Warning-Stock Market update 22 Nov 2007

A quick update after yesterday's market close.

The Dow Jones Industrial Average closed below it's August lows at yesterdays close. This combined with a confirmed bear market in the Dow Jones Transport Index (which closed below it's Aug lows several weeks ago) is what is known as a Dow Theory bearish trend indication (as both the industrials and the transports have broken below their previous lows and are now in confirmed downtrends).

This unto itself is no reason to sell to cash HOWEVER this indicator has a reliable record of telegraphing potential trouble ahead (it last signaled a sell signal in Sept, 1999 and we know where the markets went in 2000-2003). As such, it is a warning to be very cautious ahead.

Shown below is the Dow Jones World Index along with the other "popular" U.S. indexes (click on the chart to view).

As can be seen, on a daily closing basis only the Dow Jones Industrial Average has broken below it's August low. Interesting to note the Dow Jones World Index (which I use to monitor performance in our provident fund accounts) is still quite strong in relation to the U.S. market indexes and well above it's Aug low. This is the benefit of being diversified in a well balanced global index as opposed to a more defined and narrow "country" index.

It appears the U.S. based indexes are in trouble. The key question going forward is whether the U.S. will drag the rest of the world down with it (as it has ALWAYS done in the past) or if "this time it is different" given the strength in Europe, the Far East, China, India, etc. Can the U.S. fall the the rest of the world continue to rise? That is the billion dollar question.

Bottom Line:

My position is unchanged (50% equities, 25% USD, 25% Euro). For those who might be invested 100% equities ........ I do not currently provide investment advise but "I would not be comfortable if I were positioned in such a way". I think enough said.

Any changes and I will blog immediately. That is all for tonight.

Stock Market Update 21 November 2007

As I mentioned in my previous post, the stock market has entered the corrective phase my breadth charts indicated was inevitable.

This is a normal part of every every healthy stock market advance and is welcome as it acts as a "reset" to clear out the overbought excesses before the next advance. However, the key is to discern whether it is in fact a "correction" in an otherwise continuing bull market advance or the beginning of a bear market decline. This is where technical analysis is so helpful.

First chart is the Dow Jones World Index 1-box PNF chart (click on all charts to enlarge):

As can be seen, the latest correction began when price declined through the 311 level. The chart projects a price objective of 285. This would be a "normal" correction and would set the way forward for a price advance into the end of the year. That is what I am expecting currently but I will not let my personal bias affect my chart analysis. So for now the short term is in a downtrend.

Next Chart is the DJW traditional PNF chart:

This is the more intermediate to long term. As can be seen, this chart is still bullish and the long term bull market is still intact.

A descending series of "O"s has formed (normal in a bull market advance) but the chart is still bullish with a projected price objective of 430. A price decline down to 276 would be needed to change this chart to bearish. Should this happen it would telegraph that a bear market decline has begun. However, for now it is still bullish.

Next is the DJW:Japanese Yen ratio chart. As I mentioned in a previous post, it is one I look at a lot given the Yen carry trade and its affect on the world's markets.

This chart is currently bearish as I have noted on the chart. This confirms the short term correction we are currently experiencing.

Next is the DJW daily line chart.

Shown is current bearish signal along with Fibonacci price supports for both the DJW index and the MSCI World index (at the bottom of the chart). It can be seen that the DJW index is hitting support at the 61.8% Fibonacci retracement level and the MSCI world index is at support at the 50% retracement level. This could act as short term support and turn the charts up soon.

Next is the DJW weekly index.

The key to note is the 13 week moving average has not crossed the 34 week moving average. If this were to happen it would be a huge indication a bear market had begun. However for now it is doing fine.

Last is the DJW monthly index.

Once again, note price has not broken the 12 month moving average ON A CLOSING MONTHLY BASIS since the bull market began in 2003. Price is sitting on a level of previous support and the 12 month moving average at approx 295. This is the point at which the market will either rally from here to keep the bull market intact or break below the 12 ma and signal the start of a bear market. As of now, it is still positive.

Bottom Line:

The bull market is still intact but we are in a corrective phase. To determine whether this is a buying opportunity or a sell point is simple to see on the charts.

Right now the market is undecided and as such I will continue to hold my 50 equities/25% USD/25% Euro position.

A monthly close below approx 295 would indicate a bear market has began on the monthly chart. If this were to occur I would lighten up my position to 75% cash/25% equities. A further deterioration to the 276 level would be a confirmed sell signal on the traditional PNF chart and I would be going to 100% cash.

On the other side, a rebound from here with a price advance (currently through 306) on the 1 box PNF would signal the short term correction has ended. Should this be backed up by the DJW:Yen ratio chart I would move to 75% equities in anticipation of a year end rally. A break of 320 (the previous all time high) would be very bullish and I would commit to 100% equities.

As always, when I make a change I will blog the changes immediately.

P.S. I've had a lot of positive feedback recently from a number of individuals who are subscribers to the site. Thanks to those who I've spoken to recently who have expressed gratitude and support. I'm glad to be of assistance!

Stock Market Update 14 November 2007

This is very short as I don't have time now to post pics.

Bottom Line:

The market has performed as I expected. We have had a pullback and a recovery. When you see 3+% moves/day that is telling you everyone is confused and NO ONE knows where this thing will go. I do not think it is done yet and the charts (which I don't have time to post) are telling me things are not done yet. That is where I stand on the issue.

Those who are in cash......stay there. I suspect you will have a great buy opportunity in the future.

Those who are invested along the lines I am (50% equities/25% Euro/25% USD)....stay there. You are well diversified no matter what happens.

Those who are 100% equities.......good luck. You could be lucky; you could be in trouble. That is a roll of the dice.

Just my thoughts. As always, make your own decisions.

Will update with charts in the next few days.

Regards,

Dwayne