SEP 22 INDEX UPDATE
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The NEGATED CLASS 1 BUY SIGNAL is still in effect, which means that my short-term technicals are still useless.
The main question now is - where and when is the bottom? Lets first start by trying to identify where the absolute bottom is. Lets be objective and not immediately say that it is impossible to get so low, as so many in the past strongly stated that the NDX would never again get below 3000, and more recently that there would not be a retest.
We all realise that mathematically the absolute bottom is "ZERO" but that would take an event even worse than war - something like the moon colliding into Earth. So lets eliminate "ZERO" as a possibility for the absolute bottom.
The worse predictions that I have heard so far for the NDX bottom is in the 400-500 region. My guess is that if the NDX got BELOW 400, that would imply that the U.S. would not only be in a recession but even possibly a depression, and right now the economy is nowhere that bad. So for now, lets forget about levels below 400.
I believe that some have stated that under current earnings conditions, 400-500 may be fair value, historically. I do not have data to substantiate such so it anyone can come up with data supporting such, that would be greatly appreciated. If the 400-500 region is fair value, historically, then that is not an impossibility. My guess is that the chances of seeing 400-500 is very slim, at least for now; on the other hand I would not call it an impossiblity or ignore it.
From my examination of the charts, Im seeing major support around the 700-650 region for the NDX, and that is my best guess for the MAXIMUM LOW in the NDX, if the OCT 1998 LOW at 1063(intraday) is broken to the downside. In no way am I saying that Im sure it will get that low, just mentioning what I think is the maximum downside. As low as that sounds, thats only about 400 points from where the NDX is now(NDX got as low as 1088 on FRI). Some will say thats too much of a decline since that is still about a 35% decline from current level. Unfortunately, the NDX still has negative swings of more than 50 points a day, with the latest example on FRI where the NDX dropped about 80 points intraday. 5 x 80 point down days or 8 x 50 point down days would cover those 400 points, so its not as far away/an impossiblility as some would insist. If the maximum intraday negative swings were only 20-25 NDX points, then that would be much tougher to cover those 400 points, but unfortunately the NDX still has negative intraday swings of greater than 50 points.
For those who think that a further strong drop in the NDX is impossible, I just want to mention that several months ago, when I first mentioned the OCT 1998 LOWs as a possible downside bottom I got NASTY-GRAMS for mentioning that. At that time, I was not sure or confident that the NDX would get to the OCT 1998 LOWs, just as Im not sure or confident now that the NDX will get to the 700-650 region. OK, Im ready for the NASTY-GRAMS.
For the near term, Im still holding onto my position that the overall market should significantly bounce off of the OCT 1998 LOWs. The NDX got within 25 points of hitting its OCT 1998 INTRADAY LOW at 1063. The CLOSING OCT 1998 LOW was 1129 and the NDX closed at 1130 FRI. So its fair to say that the NDX is already there. The NAZ and SPX has also dropped below the CLOSING OCT 1998 LOW on a intraday basis, and the OEX got within 8 points of it. The DOW got within 430/593 points of its CLOSING/INTRADAY OCT 1998 LOW(respectively). Re-posting the OCT 1998 CLOSING and INTRADAY LOWs:
DOW - 7632/7469 (closing low/intraday low)
SPX - 959/923 (")
OEX - 472/455 (")
NAZ - 1419/1357 (")
NDX - 1129/1063 (")
In light of the NAZ/NDX/SPX/OEX already touching their OCT 1998 LOWs, will the DOW have to also hit its OCT 1998 LOWs before we get some sort of a rally in the overall market? If we DOW needs to touch its OCT 1998 LOWs first before a rally starts, that would probably push the other indices lower and some may overshoot their OCT 1998 LOWs to the downside to some degree.
As mentioned in a recent update, my current target region for a low in the NDX is in the 1163-963 range. Well, the NDX is already in the upper portion of that range. I still feel that once a rally starts, wherever that be, the probability of a retest is quite high("W" FORMATION). Whether that retest holds or fails, heck if I have a clue right now - lets first get that darn rally. I consider a FAILING RETEST to be a decline of greater than 7% below the FIRST TROUGH in the "W"(which would be this forthcoming low, wherever that darn thing be). So a SUCCESSFUL RETEST could establish a LOWER LOW, as long as it is within 7% of the FIRST TROUGH.
Trying to pinpoint the the forthcoming low(1st TROUGH of the "W" FORMATION), I suspect that it could happen next week and as early as MONDAY. Whether the rally starts immediately or whether it lingers a few days before rallying, heck if I know. All of the TECHNICAL INDICATORs I use are in the EXTREME OVERSOLD REGION, but we all know that such oversold readings can continue for awhile. Two reasons why I feel that a short-term bottom could occur next week, and as early as MONDAY, is that that the VIX got near 60(57) on FRIDAY, and because of the strong spike down in the NAZ NEW LOWs. These two factors are hinting that the market is in some sort of a CAPITULATION PROCESS, and the FIRST PHASE of the CAPITUALTION PROCESS normally only lasts a few days. What I mean by the FIRST PHASE is that in a "W" FORMATION there will be a SECOND CAPITULATION PHASE to form the SECOND TROUGH(the RETEST) of the "W". The SECOND CAPITULATION PHASE should also give some POSITIVE DIVERGENCEs in various techncial indicators, which would be a significant sign that an important bottom is in the process of being established. Of course if there is no POSTIVE DIVERGENCE and the RETEST fails, then the market/index heads lower.
Not that the NAZ NEW LOWs cannot head lower, but from the following chart, its obvious that he CAPITULATION PROCESS to some degree has started.
stockcharts.com[w,a]wjcayymy[pf][vc60][iLa8,21,9]
Although I have mentioned that an IMPORTANT BOTTOM may be set soon, I did not say that it will or will not be the MAIN BOTTOM. I don't know. Again, lets get a rally underway first, then look for clues to help determine if the MAIN BOTTOM was or was not established.
The following comment is only for the LONG-TERM INVESTORS who has a time horizon of at least 5 years out to 20 years+. This is a good time to start accumulating NAZ stocks. Im not saying that the NAZ can't go lower, but one can categorically say that the NDX is closer to its absolute LOW than its all-time high, since "ZERO" is closer than 5000. Yes it can take many-many years for the NAZ/NDX to set new highs, but here is another issue. Within 3 years once the MAIN BOTTOM is set, the probability is very high that there will be some sort of a FIBONACCI REBOUND of the total decline. So lets say, hypothetically, that the NDX gets to 700; the total decline would be 4100 NDX points(4800-700). 38% of 4100 is 1558, then add 700 and the total is 2258. Lets be more conservative and use 30% which would be 1230+700=1930. So basicly, Im saying that if the NDX got as low as 700, it should still rebound within 3 years to the 2000 and up region. That is almost a 100% return, minimum, if one gets in now, even if the NDX drops to 700. As for the timing of the MAIN BOTTOM, it could happen now, but I would be more comfortable to say within 2 years, and right now Im leaning more towards next year.
As for individual stocks, Im not a stock picker, but I strongly believe that some or even many stocks are already at there absolute lows, and even if the NDX was to drop to 700, those stocks may not drop much further. There are some stocks out there which already have low P/E's and some which are already at or below CASH VALUE. Of course one needs to do their own reseach to determine if those types of companys still have growth/earnings potential, otherwise they could go bankrupt. On the other hand, there are still some stocks that could take a beating, especially the high P/E stocks, if they do not show earnings/growth to support their high P/E's.
Again, this comment was only for the long-term investor(5-20+ years out), not the short-term trader.
Enough typing for now. Have a nice weekend all.
Lets keep the memories of those who left us recently close to our hearts. |
