A financial blog on investing in stocks, commodities and the gold bull market.
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.
The SMT premium service is a daily market update emailed to subscribers. To subscribe to the SMT choose one of the SUBSCRIPTION links below. Updates occasionally get caught by spam filters. This can usually be cured by adding my email address email@example.com to your address book. I suggest doing this prior to subscribing to avoid any difficulties. Signing up for a free Gmail account is another option.
If you don't have a paypal account you can subscribe with a credit card by clicking on one of the BUY NOW buttons.
Click here to sample past editions of the SMT. Free reports are noted.
Enjoy Good Returns
CFDs or spread betting enable you to
trade on margins so as to maximize your trading capital. You can profit from rising
or falling markets and there is no minimum deal size. Check it out now.
T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently. T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken. T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places. T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side. T7. Watch for volume climax, especially after a long move. T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps. T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
General Trading rules
G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases. G3. Limit losses and ride profits, irrespective of all other rules. G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal. G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation. G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100% G8. In taking a position, price orders are allowable. In closing a position, use market orders." G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag. G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.