INDEX UPDATE
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It is quite obvious that the market internals are weakening; however I have noticed that market internals are normally leading indicators and could lead the market by a month or more. Also, markets do not move in a straight line.
Right now, my short-term technicals on the DOW just entered the oversold region and and is a borderline CLASS 2 signal for today. The CLASS 2 signals mean that it can still go lower or could reverse from todays lows. If the DOW does move lower than it will become a CLASS 1 with the buy-in point on the following day(in this case it would be MON). Basicly, it is saying that the bottom should arrive either today or MONDAY.
The SPX and NAZ are only in the mid/lower-mid-range, so there is still plenty of downside left in these indexes, but since they are lagging the DOW to the downside they are also showing more strength/less weakness than the DOW.
Yesterday, when the DOW was around 8900 I calculated based on the guitar that the downside potential from there was another 175-275 points, so somewhere in the 8725-8625 range. This just means that if the DOW continues down the bottom should arrive in the 8725-7625 range. This is just a mathematical calculation based on my guitar.
The FIBINOCCHI 38% retracement of the runup from the OCT lows(1980 points) targets approximately 8630. The is a strong support at 8750, and the 200 day moving average is slightly above 8700. So this range has considerable support.
Now the question is how strong will the rebound be once the DOW bottoms. The weakest major index is the DOW and the RUT(since the RUT never regained all of its losses). The SPX and OEX just recently formed mini DOUBLE TOPs around 1190 & 590 respectively which could be a negative sign, but is showing more strength than the DOW. The NAZ just set a NEW HIGH a few days ago, so the NAZ is still showing strength, and yesterdays selloff in the NAZ was significant but not a huge major selloff. Therefore on a subjective basis, since the NAZ/SPX/OEX are showing more strength/less weakness than the DOW, I feel that the market will bounce once the DOW bottoms. As a rule of thumb I normally use 50% as an approximiate target for a retracement rebound, so if the DOW bottoms at 8750 the DOW should get back to the 9050 range. In light of the weakening market internals, it is unlikely that the DOW will be able to retest the HIGHS at 9380.
I would like to make a comment on emotions. Just a few weeks ago, most of the views that I heard from the analysts was that the market will be heading higher and there was a rising number saying 10,000 in the first quarter of 1999 with the bold ones saying 10000 by the end of DEC. The bearish views at that time was limited, and that was only about 2 weeks ago. Now that the DOW has lost about 550 points, the bearish views are increasing. I fully realise that this is natural and for many motivated by emotions. I have never heard that a good investor/trader invests by their own emotions.
I am still sticking to my position of a TRADING RANGE TREND for the next few months/1st quarter. What would make me turn into a bear is to see LOWER LOWS/LOWER HIGHS in all the major indexes, and basicly the opposite to become a BULL. Of course there are other issues like the TRANSPORTS/RUT/MARKET INTERNALS.
seeya |
