Hi I2: Going back to my post of December 23, 1998, it was very easy to see that December would be up with a nice Santa Claus rally leading us into the early days of 1999. The correction in January was also easy to see.
Now it is not as easy. I wanted the TRAN to hold steady or even move up as the INDU was correcting. That did not happen; however it did not fall apart. The INDU itself has fallen about 80 points below my medium-term resistance (on a closing basis) for an up market. However, that is not disastrous. The INDU is wobbling in the general area of the neckline of its inverted H&S and the TRAN is above the neckline of its sloppier looking inverted H&S. So these have not failed. At this point, I do not see the strength needed to move these two averages ahead. The longer it waits the more endangered a move up becomes. However, the strength can show up fairly quickly.
Back in October 1997, my long-term resistance line from the November 1994 INDU low was at 7000 on a closing basis. That level was tested and it held. In October 1998, the same resistance line was at about 7700 (I think it was 7700) on the INDU. That level was tested and held. It is now 8000 and slowly climbing. A successful test of that mark would be an outstanding opportunity for easy money on the upside. However, we are 1300 points from there.
I only trade when I am positive about where the market will go. Now is not one of those times. However, there are some things I will watch. Any INDU move below 9000 on a closing basis and we should move significantly lower. If the TRAN goes below 3000, we should go significantly lower. For a resumption of the move to the upside, I can think of two things (in addition to a number of smaller things). Primarily, I would like to see more volume go into advancing stocks with the 9200 level in the INDU holding on a closing basis. Additionally, I would like to see the trading system between bonds and stocks being decoupled. (When bonds go up, stocks go down.)
The charts I put up look scary--especially Korea in my eyes. However, the Fed lowered rates three times. We just have to watch for our opportunity--one way or the other.
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