Click chart to enlargeThanks to its putting in a "higher low" this week, the Dow is once again in a short term uptrend. Make no mistake, the broader trend is still down. We have to decisively break and close above the 200dma in order to even start talking about a new bull market. But in the meantime, we'll be very happy just to see the market reach that milestone.
So which comes first, touching the 200dma or a break of the new uptrending support line?
You don't have to be a rocket scientist to know that the broader market had reached very oversold levels in late June / early July. We started a position in DDM a few weeks ago knowing that eventually we would get a bounce that leads to an uptrend. And here it is. Our guess is that the Dow will touch the 200dma before it breaks its new support line. The move will not be quick nor easy. With unpredictable spikes in oil, the Dow is not in for a smooth ride. Nevertheless, we expect it to more or less remain within its new uptrending channel until it reaches 12300 or so.
As part of a long term portfolio, adding DDM here makes sense. As always, extra cash should be allocated for averaging down. While we do not advise that people average down into downtrending stocks (we don't even advise people hold them), we do believe in averaging down into indexes, mutual funds, and the like. The diversification these investment vehicles offer make them prime candidates for investors/traders who are skilled at committing capital in stages in such a way as to make sure the majority of their capital is invested near the bottom. With an individual downtrending stock, this same approach is most often a one-way ticket to financial suicide.
3 comments:
I am not so sure we are in a bear rally yet. If you look at the chart you see on march 10 and 11 the dow setup a support around 11730. Then at the end of june it tapped it twice before breaking down on june 26. So i won't be expecting a rally unless we break above 11700.
I am worried this rally might be dead before it even had a chance to run.
That 11700 level looks pretty solid. We would expect the Dow to stall at the top of its new channel anyway... around 11800. It will be interesting to see if it responds more to the 11700 level or to the new channel. It may be hard to tell, as it could reach 11800 intraday, then close at 11700. Either way, it shouldn't break the top of the channel in any decisive way. If this rally has legs, it'll likely bounce around in the channel while making higher lows and higher highs. That means that revisiting 11250 or so would still be within part of the new uptrend.
Maybe we have a descending( ascending?) triangle.What do yoy think, breakdown or breakup.For sure we can have a break...!!!
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