Tuesday, April 11, 2006

Medium Term Trendline Broken!

OK, good. In spite of an earlier bounce off the supporting trendline, the Dow lost its footing and broke beneath it. The first step in the two-step process I outlined yesterday has taken place.


It's clear the market is losing steam. We're also exiting the strong November-April season and heading into the weaker May-October season. As earnings season approaches, the opportunity for the long-awaited downdraft may be upon us. The next psychological barrier is to break below 11,000. Next, it needs to break below the 10,922 low set on March 8th. That would bring an end to the series of higher highs and higher lows that has been in place since October 13 of last year.

5 comments:

Mag said...

Tim

Just a few days ago when you gave up and went bullish I heard the bell ring...You were quick to recover.

All the best

costas1966 said...

Head fakes in both the Nasdaq and the S&P500 were completed today on increaisng volume. It is too early, but I stick my neck out and call the top in the market. I think this is the beginning of the end for the bull market that started in Octomber 2002. Today's market drop was explained to Iran's announcement that they have managed to enrich uranium. I will have to disagree with that. I think the market was acting toppy for the past month. The a/d line peaked 2 years ago as less and less stock were leading this market marginally higher. Today's news where just the icing on the cake. The cake had already been baked by the rate hikes from the Fed, the high energy prices, the overdebted low saving consumer, the deflation of the housing bubble, the popping of the bond bubble. All these reasons I mentioned will start taking effect in this market. Also the sell in May and go away mentality will start taking it's toll on the markets as well. I think we will see the market declining slowly and reluctantly in the beginning with a pause in the summer and then we will start seeing a waterfall decline by the end of the summer beginning of the fall. From now on capital preservation should be #1 goal for the next few months. For diversified long term accounts this could be done by raising cash, selling high beta stocks, selling high risk corporate debt and moving into short term cd's and money market instruments. Trading accounts should employ very strict risk management (stops) on long positions since the market will be going more down that up and shorting techniques should be used as well for the one with the experience to do so.

Kapil Khanna said...

costas1996,
You seem to see way into the future, all the way till the begining of fall. Hope that skill you have, has made you very rich by now :)

John Wheatcroft said...

During your trading keep in mind four important facts - 1. the stock market is not the economy, 2. the stock market discounts all news before you know it is news, 3. the stock market spends as much time going up as going down but requires more energy to go up, and, 4. the only truth is price - all else is a perception.

If you embrace these facts you will no longer care whether the market is going up or down because you will realize that direction is irrelevant.

Why do I say that? Because of fact 3. While all stocks can drop on a dime, all stocks will neve rise in the same way. A market that rises is led by something. That something is always there - always ready to be bought. In all instances it is very cheap right now and will be very dear later. It doesn't care about Iran, or oil, or a supposed debt crisis, or the price of gold, or the price of pigs. It is there waiting for you to find it. Your job is to find it.

If what I say isn't true then the market would no longer exist because it can not go below 0.

real1 said...

-+Tim , try to look at the DOW in term of gold , looks very bearish , gold is set to continue and out perform the dow , also higher gold prices will allow higher dow.