Market rally now looks obvious, but be aware it is only temporary.

Yesterday's reversal and return to an almost unchanged level sets up today the rally back up to about 10,500-10,600 range over the next week or so. The final leg of the last "W" pattern is being formed if you look carefully at the chart. There is no way to know for sure its length or duration, but one thing is for sure, after this leg up we are headed down to retest this support line and I believe it will fail to hold. The chart above shows 2 other things. First it shows a reason why the market didn't go lower yet. It was at a significant support level that if and when it is broken will result in a significant market drop all the way to about 7,800-8,000 level as the first major plateau of this return to a Bear Market.

The market should be heading down with the news this morning that Durable Goods Orders for April fell, compared to March's rise. Nondefense capital goods, excluding aircraft, often called core durable-goods orders, fell 2.4% in April after a 6.5% gain in March. This would be bad news and if news really drove the market, as many claim it does, then we should have been in negative territory in the Futures market, but the Dow is up 93 points and the Nasdaq is up 22 in pre-market. I hope you now get it that the news or any news does not drive the market. It is human patterns that drive the market.

The other thing it shows is that while the markets were dropping Volume increased much beyond the previous leg up of the market. Compare the volume in the last phase down, shown within the Blue arrow, and that of the previous period of March 1st to the end of April. You will also notice that the period of February the volume was also higher in the small declining period that month. This gives additional validity to the argument we are in a Bear Market Rally.

I will ride this rally up and be prepared to sell, when the market reaches my target. I will repurchase TZA Call Options simultaneously, as we approach that target.

Yesterday, I purchased TZA Put Options for October expiration for $0.90 each share. I plan to gain on these as the market rises also on the Russell 2000, along with the S&P 500. All indexes have a similar pattern with their own Support levels if you look at 1 year chart patterns of the daily closing prices. Good luck on this next leg up. But keep in mind we are about to have a significant market crash this Fall.

Click on the chart to enlarge it for better viewing.

More views on 1929 vs today on the stock markets

Many are asking whether we are going to continue to rally or have a setback. Some use the analogy to 1929 and the Great Depression as a cautionary flag to warn investors, so I searched the web tonight and found this chart which was rather unique in that it compared all the recessions to the 1929-1932 great Depression. It was compiled as of February 2009 by JP Koning, so it has not been updated recently, but it is rather an impressive chart. Here's the chart and you can read the comments and this link.


As many of you already know, I believe we are setting up for a major correction to retest the lows in the Fall. We will go at least as low as 7,300 but if the economy doesn't show recovery in the wings, we could retest 6,400. I might be wrong and truthfully I hope I am.

And here is another comparison chart, more up to date, as this one goes to July 19th.

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.

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.

Trades made today: Taking profits and preserving capital the game.

I wanted to alert my readers of several moves I am making today. I sold my Ford at $2.73/share. I sold my shares of SSO which I had purchased at $17.48 and $21,57 for $19.55/share. I purchased shares of the ETF Ultra Short TZA for $58.52/share and sold some of my TNA shares at $17.57/share. I still hold TNA but have hedged against a market reversal, as I see the rally stalling today. It truly may be running out of steam propelled from good news. Yesterday's AIG fiasco, regarding bonuses paid to those who created the problem for AIG requiring government bailout funds, may have taken its toll on this leg up. I continue to hold Citigroup.

Taking profits and preserving capital in this crazy market is always wise.

UPDATE: 9:00am

The Ford round trip netted me a profit of 43.7%

The SSO round trip on those shares were a wash. No profit and no loss.

Market Rally: Will it continue this week?

That is the big question at the end of today's trading. The Dow went up 379 points to close at 6,926. The S&P 500 went up 43 points top close at 719. This is was especially good as many had seen the S&P needed to get up over 700 again. The key level for the S&P this week would be to go over 740, as many shorts would get rid of their shorts very quickly. They haven't been nervous in a while. The ETF Ultra Short triple play, TZA lost over 20% today, while another ETF triple play of the Small Caps, symbol TNA, gained over 20%.

The Volume was very good and a number of stocks went back above their 20 and 40 day moving averages all in one day. I think the rally will continue just because it has been long awaited and many do not want to sell into it until they have gotten back some of their losses. I would not sell into this rally too soon. The Dow could go all the way above not just 7,000 but 8,000 as well.

Gold dropped again today, down 22 points closing below $900 to finish at $896. This is very bullish for stocks. I also have noticed an increase in trucks on the highways the past 2-3 weeks here in the Bay area. This has been a good sign although the sample size is quite small and not representative of the economy in general. But it was a hopeful sign. I will be traveling to Las Vegas tomorrow and I will see first hand how Vegas is fairing. I expect to see some there watching the NCAA March Madness basketball tournament on the jumbo screens.

Rep. Barney Frank today said he believes the SEC along with Congress would reinstitute the Uptick rule. And Fed Chairman Bernanke today said he believed the recession would be over in the second half of 2009.

All in all it was a terrific day to help my portfolio and I expect it to continue. Don't be disheartened if it drops during some time tomorrow. This rally has legs and I do not believe you will be disappointed!

Markets point up but don't be fooled!

GDP for the 3rd Quarter was announced this morning and not surprisingly it was down -0.3%.This was not as bad as some had predicted with many expecting -0.6%. However, there were 2 good months with Sept. being the bad month. Markets appear to be set to open higher, but that doesn't really make sense does it. So this is a continuation of a Bear market rally. The Fed is lowering Interest rates but it doesn't and won't have any effect because no one is lending credit. So it's like the Butcher shop that advertised hamburger for $0.99/lb and when you ask for it the butcher says we don't have any. :)

Those invested in the stock market right now would be wise to take any profits they have in some stocks as one can predict without much effort these markets will pull back again soon and maybe deeper than before. My advice for those in cash is to use some cash to buy Ultra Short Funds of Indexes like the Dow or S&P500, as they are very cheap right now.

Things are not looking better in the economy even with all the actions of the government to mitigate the financial crisis. Therefore a stock market, which is rising is counter to the real conditions present. save yourself some pain and heed my advice. When might this pullback happen? My guess is just after the election. This rise may be to help give the Republicans a chance to win or keep some seats and so some Hedge Funds and investment bankers are pumping up the Indexes.

Today is a Bear Market Rally. Sell into strength to preserve cash

That's correct, this is a relief rally because of the coordinated moves in the EU. If your stocks have scratched back a sizable gain, you should consider selling some of the stock today as the rally continues and more tomorrow if the market continues its rise. Because, the markets will drop back to the recent lows in days to come and will set new lows. It has happened many times in the past and if you observe how the Nasdaq dropped from the Dot.Com bust in 2000 to 2001, there were many times where everyone thought the bottom was in only to see the markets drop again to new lows. Let history be your guide.

Check back as I will continue to write about markets here. When we are at the bottom I will declare it. For now I am trying to help you save your funds and preserve capital until things stabilize. We are not stable yet and have quite a long way to go.