INDEX UPDATE
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Have noticed that most feel that next week will be up due to the after labor day rally, and that TUE could be up strong, in the hundreds of points. In this market, anything can happen, but my technical are hinting the opposite,although only slightly.
My short-term technicals are right now around 33. 50 is dead in the middle, 20 and under is oversold region, and under 5 is a CLASS 1 BUY to the upside. As I have always stated when the technicals are in the mid-range as they are now, it is really a flip of the coin what direction it will take from there. So YES it can go up strong, and YES it can go down strong.
What is strange is that my short-term technical reading is 33. Most are saying that we are extremely oversold, the DOW is only 240 above the the 7400 bottom/dip, and we are already 300 point below the intraday highs of SEPT 2(Wed). To explain why I think that is strange is that subjectively and per other's TA system, the market is severely oversold. But my dumb system is saying that the market is in the middle and not oversold or overbought and has alot of downside or upside left in it. Mathematically, I calculated that for my short-term technicals to get back to the severely oversold region(CLASS BUY), the DOW would have to go down 3-4 more days in a row or 400-600 points in one day, so there is plenty of downside left.
I have notice that for the DOW it is forming a PENNANT with last MON/TUE as the beginning. If the DOW stays be low 7760 on TUE, the pennant will maintain its integrity. This is a BEARISH PENNANT, indicating further down. So if the DOW does break 7760 to the upside, it would negate this BEAR PENNANT.
The next resistance will be SEPT 2(WED) highs of 7952, and the following should be 8095. A break of 8095 would imply that possibly the bottom was established at 7400. Heres the sad thing - for the first major signal to say that we COULD be back in an UPTREND, the DOW would need to break 8875 - and that is a long way off in this climate with earning warnings starting and INFAMOUS OCT.
NEXT RESISTANCE LINES: 7760, 7952, 8095
NEXT SUPPORT LINES: 7575, 7450(WEAK), 7400, 7350, 6975
6975 was the intraday lows of last OCT's crash. If we break 7400, we would have to consider 6975 as a viable support. Who would have thought that the OCT crash has the possibility of becoming a support when only 6 weeks ago the DOW was at 9367, but the DOW would first have to break 7400 to the downside.
I personally have not done the calculation, but heard that this decline is the fastest, and even faster than the 1929 decline. Correct me if I am wrong.
Even in light of the 140 point rebound on Friday, and the 100 point rebound on THU, both days still closed negative, so the bias for the short-term is still to the downside, but it can also reverse at any time.
With earning warnings starting, the worldwide financial problems, and the infamous OCT around the corner, just feel, on a subjective basis that it will not be easy for the DOW to hold above 7400, but it can happen.
A basic rule of thumb I use is that in a short/mid-term trend the market will retest the price extremes of the direction of the trend. To further explain, during the uptrend of JAN-MAR, price highs were almost always retested. Now that we are in a short/mid-term downtrend the lows of 7400 most likely be retested, and of course there is the possibility of it being broken. This is also an explanation for the formation of DOUBLE TOPS and DOUBLE BOTTOMS.
To take this conversation one step further, last OCT lows at 6975 were never retested and the initial part of the rebound took the "V" shape, although the reversal process took over 2 months into JAN. Then of course we had the strong UPTREND into spring. So it appears so far that the aftermath of last OCT's dump, for now, is more positive than what the market is going thru right now.
Seeya |
