Tuesday, December 23, 2008

More point and figure charts

Yesterday I looked at the energy markets. Today I'm going to look at the general market indexes. Unfortunately the picture isn't any prettier here. Across the board we see double bottom breakdowns and bearish triangle breakdowns.

Also notice the Dow has closed back below the 20 DMA. Institutions watch this level. If this level is lost big money is probably going to be hesitant to buy.

The magnitude of the fall decline suggested that this was probably our single best chance for a big bear market rally. As of yesterday it's starting to slip away.

If all we can manage is a weak 1 month rally after the recent crash then this is indeed a very weak market.

It's been said that dumb money lost in the crash of 29 but the smart money lost from 1930-32. I see a lot of analysts calling for the bottom already. This is exactly how the market took everyone's money in 30-32. Investors tried to pick the bottom way too early. I really don't expect a bottom before summer or fall of 2010.

I'll point out that bear markets don't typically last only one year. The odds of this one now being done are slim.

Actually I suspect most individuals have not sold and are not willing to sell yet. It's the same old story that plays out in every bear market. Investors get caught with losses, they can't accept that they are going to take a loss and they hold until the losses become unbearable. Once that level is reached everyone sells and we have a bottom. We saw this play out in the 2000-02 bear market. We are seeing it still in the housing market.

It takes about 2 to 2 1/2 years before investors are "willing" to give up. That's why bear markets tend to last longer than a year. If the market rolls over here and breaks through 850 it will be a very bearish sign that we could already be seeing the next leg down. I doubt that anyone is ready for another leg down after weathering the recent crash.