Click chart to enlargeThe chart above is a log chart of the Dow over the past 7 months. Channels are more reliable on the way up, but we've nevertheless drawn a downtrending channel to attempt to gauge how oversold the market currently is, relative to recent levels. We know that the slope of the channel is valid because it parallels the moving average, and roughly approximates the highs and lows of the market for this time period.
The slope of this channel is steeper than most bear markets. The oversold levels reached in October and November were very extreme. There is no guarantee that we'll reach such extremes again, but recent history is the best guide we have. If the market were to plunge over the next few days, we could reasonably expect it to stop at 6,300, with 6,000 being the extreme low. Of course, the longer the drop takes, the further the lines move down.
Although buying in a bear market is not safe, the further the market drops below its moving average, the better off you are. The best case scenario (for us, anyway) is a hard drop directly to the low 6,000's. At that point, we would at least double our long positions. There would be a good chance that from there the market would either consolidate sideways for many months, or move higher. Many are now calling for Dow 5,000. We don't need to see Dow 5,000 in order to tempt us in, we'll feel comfortable adding in the low 6,000's, no matter how scary the environment is if/when we get there.
9 comments:
Great chart. However I dont suggest going long Snot. You should pay the larger trend here and not play the bounce. The world is in dire starights and I don't think the end is near. I got hooked on to TA by you but have proifted well this year playing the long term trend. Never fight the trend! You can't be optimistic about a guy who comes everyday on TV and throws away trillions of dollars. Money has never solved any problem and it certainly wont solve the biggest financial crises.
Rik
You're 100% right. Problem is, we can't short stocks. We can only buy ultrashorts. And you know how they are... even if you're right, you can still lose if you hold them too long.
We keep looking at the market and saying, "could that really happen", and so far, it just keeps happening. Dow 7,000 gone. Now we're looking at 6,000. Why not just cut to the chase and predict Dow 2,000. It sounds outrageous, but who in mid 2007 would ever had believed we'd be in the 6,000's today? Back then, calls for Dow 10,000 were considered outrageous.
Snot, you can buy PSQ instead of QID, DOG instead of DXD, SH instead of SDS, SEF instead of SKF, and so forth.
http://www.proshares.com/funds
True, but even so, they degrade over time just like the ultras. The Dow itself was about 11,500 on Sept 1st. Four months later, on Jan 1st, the Dow had fallen 2,500 points to 9,000. Had you been correct and bought DOG on Sept 1st, you wouldn't have made a dime by Jan 1st.
So unless you're quickly trading the inverse ETF's, Ultra or not, the odds are stacked against you.
This is a train wreck by any measure. It just doesn't appear, or feel like, the sudden explosion because the whole thing is happening in slow motion. So what we have is the engine and coal car all smashed up, and the 100 boxcar pile-up slowly unravelling. The question is, is how many of the cars will be left on the tracks when all the dust settles.
Back-of-the-envelope calculation is that 25%-30% of retail stores go away. DOW to 6000 (my quess back in early Oct., on this blog). Foreclosures don't peak for another year, at best. All bets are off if the dollar takes a hit. I don't think even a small hit is tolerable, because there won't be any mechanism left to stem a much greater fallout. Right now everything is being done to keep a status quo. There won't be a reserve to call on if the dollar is cracked.
Bought QID at 64.47. SKF got too pricey too quickly, although I may still pull that trigger later this week.
Wow, QID really is breaking out. Guess Cramer was right, there's always a bull market somewhere!
Yeah, you are right Snot. PSQ is better than QID but it is crap too. Now if you could short the inverse ultra ETFs in a bull market, that would be the ticket.
Nasdaq QID PSQ for 3 months
Last monday I set a target of 6750 for tomorrow with an intraday target of 6500, based on the 40 point per day descending support line we're on. MCD also hit my target of 52.
This is a long slow slide down the toilet, but on a positive note it has been very predictable. The VIX has been relatively low. Panic is turning into despair. The market is ready to put in a bottom, at least for 2009.
I'm buying lots of BGU under 16.50.
Go ahead and copy this url to your browser. I think this puts the financial state into perspective.
http://finance.yahoo.com/charts?s=C#chart4:symbol=c;range=my;compare=bac+aig;charttype=line;crosshair=on;ohlcvalues=0;logscale=on
If shorting financials isn't a sure bet, I don't know what is.
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