Analysis - Thursday, January 11, 2001 8 p.m.
Today was a very interesting day in many respects. On our
Short-Term Traders Hotline this morning we stated that we did
not believe the Dow would be able to sustain any decent rally
today. We made this statement because after 20 years of
watching the action one day before every possible upturn in the
3-Day Chart, we are quite familiar with the normal action on
days like today. The Dow will normally trade in a certain
characteristic manner on days like today. The Dow's performance
today was fully in line with normal action. The Dow was down
over 50 points at the lows today, and came back to close up
5.38 points. The 3-Day Chart on the Dow will turn up tomorrow
if the Dow holds above 10400.94 intraday, and also exceeds
10808 intraday by the close of trading tomorrow. If that
occurs it will suggest that even higher prices are coming
next week. If the 3-Day Chart fails to turn up tomorrow it
will suggest that lower prices are coming, at least very
short term early next week. If the Dow falls below 10400
intraday at anytime tomorrow the 3-Day Chart could not turn
up, no matter where the Dow closes.
Now if the 3-Day Chart fails to turn up tomorrow it will
signal that lower prices are likely into early next week. If
the 3-Day Chart does not turn up tomorrow it could not
turn back up before Wednesday of next week at the earliest.
If that occurs the only thing the Dow could do to prove that
it is going higher next week would be to move above this
week's highs. So far this week's highs have been 10819
intraday and 10700 on a print basis. If this week's highs are
exceeded, especially on an intraday basis next week, it will
confirm that some sort of bottom has been seen.
The Nasdaq was another story entirely today. It began to
rally in the first hour of trading and just kept getting
stronger and stronger into the afternoon. By late afternoon
the Nasdaq actually exceeded the 2645 level we discussed last
evening. This turns the Gann Weekly Chart on the Nasdaq up.
We have told you that we expected a strong rally to begin in
this time frame for the Nasdaq, a rise which should ultimately
catch most of the street by surprise. We have stated that
before that rise is ultimately over, most of those investors
now holding major losses in the Nasdaq will consider buying
more. Now today's action does not in itself prove that rally
is underway. We are still just a matter of days off the lows
in the Nasdaq, so it is still too early to conclude with any
real certainty that the rally we expect is truly underway.
The action this week is encouraging, but not yet truly
conclusive.
One thing that did concern us regarding our market
forecast from here was a report that we heard today that the
bullish advisory sentiment from Investor's Intelligence has
reached its highest level in the last 12 months. The bullish
sentiment would obviously have risen because of the now well-
know change in position by the Fed. One of the strongest and
most reliable rules about this business has always
been, "Don't fight the Fed!" However whenever bullish advisory
sentiment reaches extremes, you are normally fairly close to
some sort of important top in the market. So if bullish
sentiment has reached an extreme after the Fed news then we
have a potential problem. We called Investor's Intelligence
today, and the Associate Editor, John Gray, told us that
while the bullish sentiment has now exceeded 56%, we are not
yet seeing the kind of readings that normally occur near
very important tops. When the bullish advisory sentiment
exceeds 60% and the bearish sentiment falls below 20%, we are
then normally near some sort of top. You cannot look at just
the bullish sentiment, to the exclusion of the bearish
sentiment. You must look at both of those numbers together
from a historical context. According to Mr. Gray, Investor's
Intelligence does not consider the current numbers overly
bearish.
So for now we must remain bullish until and unless we see
reason to believe otherwise. If the 3-Day Chart turns up
tomorrow the Cycles suggest we should see a short-term high
near January 17, plus or minus 1 day and then a brief
correction for one or two days. From there a further rally into
January 25, plus or minus 1 day is expected short term. For
tomorrow our primary concern is with the 3-Day Chart. We will
have further details on this tomorrow at 12:30 EST. |
