Stock Market Update 08 March 2008

The markets made another attempt to rally since my last blog entry but once again did not have sufficient strength to change my bearish position on equities.

The key to note this week is the U.S. jobs report showed a loss of 63,000 jobs for the month of February and a revision to the January jobs lost from 17,000 to 22,00. There has never been 2 consecutive months of job losses in the U.S. that has not ended up being a recession.

As I said in my Jan blog; the U.S. is in recession no matter what you might read to the contrary. Only months from now will the government confirm it as it takes officially 2 consecutive quarters of negative GDP growth to signal an official recession. By the time they announce the news officially it is already in the rear view mirror.


First chart is the Dow Jones World (DJW) vs the major U.S. indexes (click on all charts to enlarge):



The key point to note is the DJW continues to outperform the U.S. indexes due to its more broad based composition. The DJW has yet to test its Jan/2008 low while it is clear on the chart (with the exception of the New York Composite Index) all the major indexes have broken below their respective Jan/2008 closing price lows. This is an extremely bearish event and signals further downside to come.

The "decoupling theory" that the U.S. can go down but the rest of the world will be ok will not happen.......the DJW index will follow the U.S.

A common technical measure of future price is known as the "measured move". It can be seen that the ascending wedge on the DJW index has been broken. A retest of the lows at 262.38 are almost assured. The difference between the top and the first low can be measured and added to the breakdown point (320.33 - 262.38 = 57.65). The break of the wedge occurred at 274 so the first price target would be 216.35. A break below 262.38 would lead to a recalculation of the price target to 204.43 (262.38 - 57.65 = 204.73).


Next chart is the DJW 1 year daily line chart:



Key points:

-price tried to get above the 38.2% Fib line and failed,
-price tried to get above the 50 day moving average and failed,
-the ADX (14) green line tried to get above 60 and failed,
-the price has broken out of an ascending wedge downward.

This chart is bearish. The only ray of hope is it is sitting today right at a small support level shown by the blue line @ 268. A break below that takes us back to a retest at 262. A break below that takes us much lower.


DJW 1 Box Point & Figure chart:



Interesting to see this chart actually went bullish on the last advance through the price level of 281. It projects a target of 318. However, one chart does not make a trend so I give this chart a low chance of success. Note the price is sitting right on the previous short term support @ 269. A price print of 268 would turn this chart to bearish with a recalculated target downwards. That is what I expect will happen next week.


Next chart is the Traditional Point $ Figure Chart:

No change on this chart. Went bearish through 296 and targets 216.


DJW 2 year Weekly Candlestick chart:

This is a chart I haven't shown before. Key to note is the price range over the past 6 weeks has remained between the two blue lines. A breakout above or below this range would indicate future direction.


DJW 10 Year weekly chart:

No change here. Just to remind everyone, this one is telling us we are in a bear market. Period.


DJW 6 Year montly:

Again no change here. We are in a confirmed bear market.


Bottom Line:

This is still a bear market. The market attempted a "dead cat bounce" as I thought it might and failed.

I fully expect new lows before all this is over. A reminder that in an "average" bear market price will decline by 30%. We are only half way there if this ends up being an "average" bear market but with the ongoing problems in the credit markets I think this has the potential to become much more than "average".

I repositioned my USd cash holdings into the Aussie dollar (reluctantly) as I mentioned in my previous blog. My positions are now as follows:

-Fidelity International Bond Fund: 50%
-Euro cash: 25%
-Australian dollar: 25%

Closing thoughts:

1) I think the USD is oversold and due for a bounce. It is impossible to tell when but when a trade becomes this obvious it is dangerous. However, the trend is still down on the USD so you have to go with the trend until it indicates otherwise. My attempt to front-run a change previous did not work out.

2) I still think we get a bottom sometime in the spring. I still think it will be a great buying opportunity and we will be considerably higher into year end. However, I will only make those moves based upon chart indications.