Tough Out There for Both Bulls and Bears

What I’m seeing in the markets right now is inconclusive, as we seem to be stuck in a trading range as indicated by the charts of the Dow and Nasdaq below. It seems like there is a strong case to be bullish and bearish right now, as indicated by the many bloggers, publications, and business news sites I’ve checked out recently. It can really make you’re head spin with all the different perspectives people have.

It would be easy for the markets to roll over and die at these levels with all the negativity out there. Or I could see a situation that’s plausible for the markets to rally, as stocks are at levels that haven’t been seen in years. If you're in the camp calculating that this recession will be coming to a conclusion near the middle of next year, then it makes sense for the markets to be putting in a bottom real soon(1-3 months).

One reason I’m slightly leaning to more upside is this chart from 1929 showing that the average bear market rally is 33%, and so far we’ve only rallied 18% off the Dow bottom. I’m excluding part of that big gap down on the 10th to arrive at 18%. I’m not saying that we have to rally exactly 33%, but I think more upside is possible before we roll over.

If you’re in cash as I am right now, the best thing to do is not over-commit on either side as no side offers excellent risk/reward until some important support/resistant levels are broken. What I continue to do is prepare for both cases and will trade accordingly. I wish it could be simpler because it’s twice as much work doing research for both sides of the market, but it’s important not to be married to either side right now as the market could literally go either way. My own personal account has been whipsawed quite a few times over the past weeks and it’s quite frustrating, but I’m just trying to keep my eyes open for potential opportunities.

The Dow is stuck inside a symmetrical triangle and I’m seeing a number of individual issues that are showing this same pattern. If we able to break out above the top trend-line it would be very bullish. One other way to play this is go long here with a stop below 8500, but consider the futures right now are up 140 points, near 9137.

Another bullish pattern on the 60 minute charts I’m seeing are a head and shoulders bottom pattern. Many individual issues will start breaking out long before the Nasdaq breaks out, so look for those leading sectors that are displaying this type of pattern breaking out above the neckline. A few strong sectors in the commodity group I’m noticing forming these patterns are agriculture, oil-related, and coal stocks.

The key to watching this pattern as it develops is to wait for it to breakout and not get in to early. This chart could easily roll over and hit new lows if the sellers take control of the markets.

Comments

[Urbane Gori...:]

I agree... Can't see which way the market is going. A positive is that the VIX seems to be rolling over on the weekly chart. That would be nice. And there is talk that the dollar may be peaking. That too would point to an improving market. However, Mike Paulanoff has noted that the SDS (Ultrashort SP500) has broken through long term resistance today and may be headed for $116.00. Errr... And volume is light, indicating no reasl bullish support. My feeling is that we are in for a period of turmoil and these weird gyrations are just a sample of what's to come. Lets face it, look how little good the Chinese monster bailout did for the market today.

And just a subjective point. If you ignore the spikes on your DOW chart, you really are left with a 8200 -> 9600 trading range.

jegan

2008 Nov 10 03:49 PM