The stock market: Where's the short term bottom?

Here we are with another day of opportunities or crisis. The Nikkei is down tonight 420 points at this hour to 8700 on the Nikkei 225 and the Hang Seng is down over 1200 points to 19,128. The big question is this, where is the bottom for our market and when will it bounce up a bit and stabilize. Based upon Asia, I would say we are going to go down more than where we are now on Tuesday. The chart below is where I see a stand taking place between the Bulls and the Bears, with the Bears winning the momentum game at the moment. The blue horizontal line at 11,000 now becomes the resistance level for the Dow, if the market does turn up. The red line at the 10,000 level is support for this market. It should make a stand between these 2 lines and stay between theses 2 levels until direction of the economy and the actions taken by the G-7 and G-20 becomes more clear. Italy's debt is still a major market concern, even though we tend to focus on our markets and economy right now.

If you haven't read the posts of the past few days, it would be worth your time. Thanks for visiting.

Market outlook for July 12th

I have posted a Dow chart for the past 6 months and have underlined in red the formation of the "W" pattern which has emerged. The red line extends under the "W" pattern's bottom lowest legs. As mentioned on many earlier posts, a slanting downward "W" usually means new lower lows are coming than the lowest leg of the "W" already formed. You will also notice that there is a gold line showing the 50 day Moving average is about at 10,300. The market will not go above this line and even if it does briefly, the Dow will stay below it. We are close to the top of this short rally, which has occurred on low volume as the bottom of the chart above indicates. When price rises and volume drops, that is a very bearish sign.

So this market is bounded by resistance at 10,300 and an inevitable drop below the lowest levels so far. That is where we will stay for a while. Today starts earnings season for the second quarter. Watch for a more cautious outlook from companies going forward for the remainder of the year. The reasoning being that everyone knows the economy is soft, so why take the risk and get penalized for showing a bright future when if they miss higher expectations next quarter the market will be punishing to their stock price. So caution is the word this earnings cycle.

Markets and politics rule the week. Whipsaw action in both

It has been a while since I have commented about the overall market. This has been because nothing much was different in the trend until now. We are currently at a very interesting point on both the Dow and the S&P 500, as the 2 charts above show. We have broken the uptrend line this past week and reverted back just to the critical 3 year downtrend line. If we go below this downtrend line we are headed dramatically lower and could finally have that major 20% correction. However, if we can stay above that line, we may avoid it, at least for now.

We have gone back to the previous, ever important, resistance level of 1090 on the S&P 500 when markets closed lower on both Thursday and Friday. Back in early December, December 5th to be exact, I had said that I expected the correction to begin the end of January into the first 2 weeks in February and we are just about there now. The next 2 weeks will determine where the market is headed for 2010. If you have been following the markets recently, when good news has been the leading story of the day, like how much GDP gained in the 4th quarter, the market did not stay up. And when the market seems to have some bad news, the market has a big selloff on higher volume. The market is prepared to go lower psychologically right now and it may just play out.

The political arena has also added to the volatility when the seat Ted Kennedy held went to a Republican and shook Democrats to their core. They were in disarray. But then the State of the Union speech given by President Obama had many feeling a sigh of relief that it was a great speech which boosted the Democrats morale. Yesterday, President Obama went into the mouth of the beast, being invited to a retreat by House and Senate Republicans, he took them up on their invitation but insisted that the event be televised. Republicans agreed and so it began with a brief introduction and then down to business. The President gave the Republicans a lesson in being honest with constituents and the American people, in an unscripted format. His command of facts was truly impressive and inspirational. The contrast between this President and President Bush couldn't be more striking. One commentator reported one Republican leader as saying that they should never have agreed to have the event televised because the President did so well and making Republican arguments look so empty of substance. Fox news even decided to cut away and trash the President rather than allow their viewers to hear the President answering Republican questions in a masterful way. WE need more of this type dialogue in our politics no mater what side of the debate you are on. It forces competency to rule rather than quick shots from either party. Independents had to like this format and discussion more than both Parties. I hope we see more of it. Stay tuned!

Market outlook: Entering the most critical period

The market ended with mixed results for this past week. I have summarized several charts which help give a clearer picture of where we are headed. I will discuss each chart and cite some comments from a prominent business leader to help support my conclusions. In summary, we have reached the top of this recent rally.

The first chart below is a 5 Year chart of the Dow.



The top part of the chart is the actual closing value of the Dow, while the bottom area shows the Volume. It is clear from the Blue lines that we hit resistance and have not been able to go above it. It is also clear, if this is true resistance we are headed lower. We have not tested the lows. If we ever get above resistance the second blue horizontal line crosses at 10,000. You will also notice that the Volume climbed as it approached the major market drop to the 6,400 low. and while the volume of the rally from the low had good volume it declined until it is most recently well below what was needed to sustain this rally. I therefore conclude we will go lower now, rather than continuing to 9,300, the high of the range from the market bottom.

This next chart below is of the S&P 500. It shows a very similar pattern. There is no Volume data available for the S&P 500.



I draw the same conclusion here as I did with the Dow. We are headed lower.

Now let me string together a series of comments from the Vice Chairman of General Electric, John Rice, in an interview yesterday. He said, "I have not seen it (Green Shoots), in our order patterns yet. At the macro level, there may be statistics suggesting the economy is starting to turn. I am not seeing it yet. We see a world where good companies and good consumers can’t get all the credit we would like. Companies with lots of cash on their balance sheet are worried about whether they will get what they need for working capital and are cutting spending. Until that changes I don’t think you will see a significant rebound, We are preparing for 12 or 18 months of tough sledding.”

I recommend you read the entire article to put all of his words into context by clicking here. But it infers that many companies are struggling to make a profit and are cutting costs as their chief tool.

This does not bode well for the market as, in a few weeks, we go into earnings season for the 2nd Quarter. If you are short the market you should do well. Or if are considering jumping into the market, I would suggest against it. Keep your powder dry and preserve capital. The next month will have many shaking their heads about this market.