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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (45098)	10/26/2008 1:50:54 PM
From: Johnny Canuck	Read Replies (2) \| Respond to of 71222

SEARCH BEST OF REALMONEY.COM The Swing Shift by Alan Farley Editor/Publisher Hard Right Edge Originally Published on RealMoney.com Crash of 2008 Is A Game-Changer I was sitting in a coffee bar at Phoenix Sky Harbor Airport on Friday morning, waiting for an East Coast flight with my wife. I pulled up my trading screen just before the New York open and immediately attracted the attention of the gentlemen sitting on my left and right. Both had their eyes fixed anxiously on the laptop, watching the insane price action. Within minutes, I found myself acting as a conduit between the crash of 2008 and the heavy toll it's taken on regular Main Street folks. The guy on my left was a blue-collar type who had just lost his retirement and daughter's college tuition, while the guy on my left was a former executive at ConocoPhillips (COP - commentary - Cramer's Take) who until July had been enjoying the fruits of retirement and his long association with the energy sector. I felt embarrassed to tell these folks that the plunge had hardly affected my world because I don't invest and have been 100% cash at the closing bell just about every day for the last month. I even took things to extreme levels over the summer, instructing our family broker to keep our nest egg in their most generic sweep account and out of harm's way. My Hitchcock-like paranoia has paid off nicely, but that's slim solace to the Main Streeters I met on Friday, or the millions of Americans who have been devastated by recent economic events. And let's not forget that this cash-killing firestorm has come after major destruction in the real estate market, effectively wiping out the two major sources of our lifetime wealth production. All of this raises a massive caution flag going forward. Simply stated, you're going to hear about big bottoms and historic opportunities in coming weeks. Of course that's good news for market junkies, like myself and other RealMoney readers. But don't expect Main Street to give a damn about the financial markets, in any shape or form, for the next decade. That relationship, built on trust and mutual self-interest, has been shattered beyond repair. In addition, aging demographics and world politics will no longer support a growth spurt like we saw between the mid-'90s and 2007, because gray-haired baby boomers have run out of time to take foolish risks on the stock market. Or any risk for that matter. Remember the peace dividend we got after the fall of communism and subsequent dismantling of the military-industrial complex? That once-in-a-lifetime wealth source has now been squandered, totally and permanently. And we know from history that bad economic times will likely lead to the rejection of capitalism and rise of political extremism. So, as I look at current positioning in the Dow Industrials, keep in mind that a deep low isn't the same thing as a new bull market. In a nutshell, please don't expect a "V"-bottom or super recovery that lifts us to new highs at the end of next year, or even in 2010. Sadly, the brave, new deleveraged world won't support the growth needed for that type of fantasy market. chart The Dow rose from 7200 to over 14,000 during the 2003-to-2007 bull market. The current decline bounced just below 8000 on Friday morning, gyrating wildly through the session, with heavy volume noted on the Diamonds Trust (DIA - commentary - Cramer's Take) ETF and each of the Dow 30. Price action overall points to the start of a bottoming process. But the Dow is now sitting in no man's land, technically speaking. In the last two weeks, the venerable index has busted long-term Fibonacci retracement support above 8700 and 9800, while intense downward momentum on the weekly and monthly price bars tells us it's unlikely the index has printed the final low of this ferocious decline. You'll note massive support down near 7000 on this 12-year chart. To me, that price level is likely to become the final resting place of this bear market. However, that deep and depressing low doesn't need to be reached for weeks or months for it to eventually find its way into the market history books. It's my contention that bear markets end with a whimper, not a bang. Look no further than 2002 for a perfect example. It's also obvious that Market Volatility Index (VIX) can't stay at these historic levels forever, so I expect to see an unwinding of high volatility a long time before the market finally comes to rest at its deep and deadly low. That brings me back to the bad vibes I pointed out in the first half of this column. I believe we'll enjoy one or more ferocious trading rallies before the Dow ultimately fulfills my downside target on the monthly chart. Each of these vertical upticks will be heralded as the start of a new and wondrous cycle of bull-market deliciousness. By all means, trade the bounces and wring out every penny of profit you can. But please remember my Main Street friends and don't be fooled by the revitalized bottom-callers. In the real world, "V"-bottom recoveries after market crashes are like Santa Claus and the Easter Bunny. They're true only the minds of children, and whoever's left in the Wall Street cheerleading crowd. ABOUT THE SWING SHIFT red space Alan Farley writes The Swing Shift three times per week for RealMoney.com. RealMoney.com and TheStreet.com also publish "Alan Farley's The Daily Swing Trade". Discover profit opportunities others don't see with this outstanding daily advisory newsletter. For more information, The Daily Swing Trade [Johnny: I agree with the sentiment that the DOW, SP500, and the Nasdaq don't see a new high till the current generation is long gone and sitting in rocking chairs. There is just too much psychological damage. It is just the like the depression era generation. They were massive savers and believers in pay as you go. They dis-trusted banks with a passion. Similarly, all the wall street hype in the world is not going to get the baby boom generation to gamble their remaining wealth in the markets in a significant enough way to get back the 2001 levels. Only the next generation is going to do that and most of them are barely 20, so look for a decade or more of range traded markets. As the controlled markets of the 90's and the early 21 st century finally slip away and the economic cycles return to more traditional 7 year cycles look for a massive correction at some point to undo all the past manipulation. With many of the central banks running out of tools, we may see the banks try to re-inflate their economies. That is something anyone who lived through the 70's nobody wanted to see again, but there may be no other choice. ]