Wednesday, January 04, 2006

A New Trading Year Begins

Happy New Year to one and all. My new year's resolution for this blog is to be not quite so dogmatic with my bearish views. After all, my role here is to be as objective as possible - - - not proselytize! So having said that, let's take a look at what the markets are doing.

The story is pretty much the same across all the major markets: for about six weeks, from October 11th through November 29th, the markets were strong. For the whole of December, the markets generally had a stair-step pattern downward. Nothing dramatic, but definitely a series of lower highs and lower lows.

With the first two trading days of the year behind us, the market has shown strength, ostensibly due to some clarity from the Fed that they won't keep cranking interest rates up forever. And January, being the strongest trading month of the year historically, has a lot of favorable bias to it.

Let's look at the three biggest ETFs - DIA, QQQQ, and SPY (respectively, the Dow 30, NASDAQ 100, and the S&P 500 ETFs). I've pointed out the "high water mark" for each of these. Simply stated, the prices must exceed these prior levels for the market to show continued strength. Otherwise, we're just looking at a start-of-the-year anomoly and little else. Here, then, is the DIA.....

The QQQQ.......

And, finally, the SPY (remember, you can click on any image to see a bigger version)....

I'd also like to point out an example of a stock in a nicely-shaped inverted head & shoulders pattern, which is typically seen as bullish. The symbol is ASYT. Below I've drawn the two shoulders and the head, and I've shown the neckline above which the price has already broken. As you can see, the price fell back to touch the neckline and is starting to move upward again. I've marked the target price for this stock - about $7.50 according to traditional measurement techniques.


Frank said...

Just came accross your blog site and find it very interesting.
Was wondering if you follow or believe in Elliottwaves which is predicting a final thrust into (which will be a "truncated High"), or just beyond the highs in all 3 major indices and then a resumption of the MOTHER OF ALL BEAR MARKETS which began in 2000 and continue below the Oct 2003 lows?
Seems to fit with your view....except beware the break above could pull in lot of bulls alongwith short covering and once everybody has bought in THE CRASH comes!!!

Tim Knight said...

Hi Frank,

Yes, by and large I agree with that prediction. I think what we're facing now is whether "the break" actually happens or not. I think unless the market does burst upward, buyers are eventually going to run out of patience. After all, it seems like people have been on "Dow 11,000" watch forever, and it's just not happening.

- Tim

MarketWizWannabe said...

OMG - now Tim's a bull! It must be time to look for shorts if now everyone's on the train!