Markets rally strongly. What's next?

Markets rallied strongly on the Euro zone deal to solve the debt crisis in Greece. It's just a fact. The Dow surged to close at 12,208, the S&P rallied to close at 1284, the Nasdaq to 2738 and finally the Russell rallied to 765. All of these Indexes, except the Russell, surged above their 200 day Moving Averages. They all made a significant breakout, which can't be denied. And they did it on stronger volume, always a good sign for Bulls. This surge makes it possible for the averages to go back to the previous recent highs. For the Dow, that would be about 12,800. For the S&P 500 that would be 1360. For the Nasdaq that would be 2870. And for the Russell it would be first getting over the 200 day MA at 790, but then going on to 860. All this now becomes possible again. As I said, it's just the facts.

We had good economic news coincidently with this market move. GDP for Q3 came in at 2.5%, healthier than some low predictions of 1.5%, but not as strong as the highest ones which were at 3.5%. Initial Jobless claims were still over 400K this week coming in at

Can the markets reverse where they are now and go down? Yes, but if they do one might consider buying on the dips. Remember when we did that long ago? I do.

I have said to watch Europe and the DAX for clues about this market as we have been following Europe. Well the DAX and France's CAC as well as other european markets also surged today.

I have placed 1 year charts of all the Indexes below.

Market commentary for Oct. 4th, 2011

Tuesday's charts are of a longer period than previous charts for a while. I have put together charts of the Dow, S&P and Russell 2000 each for 3 year periods. I have drawn a number of red lines showing where support is and where you can see we may be headed. First the charts and then some commentary:



The Dow broke below recent previous lows and while it barely is below those lows, the trend looks like we are going lower. The bottom of the Dow's range is 10,000, which is 655 points lower from where it closed today. We could just as easily climb above today's lows, but we should be going lower, as the news in Europe has not solved the Greek Debt crisis and Greece today said they did not reach their goals around there promised austerity targets they had committed to the EU. That was a major reason the markets ignored good news today regarding the ISM number which came in at a 51.6 reading against an expectation of only 50.0.

The S&P500 shows a larger drop against the previous lows and the Russell 2000 shows an even greater drop. By the way, Germany's DAX Index is also going lower as is the CAC40 and FTSE, but I didn't put up those charts today. News isn't mattering these days. Lowering ones risk is what is driving the world markets now!

Market comments for Sept. 22, 2011: The Battle lines are drawn

With Initial Jobless Claims again high at 423K as reported this morning and the Fed action to sell short term Treasuries and buying long term Treasuries, called the Twist, and European markets still unresolved on Greece's bailout, the perfect storm has gathered.

Today there is a fight to hold above the previous lows made in August for the Dow, which was 10,719. The initial drop this morning so far has dropped over 320 points to a low of 10,803 and while we are closer to that level of 10,719, the Bulls are going to try and hold her or move up for a cushion. Inevitably the markets new low will kick in. It may not be today, but we are going lower. There is no good news out there today and none expected. YOU MAY BE SORRY YOU DIDN'T SELL TODAY WHEN YOU LOOK BACK IN HINDSIGHT!

The DAX is down over 4% today as is the CAC. In a previous post yesterday, I showed the trend of both of these indexes before today's additional drop. The path is clear for where we are headed. We are all locked into a Global dance and when the music stops, will you find a chair to sit on or will you be eliminated?

Market comments for Sept. 20, 2011

Today I have a series of 3 charts to show you, but before I do a little explanation and commentary. Over the past several months now our US market has been in a relatively tight range of between 11,500 and 11,000. It has been a stated fact by many analysts that the US market is following the European markets due to the concern of a default of Greece. Even as recently as this past weekend, there was news that the governments bailing out Greece wanted to extract some guarantees that Greece was serious and they wanted to see Greece promise to layoff about 100,000 government workers. So that is the backdrop story.

I have put together a chart of Germany's DAX Index, France's CAC 40 Index and the Dow. All are 1 year in duration as of the close yesterday. First the charts and then the commentary.



As you can see from the charts above, Germany and France's Indexes are still apparently going lower and the Dow and other US Indexes seem to be not following the most recent trend as show by my red lines. To me I interpret this to mean that 2 scenarios are possible, First and to me the most likely scenario is that any more of a drop by these European markets may result in a sharper drop by the Dow. The other scenario is that we will disconnect from these European markets and stay within our tight range until our own economic results determine our separate direction. Much depends right now on the politics of the negotiations by Congress over the next few months and to whether the joint committee will be able to agree on spending cuts and revenue increases. However, be forewarned that Europe is really driving our markets and we could be setting up an alarming drop as many are not prepared for the market to go lower. I was at a party on Sunday afternoon where someone who was talking about the market stated that all indicators he has been watching have flashed a Bull market rally is about to begin. I told him I didn't know what he was watching but I think we are firmly in a Bear market and we are going much lower.

Stock market trend and prediction going into September and beyond

It's the weekend and we have time to think, rather than do. So this morning I am going to put up a number of stock market charts and analysis to try and make sense of where we are and where we are headed. It has been a tumultuous few weeks and many are glad we have them behind us now. The past 2 days advance to yesterday's August Options expiration got many nervous. They thought we were on our way back up this week only to finish down, back at or near the recent lows, depending on which Index and Country's stock market Indexes you were looking at.

With that background, here are some 3 month charts of selected European Indexes, which should help you conclude that the recent drop in US stock markets isn't just about the US. But first 3 charts are of the US Indexes; the Dow, S&P and the Nasdaq. Then I have followed them with commentary and with charts of German DAX, France's CAC and finally Japan's Nikkei. All are 3 month charts and the thing to focus on is where are the indexes now, the similar patterns and whether the recent drop is slanting down or up or flat. If there is a predominance of slanting down below the other recent low points, we are going down more. Now the charts!

The Dow chart shows we are nearly flat across the low points. You will see in the S&P chart below, the same is true.


You can see the there is a biased slant down on the Nasdaq as this chart above does point a further down move.

The DAX also shows a slanted move down below earlier lows.

The CAC is flat at the lows, like the Dow and S&P.

And lastly, the Nikkei slants down significantly.

So what does this all mean? Well, I ask myself the question, Which world indexes are extremely important right now and which have been long term indicators of either prosperity or leading the way down. Those indexes have been the Nasdaq here in the US, Japan's Nikkei and Germany's DAX index. To me they all say we are headed down lower. You will have to make up your mind which tea leaf you will follow. Good luck on that.

One other important thing I look at. I look at the longer term chart. Here's the Dow going back about 30 years. You can see from the chart below, we are forming a head and Shoulder pattern over this period and it looks as though it has completed the formation of the right shoulder and it is a slanted down pattern.

This signifies we may ultimately be headed down to retest the lows of 6,400 eventually and may not hold at that level. Given world events which seem to be changing daily in a negative direction, I would not be surprised to see this scenario to play out. Anther thing to remember is this, markets tend to rise much more slowly than the speed of which they go down. This chart shows that clearly.

Looking at roughly the same period for the Dow/Gold ratio you will see the high point is at year 2000. All of these points were taken at 1/31 of each year, except the last point and that is Friday's data. So the trend for the ratio is continued down. The implications for this are that either Gold will continue to rise to get the ratio back to the 1-2 level again or the Dow will drop significantly while Gold either stays high at current levels or goes down some at the same time. For the Dow/Gold ratio to be at 2, then either the Dow must stay at 11,000 and Gold goes to $5,500/ounce. Or Gold to stay at $1800/ounce then the Dow must drop to 3,600. Neither scenario will really happen but adjustments to both are a more realistic possibility. Assume for a minute the Dow does go and retest the 6,400 level, and Gold pulls back to last years level of $1200, that would yield a Dow Gold ratio of 5.3, which is very close to where we are today!!

This last chart below is my short term read of the top limit of any dead cat bounce of the Dow. You will notice the last false bounce above the red line and decline to follow the earlier trend down. This was a bear trap. I stepped in it and had purchased some TNA Call Options thinking we were on our way up again as we did before. I was wrong, but luckily didn't buy many. Watch for more of these false moves, as I believe we are in for a steady, but jerky decline. That red trend line shows that we could still reach back up to the 11,000 level, but as the slope of that red line indicates it will be short lived.

So with European debt rising quickly and many countries unable to pay their debt, we are facing country defaults, not just company defaults. Think of Lehman Bros. when you think of market reaction and multiply that by 10 to see the implication of a country default. I wish and hope it is not so, but one must be prepared for the worse and survive it. Good luck to you. Where do you think we are headed? Comment below if you like. I screen comments only for improper language, so there may be a delay before you see your comment posted here. Thanks!

Market outlook for March 3rd, 2009: Calmer

In pre-market today, it appears that World markets are calmer after the big slide yesterday. Our Dow lost about 300 points and it closed at 6,763 while the S&P 500 closed at 700. Both Indexes closed at the lows for the day or very close to it. The Put to Call ratio closed at 1.07 yesterday and while high it did not go high enough to warrant a Buy signal as we have had a number of days at or slightly above this level. From a Candlestick pattern, the Dow's action yesterday did not create an "inverted hammer" pattern, as I had hoped. Here's a definition of an Inverted Hammer: A one day bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop. So I am not confident we will actually reverse the downtrend today however any moderation will be welcome and a relief.

The major effect on markets today will be testimony by Fed Chairman Bernanke and Treasury Secretary Geithner in Congress. It can go either way based upon Geithner's previous poor showing. My guess is there will be increased volatility as he speaks.

Also, on CNBC this morning, Larry Lindsey, former Bush Administration National Economic advisor said this morning that the Obama Budget is a "World Game Changer" and a "Downpayment on becoming a Welfare State". He said foreign governments will not want to buy our debt and that can cause our currency to devalue. How do those comments sooth your nerves. It troubles me a lot they are saying things like this.

Futures in Europe are mixed with the German DAX and France's CAC up slightly with the British FTSE down. At 5:45am PST, the Dow Futures show a Dow up about 90 points at the open.

We are in limbo land at these levels on the Dow. If we could climb back up over 7,200 on the Dow in the next few days we may prevent going lower to 6,200 on the Dow. But events are not encouraging that will happen.

Market outlook for March 1st, 2009: Scary!

Things couldn't be in a worse position at the open today. Futures show the Dow at 6,901 and the S&P is at 715 at 4:00am PST. European stock markets are also in a bad place with the CAC down 3.7%, the German DAX down 3.3% and the British FTSE down 4.4%. My friends this is very bad news as we are most certainly headed down to test the next support level of 6,200 on the Dow. and if we break that level it is down to 4,000.

I am reminded how much this is not just a U.S. problem, it is a Global problem. AIG, the world's largest insurer lost $61 Billion and needed more money from the government (hence the taxpayers) over the weekend. The gov't has added another $30 Billion to it's original investment. This is the 4th investment given to AIG.

If you ask me what you should do, I have no idea. But the best I can say is to preserve capital. This will be very painful, if it isn't already. Sorry for the negative outlook.