1. The Day Ahead: Breakout or pause===================THE DAY AHEAD
===================FWIW from e-mail I receive from investorsalley.com
With over a couple of hundred points already under its belt the last
two days, will the Dow take a breather Wednesday, or can we
realistically just keep on going. Following a classic ABC correction
from the new record highs established at 9647.70 on January 08, 1999,
during which the Dow pulled back rather sharply, but then stabilized
before a secondary rally and later declined to 9063.36 early Monday.
From there the Dow seemingly turned on a dime along with most other
markets and it hasn't looked back since.
We are now potentially looking at what is commonly referred to as a
bull flag formation in the annals of technical analysis and this is
generally considered to be an exceptionally powerful continuation
formation. For instance, the previous ABC corrective formation came
from a high of 9379.94, established on November 24, 1999 and continued
in that familiar 3 wave decline to a low that was made on December 14,
1998 at 8676.03, in a beautiful mid-month example of a classic bottom.
To further illustrate this bull markets potency, from the bottom of
that corrective formation, the Dow embarked on a blistering upmove that
took it up almost 1000 points. How many people actually noticed that or
how really big this rally really was?
As suggested yesterday, it would not be unreasonable to imagine another
1000 point run from Monday's lows, which would incidentally take us a
little beyond 10,000. The reality is that this next move could
potentially be a lot larger than the 1000 points alluded to here, in
what could be described as the ultimate short squeeze combined with the
ultimate 'Run for the Roses'.
The other indices tend to bear out this argument. Whilst the Dow even
at today's close of 9324.58, the Dow is over 300 points from a new all
time high and 675.42 points from that pinnacle of all pinnacles, Dow
10,000, the Nasdaq futures are within a stones throw of a
new record and the Nasdaq and Over-the-Counter are not far behind. We
are a mere 40 points away from the Nasdaq's previous highs and momentum
peak of 2474 established January 20, 1999. This is very bullish,
because when the broadest sector of the market is leading the way, and
as long as the market's strength pyramid remains with the strength at
its base, the market can be considered to have quite a ways to run yet.
Another supporting argument is when weeks behave obtusely or out of
step with the norm. After such a brutal previous week, many sold or
shorted and were genuinely surprised at the sudden display
of strength and its defiance of the previous weeks action.
The Transports continued higher in a more muted rise today along with
the Banking sector. As stated yesterday, if the Banks and Financials
really begin to participate in this upmove, then a very broad advance
could develop across the entire spectrum. The small cap issues are
again gathering strength and so all that remains is whether we may in
fact see some kind of gap out of this Bull flag consolidation in a
raging bull stampede, or whether we could just continue to build upon
this weeks rally in an unfolding parabolic upsurge, either following a
pause of some sort or not.
Looking at the way today's action is already close to challenging last
weeks highs, the odds of an upsurge through it appear high. The British
market as measured by the FTSE index appears intent on surpassing the
6000 barrier soon and Europe looks keen to follow higher. Meanwhile
Japan has been acting sensationally since making a near perfect bottom
in early January and on somewhat of an up tear since then. The biggest
surprise may come from south of the boarder. The Latin markets, the
early laggards of the year so far, mired in crisis look to have fully
discounted the very worst of possibilities. The Latin markets lookbullish. |
