Three Month DJIA Chart
Two Year DJIA Chart
The DJIA has been trading within the 12750 (resistance as said in previous posts) and 12200 range for the the past few weeks. The volume has always been languishing thus giving us credible evidence to doubt this recent rally from the 11,650 area. However, last Friday, market volume increased around 20% to lead us to our current level at 12,250. Take note of that 50-day moving average (resistance) as well as that short-term double top formation at the 12,750 area. We really needed to break above both of those resistance levels to have any shot of calling a long term bottom. Also of note, the stochastics is showing that the market is overbought. This, coupled with the fact that the MACD and RSI are both rolling over to the downside, only make the picture more bearish. And finally, the 200-day moving average is now firmly in a downtrend, giving the bears a very worthwhile case.
So where do we go from here? Look for the DJIA to retest the lows set in January around the 11,650 area. I wouldn't bet against the other indexes (NASDAQ and S&P500) doing the same. I realize that I am beating a dead horse when I am saying this, but at this point, cash is king. If you are more of a trader and are experienced with getting short stocks, trading puts, etc., then I would say go for it. If you have been reading this blog for the past month and did sell into this short-term rally, I think you've done yourself a great favor because personally, after analyzing the charts/circumstances of past bear markets, I believe these markets will see much more downside throughout the course of the year. Once again, I like the SDS, DOG, QID, and the DXD as ways to get short the indexes. If you do plan on getting long anything right now, look at companies that have not violated their 200 or 50-day moving averages. I'd also look at companies dealing with commodities and precious metals (i.e. FCX, NEM, BHP etc.) The agriculture stocks are also en fuego right now (POT, MOS, MON).
And that does it from here. As a sort of parting piece, I leave you all with a somewhat simple, yet very appropriate Wall Street adage: "The trend is your friend," and in this case, the trend is down. I have a feeling that may be a good thought to keep in mind for these next few months.
Updates to follow soon.
4 comments:
From that 2 yr DIJA chart, all I see is a spike lower and a consistent trend of making higher lows. To me, this is a bullish trend in the making, with a bottom already formed.
I also have a blog that uses the supply and demand of the NYSE to determine the trend. While I do feel short term the market can move lower, I feel the trend is up.
I must say that your analysis is robust, and I applaud your work on this site.
www.advancedtrendanalysis.com
Scott
Scott:
Thanks for the kind words.
On the two-year DJIA chart, you are correct in noticing the series of higher highs and lower lows. However, that pattern was violated Dec. 12, 2007 when a lower high was formed. From there, the markets started heading lower on steadily increasing volume only to completely blow through the 200-day moving average on extremely heavy volume, thus confirming the change in trend. On Jan. 22, 2008 we saw a lower low form and as is typical of a market that looses support and is looking for direction, we saw three weeks of nothing but choppy trading. And finally, last Friday, we saw a week-long rally end in heavy selling as the market bounced perfectly off of resistance at the 50-day moving average, as well as technical resistance at the 12,700 area.
From where I am sitting, every major average is now firmly in a long-term down trend. The short-term has reversed to the downside as well.
Respectfully, I must disagree with you here, but I wish you the best of luck trading in the future.
Andy
Scott - remove yourself from the charts for one second. Have a look thru the port-hole to what the real economy is saying. Critical thing is - not all the bad economic data is yet out in the market. So the market can't reflect that in the technicals. The short term trend, is down. That said, the sheer oversold nature of the market will produce a fierce rally, bringing out the bulls. That is, until the next bad set of data comes out.
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