OCT 29 INDEX UPDATE
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I have notice recently, that many, including myself, are trying to call the MAJOR BOTTOM of this bearish market. I also notice how fast some become emotionally bullish over 1-2 day rallies/slightest bullish news(the BRINKER issue).
So I decided to do a little research. I basicly concluded that the probability of calling MAJOR BOTTOM(those that produce NEW HIGHS, not just a trading range) is simply extremely low while in a downtrend.
I try to keep things simple a rely alot on the basic rule of LOWER LOWS and LOWER HIGHs to mean DOWNTREND and HIGHER HIGHS and HIGHER LOWs to mean uptrend. Using this simple rule I took a look at the 3 main bear markets this century(1930's, 1960's,1970's) on the DOW. In all 3 cases after the MAIN PEAK there was a period where MINOR HIGHER HIGHs and MINOR HIGHER LOWs were produce.
Using that simple rule, one would believe that the bottom was set and the market would resume its bull run. Unfortunately, those series of MINOR HIGHERs and MINOR HIGHER LOWs, was the beginning of the larger selloff.
In the case of 1930's bear, there was 3 cycles of MINOR HIGHER HIGHs/LOWs, and in the 1960's & 1970's BEAR there was 2 cycles of MINOr HIGHER HIGHs/LOWs before the larger selloff started.
Although it is not statistically viable since I could only compare 3 BEAR markets, nevertheless, subjectively feel that if the DOW can produce more that 3 MINOR HIGHER HIGHs/LOWs then there is a better chance that a MAJOR BOTTOM was set and NEW HIGHs would be forthcoming.
Please keep in mind that the above was an analysis during relatively extended downtrends. In an uptrend it was easy to pick a bottom, but not easy to pick bottoms in a downtrend. Of course the reverse holds true. Im not commenting on whether this is or is not a bear market, just mentioning some patterns during extending downtrends. And this is an extended downtrend and is the longest period since 1995 without making a NEW HIGH. If a NEW HIGH isnt produced by JAN 2001 in the DOW then this would be the longest period without a NEW HIGH since 1987. The 1987 selloff had a period of 24 months where it didnt produce a NEW HIGH. Im counting from PEAK to NEW HIGHER PEAK, not from the bottom.
stockcharts.com
Due to the uncertainty in this market, I reduced my downside bias last week to 2:1 with 83% cash. From my large cash position its obvious that I aint sure of anything.
As mentioned previously, my short-term technicals are in the midrange, except for the DOW which is in NEGATED CLASS 1 TERRITORY. In the recent days we have seen an increase in volitility. I suspect the volitility to continue next week and could be in both directions. |
