Go to the Amazon.com link below for TIMING THE MARKET by Deborah Weir (Wiley, 2005).
Email: DebWeir@WealthStrategies.bz
Take her class at the NY Institute of Finance: nyif.com/courses/fimk_1014.html.
Thursday, February 19, 2009
The Dow closed today at 7,465.55 on fears of US bank nationalization and a worsening recession. This breaks through the Nov. 21 bear market intraday low to levels we have not seen since October 2002. BigCharts.com provided the graph.
The 7,000 troops being sent to Afghanistan combined with the testing of November lows may build a "head" in another inverse head and shoulders formation, paired with that of 02-03, and forming the head extending down to about the 7300-7100 range, would mean that near term the index would have to move back up to around the 9000 level build a proper neckline.
The inverse head and shoulders have an average rise of 33% in bear markets and 49% chance of reaching of reaching that level. (Bulkowski, T., Encyclopedia of Chart Patterns, p.390) Provided this plays out, that would put the Dow peak at about the 12,000.
With so much cash on the sidelines in 10 year treasuries yielding 2.81%, combined with the widespread anticipation of an improvement in the second half of this year, may provide enough power for such a scenario to play out. However, four stocks in the Dow sell for under $7. Such a move in equities would require a substantial improvement in institutional investors outlook.
So after the previous posting I looked at the S&P and saw the massive double top on the weekly chart and saw that it closed just above the confirmation line last week.
The Average decline in bear markets for the Eve Eve Double Top are -25% for individual stocks. But times are anything but "average."
Deborah: To clarify my post about the S&P 500, I was utilizing a monthly chart going back thirty years. Using a linear chart of this time frame reveals a bearish double top formation.
The Numbers The two peaks of the pattern occur around the 1550 level in March of 200 and Oct. '07. The confirmation line is ~769 12/02 According to website that summarizes Bulkowski ,we can conservatively estimate the move from a breakout below the confirmation line (~769) as 1/2 the distance from the peak (1550) to the trough(~770) or about -784 points, which would be about a -392 point move which would put the target for a downside break out to around the 378 level on the S&P.
On the monthly chart, this natural resistance level was last penetrated in March of 1991 where it became a support level until January of 1992.
Since the confirmation line was pierced this week (ending 2/28/09) the next logic level for the market to "take a stand" is between 680-600. If we move though this level, to the 1991 level, that would constitute about a -97.82% move.
The Double Top From the link above, "Bulkowski estimates the double top has a failure rate of 65%. If an investor waits for the breakout, however,[which I believe we have done this week] the failure rate declines to 17%."
The math above was my work, but apparently a lady named Louise Yamada sees this too, and gave a Bloomberg interview to this effect.
5 comments:
One Possible Long View Scenario.
The 7,000 troops being sent to Afghanistan combined with the testing of November lows may build a "head" in another inverse head and shoulders formation, paired with that of 02-03, and forming the head extending down to about the 7300-7100 range, would mean that near term the index would have to move back up to around the 9000 level build a proper neckline.
The inverse head and shoulders have an average rise of 33% in bear markets and 49% chance of reaching of reaching that level. (Bulkowski, T., Encyclopedia of Chart Patterns, p.390) Provided this plays out, that would put the Dow peak at about the 12,000.
With so much cash on the sidelines in 10 year treasuries yielding 2.81%, combined with the widespread anticipation of an improvement in the second half of this year, may provide enough power for such a scenario to play out. However, four stocks in the Dow sell for under $7. Such a move in equities would require a substantial improvement in institutional investors outlook.
So after the previous posting I looked at the S&P and saw the massive double top on the weekly chart and saw that it closed just above the confirmation line last week.
The Average decline in bear markets for the Eve Eve Double Top are -25% for individual stocks. But times are anything but "average."
Dear Kumbu,
As always, I enjoy your comments. Please elaborate on your most recent post.
Deb
Deborah:
To clarify my post about the S&P 500, I was utilizing a monthly chart going back thirty years. Using a linear chart of this time frame reveals a bearish double top formation.
The Numbers
The two peaks of the pattern occur around the 1550 level in March of 200 and Oct. '07.
The confirmation line is ~769 12/02
According to website that summarizes Bulkowski ,we can conservatively estimate the move from a breakout below the confirmation line (~769) as 1/2 the distance from the peak (1550) to the trough(~770) or about -784 points, which would be about a -392 point move which would put the target for a downside break out to around the 378 level on the S&P.
On the monthly chart, this natural resistance level was last penetrated in March of 1991 where it became a support level until January of 1992.
Since the confirmation line was pierced this week (ending 2/28/09) the next logic level for the market to "take a stand" is between 680-600. If we move though this level, to the 1991 level, that would constitute about a -97.82% move.
The Double Top
From the link above, "Bulkowski estimates the double top has a failure rate of 65%. If an investor waits for the breakout, however,[which I believe we have done this week] the failure rate declines to 17%."
The math above was my work, but apparently a lady named Louise Yamada sees this too, and gave a Bloomberg interview to this effect.
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