Beary Christmas & A Hawkish New Year!

The first five days of the trading year have an uncanny record as a leading indicator for the month and year to come. This is especially so on Election Years when the first 5 days were down … the year finished lower on a 100% record.

Thus, if the 5-day 672 point drop on the DOW is any indication, we’re likely to finish January 2008 to the down side. As it stands today, the DOW is already 1,162 points to the South. Any realistic chance of closing January to the upside will require the DOW to make up 142 points a day for the next 8 days, without a loss. Not going to happen.

Its a pity the forum got slammed because at the start of October last year, this is exactly what I said was going to happen. Going back further (in my old forum) I mentioned that the end of 2007 was going to be soft and this softness would carry into the middle of 2008. The longer term future, if you think all this is bad news, is that we are going to be soft for the long term … how long? I suspect till 2010. Any sort of recovery will probably be around early to mid 2011 to early 2012.

Back in the end of 2006, good old Greenspan warned us that we would end up exactly the way we are right now. The IYCs at the start of 2006 and 2007 have been absolutely reliable indicators in the past and how have proved themselves again. Yet the write-ups we read would have us believe that the worse is not as bad as it seems. In truth, who would dare to sell fear when the after-effect is that no one will buy anything … or worse, sell what they have in the financial markets? Old Greenie with his big ‘uns!

Personally, as always, I care little for the direction of the market as any direction is an opportunity to me. But I do care for the friends who have jobs on the line as the markets gets softer and softer. Reading into these daily news reports gives one a false sense of hope in retaining their rice bowls. While assurances are shoveled out in bucket-loads, the obvious fact is that what happens in the States is echoing around the world, regardless of what local writers say … take Citi Group and Merril Lynch’s employment cut backs for example.

I’m just happy to have the happiest forum on the block where traders are making money, regardless of what the market does. Sure there are losing trades but the big picture is very encouraging. Which is more than I can say for the other forums where I see nothing but bleeding. I truly wish them well and hope they overcome their losses. Its never a good thing seeing a fellow trader going down. So if you’re reading this, please trade safely and wisely.

I am keeping things simple and only looking at about 6 months down the road.

Here it is; Dow to hit 9,500 on the low or 11,150 on the high before End April 2009. Support is likely to be 9,500 to 9,800 while Resistance won’t get any higher than 11,150 to 11,500. That means a best case scenario is a sideway trend for the next 8 to 9 months. In a better case scenario, a volatile downtrend till April.

It’s going to drag on sideways in this going-to-be-familiar range of 8,500 to 11,000 for about 24 months more, at the least. By the time we get out of this, the world and the financial markets are going to be a very different place and I will surely be teaching a different brand of investing and trading – this I am sure.

Resistance levels @ 9,210 and 9,450
Support levels @ 8,240 and 8,000 (Remember that my low low support is 7,080)

Just a quick update after the close of 20 November 2009 …
Looks like we’re on the way down to 6,000. The way the market is deteriorating, I reckon we’ll see DOW break my 7,080 before Christmas. Of course the market will rally a little as more bargain hunters come in today, especially since November Expiration Friday is traditionally a bullish day. But I won’t be holding my breath for any upside further than my 11 year Historical retracement of 8,000. The best that can happen is to range along the 8,000 level till Christmas.