Stan;
Good to see you. Sorry we've made a mess of the place, but we'll replace the broken future with our stock winnings someday...
I have questions to pose: what if there is no capitulation?
Yes, I think that's how it might happen, for now. Consider how the market has reacted recently:
--Jan low 2252, rebound to 2616 then 3 day dip to retest, then 2 week run to 2892.
--A week to dip and retest the top.
-- 3 week drop to a new low at 2156, two day rally to 2309.
-- 3 day drop to 2071, 1 week rally to 2243 (2 day double top).
-- 3 day drop to 1922, 3 days of mostly sideways trading that peaks out at 2030 (3 days peaks of 2015, 2028, 2030 forms, perhaps, a triple top).
-- 2 day drop to 1877 low (intraday) with close at 1890.
Now, forgetting TA for a se, it seems obvious that a mini-rally is due going into FOMC. Call it the human psychology factor. But let's assess our stairsteppin' NASDy for any patterns:
-- successive lows of 2252, 2156, 2071, 1922, 1877. The difference in each drop was 96, 85, 149, and 45. But every one of the other lows came with a rebound, ending at the day's high. Most were 3 day drops and we just did day 2 on the last fall. So it's unlikely the 1877 can hold come Monday. It would seem we may bounce off 1850 (making that 45 pt drop into 85 pts... comparable to 2 of the 3 others.)
-- another scenario, based on the past year of drops I've reviewed, indicates a capitulatory move often entails a 125-130 pt. drop, followed by a 200 pt same-day rebound. If we follow this course Monday, 1890-130= 1760! (a number you and I both came to in our TA).
-- since I figure it's human nature to run up in advance of a FOMC rate cut, Monday probably provides one of two scenarios: a rebound from 1850 (non-capitulatory) or from 1760 (capitulatory). That's where I'll be watching.
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A little more speculation on patterns (I know it's hard for a TA specialist, but humor me)
Successive peaks, from mini-rally to mini-rally, have been 2892, 2593, 2309, 2243, 2030 (2593 was irrelevant to the drops noted above but occurred in the long decline from Jan). The differences in peaks have been 299, 284, 66, 213. The odds favor at least a 200 pt. rise off Monday's bottom, to the next peak. Human nature again.
So, if we were to bounce at 1850, the next peak would be 2050 or better.
But wait! That yields a higher high than the last, of 2030! Would that mean 1850 is the nearterm bottom as NASDy reverses and begins an ascent phase again? Possibly, but I doubt it, for several reasons. Margin calls... and fund redemptions (with 1 month till tax due day, folks are spooked and may preserve remaining capital out of the fear of things getting worse by 4/15)... and, as you've noted, there's stronger support at 1450, using TA.
Based on the stairstepping patterns of both the fresh lows and successively lower highs, the more probable sequence now is a drop to 1760 and a rebound to 1960 Monday.
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Semi-Conclusion
Of course, that would have us 70 pts away from the previous high, closer than most previous highs in succession.
I can't account for everything in my speculation. But it does suggest a rally off this bottom may be shortlived, indeed.
On the other hand, if we bounce from 1850, we are similarly limited... unless we truly hit the final bottom of this year.
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A Foray into TA, plus Channelling to the Bottom of it all
Your TA is superior to my random line drawings. But my TA suggests some support in the range of 1702-1715. Another exists at 1465. A weak one at 1357 exists from the Oct 98 low. And another pretty solid line of resistance around 1200 someplace (1194 is as near as I can define it).
I base those on multiple closes at a key point, or on valley bottoms, to use non-TA terms.
But my channel lines reveal a fresh set of numbers. On the uphill climb, drawing a line from the low of July 96 through the low of October 98 conceivably would provide a support point, at approximately 1740 Monday. Awfully close to the 1760 weak support point (and human-psychology -on-a - capitulation-number). It oughta be an interesting bull/bear battle someplace between 1740-1760 then....
But, as I recall, we are no longer in that rising trend. A few months back, I posted a descending channel graph, which defined several key points NASDy could fall to, within that descent. It has not broken the parameters yet.
But it is closing now within a tighter channel-within-a-channel. My lines suggest it will find a bottom before it hits 1200 and probably above 1250 (it is hard to pinpoint and likely to be inexact using any TA ). And we'd get there by early May.
If so, the channel of subsequent rise is likely, nearterm, to yield a much slower rate of rise, the one that existed prior to 1997.
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Random Sparks of Speculation
I've seen almost every pattern of trading from 1998 to Sept 2000, broken in the months since. 5 consecutive days of lower eods, followed by a rise? Broken, along with many otherformer truisms.
One of the most oft-repeated things I've heard for months is the call for capitulation, so we "can get it over with". I would toss in two possibilities, since all other rules-of-thumb have broken down.
First, we may never capitulate. That would permit institutions to grab the shares at the lowest prices for a day or two during a lethargic rally beginning. We'd still be debating whether that was a bottom or not.
Second, as I noted with my successive bottoms and successive tops patterns, we might capitulate, rebound and discover that bottom is quickly rebroken. Maybe 1750, 1850 then 1670. That sure would anger, and depress, the stalwarts & believers.
As a final point, from purely a mathematical perspective, wherever growth appears that can be charted, that displays exponential growth, the end result is pretty predictable. The chart falls off a cliff, typically dropping 2/3 to 3/4 from the top.
2/3 off 5132 (the intraday peak) equals 1710, one of my support points.
3/4 off equals 1283, a point approximate with the end to my descending channels charting.
And the worst case mathematically, 3/4 off the highest closing price yields 1254.
Somewhere within this range of 1254 to 1710, we're likely to find our bottom.
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My conclusion at the present is 1283 probably the first week of May.
For one, there will be stalwarts waiting till April 13-15 to cash in stocks and redeem funds, hoping for a rebound in their holdings to better satisfy their IRS debt. Downward pressure remains at least till April 16 then. And we haven't even factored in NASDy delistings, which are likely to come in in waves in April & May...
Better earnings reports are not expected for most companies before October and even that's not a given. There's confidence that January 2002 will be okay then. Typically, the institutional market tries to be anticipatory and lately seems to begin pricing things in 4 months in advance (Bad January earnings caused a fall from Sept 1, for example).
Four months before October is June. That is the first month to see any stronger incentive to rise and break out of the descent channel. It seems quite clear the bottom should occur between 4/16 and 5/31, and as I noted previously, my lines converge in the first half of May.
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It ain't just TA, but these are factors. I didn't even mention energy prices and droughts, did I?
No doubt there's market manipulation, but I distinctly recall major shifts in the market subsequent to fresh highs in oil prices or the energy crisis in California (where 1/8 of us live).
With all this in mind, there's some rationale for a Monday rebound (1850? 1760? 1740? 1710?), a plunge on the rate cut announcement, but no relief from the hunt for the bottom till mid-April, at least.
I just thought I'd share my confusion with you and everyone else, so you'd feel sympathy for what my poor penguins put up with when I blabber on so.
Will you send them some fish guts? I'm fresh out. |
