Friday, July 23, 2010

Market Outlook for July 23rd and beyond

I took some time this morning to take another look at my short term and long term view of the Dow chart patterns and see what is clearer to me now. I was amazed that I realized something not seen before or put into a more realistic view and it surprised me, I must admit. What I say will be obvious only AFTER I have said it, for those following my posts here.

I have posted a 6 month chart and a 30 year chart of the Dow and will be speaking to both in a minute. But first some background. I have stated here repeatedly that we are headed to retest the lows of 6,400 made last year and that I did not believe we would hold that level. I have also bought a number of ETF Ultra Shorts in support of that view. I have been expecting the drop sometime this Fall, starting in September/October and therefore bought some Options expiring in October and January. The Dow this week has been going up after the large drop of 267 points last Friday and has all but recovered form that drop, confusing me and many others it appears.

The news hasn't been terribly good this week. In fact, the news has not been good at all. Fed Chairman, Bernanke, testified before Congress that these are "very uncertain times" and this normally would scare the markets terribly. But nevertheless, the Dow and other Indexes here and in Europe have all recovered this week and the US Indexes are poised to go over their 200 day Moving Averages, as is visible in the 6 month Dow chart above.

What gives? Do I still believe we will have a very volatile 2 months in Sept./Oct.? Yes, I still do. Do I believe we will test the 6,400 level then? No I don't. Then what has convinced me otherwise? It is the 30 year chart. You will notice that I have drawn several blue arrow lines on this chart. Each represents the length of time it took for the "W" pattern, or Head and Shoulder pattern, to form, with the 3rd peak currently in its formative phase. If you look at the width of the 2 arrows they span a number of years. I realized that this 3rd phase could take that long as well! This is the new realization I have had and it has had an impact on my thinking and therefore my trading.

Looking at the 6 month chart now makes more sense as this is not going straight down. It will be more drawn out and could take years. But in fact we are headed down eventually. But it should unfold more slowly that I had expressed here and considered given the blind spot I had. I am a little wiser today, so now let me see how that plays out in my posts here. It suggests more frequent trading for me and taking a chance to take less profits in more frequent trading periods. I will try to increase my volume of trades significantly, riding short periods up and down in a narrower channel. We shall see if tis is effective or not, but it appears that is where I am headed.

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Anonymous Anonymous said...

I watched Peter Schiff today:
I think he answers some of the questions in your last post. We're covering up deflation with inflation. It's worth a thought.

8:03 AM  
Blogger Charles Amico said...

Thanks Thor, much appreciated! Have a nice weekend.

11:53 AM  

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