Market technicians like to play with numbers. We look for parallels, similar chart patterns, anything that allows us to objectively compare the present with the past in order to make intelligent predictions.

In reviewing the Autumn rally, I was struck by the many of the similarities -- and a few key differences -- with the move in the Spring.

In many ways, the September 2001 rally is remarkably similar (on a percentage basis) to the April 2001 move. Measured from trough to peak, the Nasdaq ran from 1619 to 2328 -- a 44% gain. The Dow moved from 9106 to 11,350, a low to high increase of 25%. Those numbers parallel the recent bottom to top gains of 49% for the Nasdaq, and 26% for the Dow.

The DJ Industrials, Nasdaq Comp, Nasdaq 100, and S&P500 have run almost in lockstep, exceededing the prior rally by a tight 6-12% range. That's an astonishing correlation, most likely caused by a handful of large cap firms overrepresented in most of the indexes. Chalk it up to market cap weighting.

Also worth noting: The Dow Utilities have significantly underperformed recently. So far, they've made gains that are only 55% of the prior move. This suggests investors are less defensive -- more complacent, perhaps? -- in this rally than the last.

The Dow Transports are another aberration, gaining a huge 40% this go round, versus the prior move of only 16.7%. Decreasing oil prices are only part of the reason for this 240+% comparable. The airline stocks were utterly demolished after September 11th; They had plenty of room to snap back -- and did so with a vengeance.

Parallel Rallies ?

Index	April - May Rally	% Gain	September - December Rally	% Gain	Correlation
Dow Jones Industrials	9106 - 11,350	24.6%	8062 - 10,184	26.3%	106.9%
Nasdaq Comp	1619.6 - 2328.1	43.7%	1387.1 - 2065.7	48.9%	111.8%
S&P 500	1081 - 1315.9	21.7%	944.8 - 1173.6	24.2%	111.5%
Nasdaq 100	1348.5 - 2070.6	53.6%	1089.0 - 1734.6	59.2%	110.4%
NYSE Comp	550.6 - 664.2	20.6%	494.6 - 595.0	20.3%	98.5%
Russell 2000	419.7 - 519.9	23.8%	373.6 - 495.5	32.6%	136.9%
Dow Transports	2578.9 - 3010.2	16.7%	1942 - 2727.5	40.4%	241.9%
Dow Utilities	341.4 - 400.7	17.4%	270.2 - 296.2	9.6%	55.2%

The relative performance of the broader large cap universe of the NYSE stocks versus the the smaller caps represented in the Russell 2000 is also notable. The present move in the NYSE -- just 20% -- is identical to previous gains. Russell 2000 stocks, on the other hand, are up significantly more than the last time. The Russell gained 32.6% versus 23.8% -- making this rally a hefty 136.9% of the prior run.

These two indexes are broad enough that a handful of large stocks do not have the same disproportionate impact of as in the other indexes (mentioned above). This suggests more money is flowing into the smaller and mid cap stocks, rather than the old favorite large caps -- again, not surprising given the valuation issues of the big caps.

Significant technical differences -- visible on the charts, not shown in the table below -- also exist between the two rallies. The two most important: piercing the 200 day moving average to the upside, and breaking recent downtrends by the major indexes.

Lastly, money flow is in the opposite direction in 2002 -- out of money market accounts and into equity markets, rather than than last years rotation into cash.

These three factors make it much less likely that this is a bear market rally -- which is what the April move turned out to be.

--Barry Ritholtz
January 4, 2002

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