Tuesday, March 14, 2006

Waiting for Godot


Well, the market was quite strong again today. The ETFs SPY (S&P 500) and DIA (Dow 30) hit record highs.

It always seems just when the cup of doom is handed to the bears to drink, it gets snatched away (OK, not sure where that peculiar metaphor came from, but it has a certain ring to it!)

Below is, once again, the QQQQ shown in its head & shoulders formation. The neckline is as plain as day. The price has scurried away from the neckline, and until it breaks it, the head & shoulders is just "in formation" and otherwise meaningless.

One buy recommendation I was going to suggest two days ago (honest!) was Google. The reason is that this stock does a smashing job "obeying" its Fibonacci retracement levels. I've noted them below with red circles.

It had been beat up so badly last week by bad news that it was right up against support. It has since moved smartly upward. I wouldn't be inclined to buy it at this point, since the risk is higher, but it's still intriguing to see the Fibs in action. The light green rectangles, by the way, are simply price gaps which I've highlighted.


PB said...

Speaking of Fib levels, the NYSE composite index has a 38.2% retracement level to 8200.40 from the last bull market high, circa 2000, at level of 7164.55. Not saying anything except that today the index went to 8200.54 before retreating to 8,197.60. So I am licking my chops in thinking that this is a major high for the NYSE Comp. But 2006 so far has been testing my patience so much, that I am actually thinking of becoming a bull! Yeah, I am just as confused as the rest of ya!

Mike Stone said...

The 4yr cycle has been faked out before - 1987 is a perfect example.

You know - I was reading an e-waver talk about the market and his wave counts led him to conclude that 2000-2003 was a fakeout.
Similar to the crash that happened around 1919. The market was down 2-3yrs and then rallied like mad for 8yrs (which led to
the 1929 crash & great depression).

So he thinks the bear begins in 2010. I forgot the guy's name. Stumbled across his book at Borders.

Or - as I keep thinking. The market has to decline with sentiment either very complacent or extremely bullish. Right now the
markets were very oversold and the sentiment was *VERY* bearish.

So perhaps we'll have a very strong rally now. S&P to 1350, that's what I was thinking at the start of the year.


Jean-Fran├žois said...

I agree with Mike. We may see a bull in the offings. But there’s no way one can tell where the market is headed yet. To me, the Nas is fighting a 2330 resistance first hit May, 22 2001 (that’s a heck of lone star candle!) while it's also trading against the roof of a rising trading range corridor which started August 18, 2004. It looks like gathering steam to unleash the bull, but it may fail and turn back down and test the corridor floor.

I see this fight on the macro scene too. Global liquidities never were so abundant, hence the low long yields. But they’re idle. Asian and OPEC countries are piling up dollars and parking them in treasurys. On the other hand the global tech sector is thriving on many new developments, so it’s possible a growth period lies ahead. The big risk is that the USD is under heavy pressure: if it falls, the bond market could crash pulling stocks down along.

So the next move appears to be strong, but in what direction ?


PB said...

Actually, 1986 was the fake-out, and we all know that we paid for it in 1987. The other fake-out was in 1936, but the inter-war period brought us the Great Depression and a fabuolous crash in 1929. I would say the the four-year cycle is still intact and what will surprise many participants is that the market will not necessarily go up after the fed is done. The market is using up all of it's ammunition in getting to the fed stop period and it will run out of steam by the time the fed is actually done. It has happened before, check out the 1960's