What do the Charts of the Dow, Nasdaq and S&P tell us? Down is inevitable!

As the title suggests, when you look at 3 charts, they point to all Indexes going down from here. There is no other explanation that merits serious consideration. Let's take them one at a time. I know this may seem too technical but I have tried to explain it in a way that you can understand it if you follow along with each chart. It would be wise to click on the chart to enlarge it as a separate page to view while you are reading the text.

Starting with the Nasdaq Composite Index chart you will notice that it looks back a decade to when the Nasdaq reached its peak over 5,000. As I drew a downtrending Blue line from that peak to connect where the Nasdaq reached its high of 2,800 in the Fall of the year 2007, I drew another red line which covers the period of 2007 to now. While there is a slight difference in the 2 lines, it is not significant enough yet to distinguish. However they point to this downtrend line continuing. We will NOT break above these lines and the 200 day Moving Average line, denoted as a yellow line hugging close to the data points, until we truly return to a Bull market. That day looks to me interpreting the way forward, not to occur for at least 1 year and possibly 2 years. That is when we will see if we can go above these downtrend lines. The line at the very bottom in blue says we most likely will not go below 1,300 in that 2 year time from today, if that is of any comfort. The Nasdaq Composite Index closed Friday at 1,692. Now let's turn to the Dow chart.

The Dow chart is also a 10 year look back and a projection of the downtrend line continuing. Here too we hit a peak in the Fall of 2007 and then dropped in a series of stairs, each one up leading to a sharp step down. The blue line dropping from the Spring of 2008 connects to almost exactly where we are today where we closed Friday at 8,277, a little above where this blue line is but very close to the 200 day Moving Average. In fact, if you don't know how to, or like to, draw these charts, using the 200 day Moving average accomplishes almost the same thing. As I look at the chart and the lines I have drawn, we will be lucky if we can stay above the lower floor of the Dow at 6,400. But there is going to be a test of this level, most likely this year. When it will happen is difficult to predict, but I will give it a try. It looks to me it will be tested again this Fall. It may start by testing the low 7,000's like first the 7,800 level followed by the 7,500 level and then the 7,200 level before its final decent. It can bounce up from each of these tests, but remember it is like a staircase. Each test takes us lower.

There is no guarantee we will not break below 6,400. As a matter of fact, there appears to be a 50/50 chance we will. Why do I say that? Because of the steepness of the blue downtrend line. If we do break through the 6,400 level, I am hopeful we will set a new bottom but that bottom could only be at Dow 6,100, not the Dow 4,000 that so many have predicting. If that occurred and we did go to 6,100, we could bounce back up off the low and start to climb and start breaking above the blue downtrend line and form a stable floor for the market to climb out of. Again this looks like Fall is the timeframe as much more news about the health of the economy, unemployment, the Banking system and the auto industry will be clearer than today. If things look more optimistic we then could start a new Bull market, but not until then. We have been, and are, in a Bear Market Rally! The S&P 500 chart looks very similar to the Dow and I would expect this Index to behave the same as the Dow.

So there you have a look into what I see happening over the next 5-6 months and why I still have kept holding my ETF Short Triple Play, symbol TZA. If I am correct in my outlook, this could yield double, to possibly even triple, my original investment. To me it's worth waiting the 5-6 months and find out. If at any time we break above the downtrend line and it appears to hold, I will be the first to post it here and sell my TZA. Indeed, I would be very happy to be wrong here, as I would love everything President Obama and his Administration are doing to succeed. I win on either side of this bet. But your challenge will be to preserve your capital at all costs! Some are doing that buy buying Gold, as it has climbed most recently from $860 to $958 at the close on Friday. Silver also has advanced. Inflation has a way to go before it affects us directly, but that day will come too just when we enter a Bull Market rally. Come back and read my posts as I post almost daily and while it is mostly now about the stock market I also post on the news of the day when the moment or topic moves me. Good luck! And if you haven't taken my Mini poll on the right side of the page, please do. Thanks for coming.