Where is the Dow heading?

Today we look at the Dow over a period of 2 to 5 years to get a sense where we are and what we must consider as we try and manage our investments. We are at a critical point where we are either going to have a breakout to the upside or we will have a breakdown to the down side as illustrated in the charts below. First let's look at the 2 year chart for looking at the current top of resistance. It is that highest blue horizontal line.
In the chart above, the bottom red line marks a short term support line. Breaking below this line doesn't mean we have a significant breakdown, but it does mean we need to be careful. In the 5 year chart below, you will see where the next real support line is and this one we must stay above or we may go down and retest the lows again.

Much going on this week in Europe and while we begin Earnings season with Alcoa reporting its earnings, Europe may take center stage over any news here.

Market comments for Aug. 19th, 2011: Options Expiration for August

It looks like another leg down at the open today as European markets are down 1-2% at this hour. Important day today as it is Options Expiration for August. Volume today should exceed yesterday's high volume. No other financial news here to announce this morning with the exception of J.P. Morgan's prediction lower growth of GDP in the 4th quarter of 2011 and first quarter of 2012. To quote Bloomberg news: "The U.S. economy may expand less than previously thought in the next two quarters as consumer sentiment drops and the housing market fails to gain momentum, JPMorgan Chase & Co. wrote in a report.

Gross domestic product will grow 1 percent in the fourth quarter rather than the 2.5 percent previously forecast and 0.5 percent in the first quarter of 2012 instead of 1.5 percent, Michael Feroli, JPMorgan’s chief U.S. economist in New York, said in an e-mailed note to clients today."

I have included 4 charts this morning. Three of these 3 month charts are as follows: One of the Dow, one of the S&P 500, one of the German DAX Index. The other chart is of Germany's DAX Index over a 5 year period. In this last chart I have drawn several support levels which are now possible given the recent downward trend. This chart is very similar to our Dow chart for the same period, which I did not include. But the lows happened at the same time. Our low hit 6,400 before it finally turned up again. I believe we will ultimately have to test that level on the Dow, because the economic news looking forward does not look bright for all of 2012, not only for the US but for Germany as well and much of Europe. I wish I could tell you something else, but I don't believe a different scenario will occur. Let's just get through today and see where we are. next week, but at the first signs of a further new low in the Dow or S&P, consider the probability higher for this major decline to continue for the foreseeable future.




Come back over the weekend so I can show you some charts on the Dow/Gold ratio and where Gold may be headed. And also some data on the Gold/Silver Index.

Market comments for Aug. 10th, 2011 (UPDATE)

Yesterday's market did rise as a result of the Fed's announcement to maintain low interest rates until 2013. Great, just what we need, more people borrowing cheap money with most likely no hope of paying it back because they don't have a job.

The Dow closed above the 11,000 level to finish at 11,239 for a 439 point gain. It seems to me now that the 11,000 level becomes now support level and 11,500 now becomes the resistance level.

Looking at the chart below, you can see that the move up was impressive if it wasn't that we've had so many large declines lately. Still, an impressive move nonetheless. I am expecting a move up to test the 11,500 level, then a pullback to test 11,000 again. Looks like we will be testing 11,000 support first based on a slightly negative Futures level. You see the news about low interest rates for as far as one can think right was the same as having very low interest rates these past several years. It didn't seem to do much for the economy, so I am doubtful this will have much of an effect on the market. It is still a very slow to negligible recovery. This market sold off for different reasons and those reasons are still relevant, hence the feeling we are still going to go down in these markets worldwide.

I am going to be plenty busy the next few days but I will try to post when I can. Thursday's Initial Jobless Claims is an important data point on Thursday morning.

UODATE: 5:45am PST

The Dow Futures are down this morning at -152, the S&P is at -17 and the Nasdaq is at -37 with all in a negative trend and deteriorating by the moment. Oil is up almost $3/barrel. Jim Cramer said this morning on CNBC that the "machines" are moving markets too rapidly for the average trader to participate. The "machines" he is talking about are the super fast computers which use algorithms to do its trading in the blink of an eye. This type of trading has been called High Frequency trading. Before the average trader can put an order in to Buy or Sell, these super computers have made thousands of trades. They have a definite significant advantage, as the Gatling Gun does over the Bow and Arrow.

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.

Dow chart and market prediction. (UPDATE 2)

I have had many readers ask me where is the market headed? Of course, I have no clue, nor does anyone else, as it is all a guess. The more correct answer is that it depends how much manipulation various governments want to use in this crisis. In my humble view, most government leaders are risk averse. They don't want to go it alone, so they try coordinating actions with other world leaders. This crisis hasn't yet allowed the space for this to occur, but I expect some meeting will be held so that various Finance ministers can coordinate an action to calm nervous investors worldwide. But in the meantime, we could have a continued free fall.

In early trading this morning, it is evident this is happening in Europe again today. After the CAC, DAX and FTSE were all down over 3% yesterday, they are down again today another 2% roughly. All eyes are now firmly in place watching us and what the numbers are for our Unemployment rate for July, which comes out in about 30 minutes, as I write this. (Suggest you read yesterday's previous post to see what various numbers should do to the markets this morning) The Dow Futures were down about 50 at about 4:00am PST but have adjusted to now being down only 15 points in anticipation of about a 9.2% Unemployment number coming out in a half hour.

The chart below is of the Dow for 10 years. I have taken the liberty to draw a number of Support levels which show when we go through one, which level is next. You see it is possible in a world where fear becomes to take hold, we could go down and retest the 6,400 level on the Dow which was reached in 2008. I won't go into any theory why this level is important, but a short version is that this level was never retested and many of us thought back then that we could go much lower to say 4,000 on the Dow. So for now, if you save this chart, you should know when we turn back up as one of these levels would hold and the bounce back would come from that point and the previous support level would become resistance on the way back up.

Come back later during the day today as I may update this post several times, depending on today's market action. Thanks for visiting now.

UPDATE #1: 5:35am PST
The Unemployment rate for July came in unexpectedly at 9.1%. Revisions were made to previous months as well, showing more job creation than expected. While very good news for today and the market, longer term the jobs created were relatively meager in the scheme of things. Our economy needs more than 117,000 Non Farm Payroll jobs created. July's job growth came in Healthcare. The Private sector added 154,000 jobs for July. The average work week remained the same at 34.3 hours/week. Average hourly earnings were up 0.4%. The Dow Futures were up 125 points immediately after the news but have pulled back to being up 75 now.

UPDATE: #2 11:05am PST
Well, there have been wild swings all morning, some based on the Unemployment report and some from the problems with Italy's debt and then a rumor floated by the news media, that the European Central Bank will be buying debt directly. What to make of this news is that it is some rumor, some fact, because the ECB has said they are considering this action.

The thing I would pay attention to is the close today on the Dow. Remember yesterday we broke below the 11,500 support level. So it is important to see where we close. Do we have a rally and close over 11,500 on convincing volume or do we close below that level. Right now, there is a battle going on between the Bears and the Bulls. Longer term, I believe the Bears will win this battle and the markets will go down significantly.

Market comments for March 8th, 2011

It appears as though we are approaching a very critical time for the Dow. We are within days of testing the uptrend support line and whether the market will break lower or rise. Based upon world events it doesn't appear the news is favorable for a market rise with concerns over $200/barrel oil according to a Bloomberg.com story this morning because a Day of Rage has been called now for Saudi Arabia.

As the chart below shows, we are at the edge with time running out.

As I have stated clearly here many times, we are headed down in my opinion and it is going to get very ugly for those who did not take profits yet and are hoping we climb much higher. Greed is not your friend here.

Stock market prediction: The week ahead

This is my 800th post since Blogging in 2005. I have had 31,000 visitors who have read 50,000 pages. Today I will comment on the stock market and what is in store next week, as I see it. The Dow has not completed a perfect "W" pattern this week and neither has the Nasdaq. This means it is doubtful we have really bottomed out. But the good news is we should know whether it has bottomed by the end of next week. What does this mean for investors? It means you still must be cautious but you may want to start buying by nibbling at some very beaten up stocks that are good value at current prices. If we get the week showing a move up from here then we have retested the bottom and are either going to stay around the 8,600 to 9,000 level for a while or we are going to go back up to 10,000 and be testing resistance of that high till years end. I do not see us going over 10,000 and staying there by years end.

If you look at the shape of a "W", and think of it on a chart tracking the price of a stock, if the "w" pattern is perfectly horizontal as it is in this line of type, that means the price will stay above the lowest legs of the "W" pattern. If the "W" pattern is slanted down, where the right leg of the "W" is lower than the first leg, the stock is going to accelerate down in price and the opposite, if the "W" pattern right leg is higher than the left leg. If this is confusing to you, it would be worth getting a book on Technical Analysis of Stock charting. Several quality books are out there, one by the author Martin Ping titled, "Technical Analysis Explained". It will help you understand what is happening in the stock market and your own stocks. Many ask why charting works? It is because the over 40% of all analysts use it and do make investment decisions using it, and that creates a self-fulfilling prophecy.

Now my own view is that we have NOT bottomed and I still believe it is likely we will go somewhere around 7,200-7,400 range because the decades of data shows the long trend line would cross at that level. I have also said we can get the same result by just staying at the current levels in the Nasdaq and Dow and achieve the same trend line by waiting for it to reach this level. But again, we will know a lot more and be able to predict even better after next week. Stay tuned and check here as I will post when news warrants regarding the market. If you get scared because the market in a given day is too volatile, check back here. In the mean time, have a nice weekend!