Click chart to enlargeThis chart of the Dow which goes back to the start of the recent rally shows a change of character for the index. It is now trading below its moving average, which is starting to turn down itself. This line which served as the approximate support level during the rally is now resistance. The one big drop we saw last week, which decisively broke the trend channel and moving average changed market sentiment... at least for the time being. This is no longer a "buy the dips, rally mode" kind of market. It's now a nervous "which way next" kind of market. It's too early to call it a "sell the rallies" market, but another lower high (rejection at the moving average) would change that.
5 comments:
Well, damn. I bought after the last three 'channel breaks', and am quickly down ~18%. It seems they are not so decisive after all. At least in this crazy market. I'm completely at a loss as to where we are going from here. I can't believe that the market has sort of shrugged off the impending bankrupcy of GM.
I no longer think shorting the financials is a good idea. It looks to me that the rest of manufacturing can go to hell in a hand basket, but the banks will be saved at all cost.
Fiat must be licking their chops. The dear 'ol Pres basically gave Chrysler the finger, so now they have to negotiate from a very, very bad position. Oh, and with an 80% stake in AIG, the gov. still didn't think it advisable to get rid of any of the board. But with no stake whatever in GM, they have the balls to out their chairman, and shuffle the board of directors. Instead, the gov has appointed some sociology prof, or some such, to head up the auto's restructuring. Fact is, indeed, stranger than fiction.
If the poll is any indication, we should be headed lower. A sociology professor, huh? I thought they made more than government CEO's as it is.
Snot, Please continue to provide comments on your charts as time passes. For instance, it looks like the DOW is back in the up channel. What are your comments?
The dow broke the resistance on this chart, but with non stellar volume, i think all this stuff is just a headfake. Unemployment is still rising houses are still getting cheaper, GM probably going to tank, put my vote in for the market to tank one last time. Just my opinion
Anon, there are four stages...
Stage 1- sideways after a downtrend - choppy, breaks the moving average many times in both directions
Stage 2- uptrend (price is above uptrending moving average)
Stage 3- sideways after an uptrend - choppy, breaks the moving average many times in both directions
Stage 4- downtrend (price is below a downtrending moving average)
These stages typically take months or years to play out, using the 200dma as the average. We've applied the concept to the current short term rally just to get a better idea of how to time it for ourselves. Right now, the market as a whole is no doubt in a Stage 4 downtrend. There's no disputing that. It is trending lower below a downtrending 200dma.
If you zero in on just this little multi-week rally that we're having, then the market is in a little Stage 3. It is no longer in a Stage 2 uptrend. Nor is it in a Stage 4 downtrend... yet. Once it enters Stage 4, if it does, then you have to assume it's going to zero until it stops falling.
It may just be resting right now. Consolidating the recent huge advance of the past several weeks. We may start a new Stage 2 uptrend after this consolidation is over, or we may fall into a Stage 4 downtrend. Nobody knows. We sold some DDM when the channel broke because we had left the Stage 2 uptrend, making the market riskier going ahead. It isn't that we thought it would tank, it's just that once the channel was broken, the odds of it rallying further were much less than they were when the channel was intact.
TA is not meant to give you foolproof buy and sell signals, although sometimes it does. What it really does is helps you put the odds in your favor over time.
Right now, the market is less decisive than it was when it was in the channel. It could go either way. We buy the dips when the market is in the channel. Right now, we would not buy the dips because if one of these dips makes a new low, we may be starting a Stage 4. You see, the stages help you decide what mood to be in... bullish, cautious, bearish, etc.
Right now, we're in a short term Stage 3, so our mood is neither bullish nor bearish, it's cautious.
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