Wednesday, November 21, 2007

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!


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