Monday, December 03, 2007

Stock Market Update 03 December 2007

As mentioned in my previous posts, I am still long term bullish on today's markets. However, there are unique and dangerous developments within the U.S. banking system that have yet to be sorted out.

As such, I firmly believe that those who are risk averse need to seriously consider whether they want to be invested in equities at such a potentially dangerous turning point in the worlds economy.

Personally, I will continue to follow my charts and invest accordingly. I must stress though that I do this knowing I am doing so in a highly volatile and potentially dangerous market. Enough said I think.

Now on to the charts.

First is the DJW daily chart (click charts to expand):

As can be seen, the chart is still showing a bearish bias at this point. However, there are a number of positives to note on the chart:

-the decline seems to have been stopped at the 61.8% Fibonacci retracement level at 293.66. The 61.8% Fib is usually one of the strongest areas of retracement reversals and if this one holds it could signal the end of the current downtrend,

-the MS World index (shown at the bottom of the chart) appears to have reversed on the 50% Fib,

-the RSI has crossed above 50 and is nicely trending up,

-the ADX lines have crossed, indicating a "neutral" indication,

-the MACD has crossed over, indicating the downward momentum has reversed.

This chart would again become bullish if the price crosses above the 50 day moving average (blue line currently at 308.58) and the green ADX line crossed above 60. Both these occurring would put the index back into a short term bullish bias.

Next chart is the DJW 1 box PNF chart:

Here it can be seen that the chart is still on a sell signal that was generated when price broke below 311. Since then, 2 attempts have been made to break the 305 level but have failed. A closing price above 306 would produce a bullish short term buy signal.

Next chart is the DJW PNF Traditional chart:

Here it can be seen the medium-long term is still bullish. Under the current configuration the price would have to break to the 276 level to signal a sell signal. For now this one is bullish still.

Next chart is the DJW-YEN ratio chart:

As I mentioned previous, this chart has a really good track record of being on the right side of the trade as far as the Yen carry trade is concerned. It currently is bearish but the RSI correcting downwards as it is should eventually allow the ratio to cross the 50 day moving average (blue line). When this occurs it will be a bullish buy signal but for now this chart is still bearish.

Next chart is the longer term view of the DJW in a monthly candlestick format:

Note the market tried once again during the month to challenge the 12 month moving average. It was able to "put a pin" through it (as it has done several times before) but by the close of the month the price was once again above the 12 ma. This is still bullish.

Bottom Line:

My positions are unchanged at 50% equities, 25% Euro cash, 25% USD cash. Should the markets rally this week and we print a closing price in the 306 area (turning the 1 box PNF chart bullish), I will shift into a 75% equities position (most likely selling my Euro holding as it has done well but is severely overbought).

On the downside, should the markets print a low below 292 I would be tempted to move to a 25% equities, 75% cash position. A close near 276 would get me totally out of equities and into cash or bonds.


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