard. The 50% retracement is a rule of thumb on tests of prior lows. As noted, the S&P can move down further; it can perform a full test of the prior low as the Dow did back at the end of the 1974 bear market. During that bear the S&P did not fully test the lows. They can do the same thing here, perhaps in a different order: the S&P may head on down further than the other two that may catch bottom at the 50% level. Or maybe the S&P reaches it first and turns and the others never reach that level. What we are watching are some significant support levels right around those 50% retracement levels. Given what we know about retracements, we look for support near those levels and are ready for them to hold for the reason of exiting our downside plays and getting ready for some bounce action up off of those points if we see a big volume reversal.

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