myfinancialmarket.com

Technical Stock Traders who look at charts of stock market indexes or individual stocks like to look at recent Highs or Lows to judge where the next Market moves maytake them. In an Up Market, a technical trader would draw straight line along the bottom trenches of daily or weekly market results for a stock or Market Index. This approach is a little subjective in that the trend line doesn’t always line up perfectly. A sell signal would be when recent market data crosses below that line. For example, looking at the weekly chart of the DJ30 a line could be drawn that starts with the index lows of June 2006, March 2007, and August 2007 as the Dow was moving upward. The Dow then broke below this trend line sometime in November 2007 — certainly in hindsight a good time to sell. Each major low is considered a support level. If market action holds above this low this is healthy for subsequent moving back upward. This is referred to as “Testing the Lows.”  If you would take a look at the Google chart below and Click on a 5-day period (in the Zoom selections), you will observe that the DOW had recent lows of about 8000 on an intraday basis, although closing at about 8451. To a technician of the Markets, if the next moves in the Market can hold above this value, this is good news for long term holders. Even if the DOW breaks below the low a few percentage points that also may be okay — as long as the Market rally’s from these lows.

http://finance.google.com/finance?cid=983582&client=news

Many investors may have gone Long (Buying stocks or funds, that is) after the Market’s strong showing on Monday.  The problem is that the longer term trend is still on the down side as you can see be again using a trend line of the major highs since last November. Sure, the Market is at fire sale prices, yet these prices may even go lower, as we observed on Oct 15th, with a DOW closing of 8577.

What does this all mean for the average investor in 401K’s?  First of all, the current trend line on a weekly basis is still downward. If over the next several days or weeks the Dow holds above 8000, this is a start to the bottoming out process.  Then to break the current downward trend line, the Dow would have to break above somewhere around 10500. To further give an indicator of moving back to a Bull Market the Dow would need to move above August 2007 Highs of mid 11000’s.

Given the continuing down trend in the Market, it is definitely hard to suggest to anyone to be buying, let alone holding onto the funds or stocks they now own. I can only write about what I have done over this last year and that is to move slowly into cash positions, keeping in mind that if a major Market rally took place I would still have positions in the Market. I have a 401K account which I continue to contribute to as well. Also, for years I resisted shorting positions, however I have to be realistic and own small positions in DOG, an ETF which shorts the DJ30, and RWM, an ETF which shorts the Russell 2000. I will hold these until they either drop 15% from their 90 day high or if they under performover a month’s time period on a relative strength basis their relative Indexes. You, as an investor, should decide for yourself if investing in funds that short the Market fit into your own investment objectives.

In the meantime, lets hope the Test of the Market Lows holds,

Don

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