Market looks for capitulation; charts tell a different story
Despite the oft-stated belief that bear markets require a diving capitulatory event, the NASDy chart points to a steady erosive slide underway within a newly defined trading channel that began in Feb or March.
Were a sharp rally to occur Monday, the current top edge would stop the spike at 1692, though resistance at 1550-1560 could stop it sooner. To the downside, it will stop NASDy's slide around 1470-74. But both 1700 and 1470 move lower daily. Because the new trading channel, like the old, is in a downtrend, albeit one with a slower rate of decline than we've seen in 26 months.
To see what I mean, go to equis.com and type in .ixic in the top left box. In the lower right dropdown box, change it to 'Monthly'.
Draw a line from the March 2000 peak to the Jan 2002 peak, and continue to extend the line to the right edge of the chart.
Now draw a second line beginning with the May 2000 bottom, through the April 2001 bottom, and down to the chart bottom. These two lines should look parallel, and they reveal a breakout from that channel in March 2002.
But where's the new channel? To find that, change the dropdown box back to 'Daily'. Click 'Out' 2 or 3 times to bring all of 2002 into view.
Now, draw a line from the Jan 02 high through the low point on the 5th trading day of May 02, and run it to the bottom of the chart. This line is the old line representing the top edge of the old channel.
Now, start from the March 02 high and run through the May 02 high, to the right edge of the chart. This represents the top edge of the new channel, or appears to right now.
Start a third line at the bottom edge of the first trading day of March (1742) and run it through the bottom of the May low (it should intersect line 1 at this spot), and run through to the chart bottom.
Now you should see Lines 2 and 3 are parallel. Click on 'In' about 8 times, to magnify where we are now. If you draw a vertical line for Monday, you'll see it reaches the top edge of the new channel at 1792.
To determine the bottom edge, you'll need a straight edge to estimate the intersect point. (You can also print out a 3 year chart from some other chart site and draw lines to calculate this.) By my best estimates, it is currently at 1470, give or take 3 points.
In the new trading channel, the top and bottom edge decline 4 pts daily or 20 pts per week.
Caution: this new channel may be incorrect in its parameters. It often takes longer to determine where the parameters are, but for now, this appears to be correct.
So where's the bottom?
That can't be defined. In the past 26 months, NASDy has tested, but initially stayed above, each successive low dip that occurred in 1998-99... bigcharts.marketwatch.com
If it stays true to form, and breaches September's intraday low of 1387, it will have to test the 1997 low around 1250-1239 next: bigcharts.marketwatch.com
(I wish I could chart 97 more clearly to better define that low point).
We may further test the September low within 3 days (relying on past patterns and Zeev's analysis, which coincide somewhat). Thus, the bottom of our new channel on Monday is 1472, Tuesday it's 1468, and Wednesday it's 1464. (Note: Zeev predicted 1460 on Wednesday and my 3 pt margin of error brings us within 1 pt of his call).
From there, we should bounce back over a week or two till we intersect the top edge of the new channel. It will be on the next test of the September bottom that we break through, if we are to break through.
When that occurs, our retest of the 1997 low ought to hit bottom approximately 25-30 pts above it, which is somewhere at or below 1280.
However, if we get no capitulation and remain within this new trading channel, slowly grinding bull's spirits away - like the Fall of 2000 - it would take us from 1460 on June 12, to 1280.... 45 days later. This suggests July 27 would be the earliest to expect a bottom.... but that's IF we even break 1387 - which is not likely to occur before July 2, if the new channel parameters remain unbreached.
Interesting.... as that is 3 trading days after FOMC meets....
And of course, all bets are off if we endure another catastrophic event of the magnitude of 9-11 or greater, in the meantime.
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One final note:
I'm not yet convinced that we will break 1387 in the next few weeks. Indeed, if we (instead) draw a line from the February 02 low through the May low, it intersects precisely with Friday's low. Thus, if Friday's low holds this week, this will be our Line #3, and Line #2, the top edge of the new channel, will have to be redrawn to parallel this bottom line.
While this would move our high possibility up another 100 pts, it also lowers our rate of descent even further. Our new channel would decline just 2-3/4 pts per trading day. That means we wouldn't break September's 1387 till late July, and 1280 won't be possible before mid September. What a tough summer that could make, eh?
The next three days should reveal if either scenario is correct. Either 1500 or 1460 should hold, and define our new channel.
At this moment, I strongly suspect 1500 is it, but it's foolish to risk much on a mere guess. I'd much prefer the capture of a few top-dawg terrierists, to grant us a quick near-term rally to the top of our new channel.
-kevin, after consulting his penguin psychic
PS: if 1450 breaks by Friday, Annie, get yer GOLD! |
