Friday, July 10, 2009

Both short and long term stock market outlook: Successful retest of the lows and then a Bull market rally

As today closes the week of the stock market, I was influenced in posting what I did today by a commentary yesterday on CNBC by a technical analyst who had a chart of the World stock market Index which showed all markets had started to drop in the May and June timeframe. This drop was consistent across the world and was not particular to the U.S. stock market. He said it implied this drop is a world phenomena and therefore it will take the world to solve it.

I have been following the Nikkei 225 stock market Index for some time but have never posted it and the Dow as 2 separate charts on my site until now. The main thing to compare is how quickly the Nikkei showed the downturn coming before the Dow has but both charts are similar when looking at a 3 year history. Below, in the first chart, the Nikkei 225 shows they have had a double bottom which was down to about 6,500 and if we return they will have put in a triple bottom. Usually triple bottoms are solid enough of a support level foe the possible beginnings of a real Bull market rally. This is what I will be looking for as the months going into the Fall will tell if this plays out.

The Dow chart below shows we did not have a double bottom yet and that is part of the reason I am quite confident we will retest the low of 6440 on the Dow, by this Fall and certainly by October Options Expiration, which occurs on Friday, October 16th this year. This could signal the moment of an attempt of a return to the beginning of a Bull market rally, which would go above the previous high end of the range of 9,300 on the Dow. This time the S&P 500 could go back above 1000 and it will be the time when I am buying heavily at hopefully the market lows. Time will tell if this scenario plays out as much is unknown as to the outcome of the crisis in the economy. But it certainly would set the stage for 2010 and hopefully a more optimistic outlook as the peak of the unemployment should give hope things are going to turn around mid to end 2010.

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