Stock Market Update 14 April 2008

Greetings to all the new subscribers and welcome to the latest issue of ECAM.

It has been just over 1 month since my last blog entry and really nothing much has changed.

Just to update those who are new to the blog, while I monitor the markets daily (and position trade my personal account frequently), I tend to only update the ECAM blog when there is something of significance that needs to be brought to your attention in order to help you manage your provident fund accounts.

Also please consult the disclaimer at the bottom of the page.


First chart is the Dow Jones World Index 6 month daily line chart (click all charts to enlarge):



The first thing to point out is that this chart has gone somewhat bullish over the past 2 weeks. This is primarily indicated by the ADX (14) green line crossing above 60, the price rising above the 50 day moving average (blue line on the chart) and the MACD crossing above zero. All this was accomplished in the first few days of April.

That is the good news.......now the bad news. Note the descending trendline drawn from the market top in Nov, 2007. This trendline has acted as resistance on the recent rise; the market came up to test it but could not break through to the upside. In addition, note the Fibonacci 38.2% retracement level (pink lines on the chart) at 283.74 has acted as an area of resistance as well. Lastly, the "dead cat bounce" I talked about previous in late February ended at 285.10 and the latest rally attempt was unable to rise above that level (it topped out at 284.57). This is setting up a "lower high" following a "lower-low" that was set in mid-March and is a classic bear trap pattern.

To make me truly consider this chart bullish I would need to see the current pullback stop short of the previous low at 261.13 (thus setting up a "higher-low") combined with a price break above 285.10. Then we will have seen a "higher-high" and a "higher-low". This combined with a break above the descending trendline would confirm a short term bullish trend has been established.

All in all, call this chart "neutral" for now.


Next chart is the DJW P&F 1-box:



This chart went bullish on a price break through 272 and projects a target of 329. It can also be seen that price is rangebound between 262 on the downside and 285 on the upside. I would like to see confirmation of a break above 285 to confirm the pattern.


Next chart is the DJW P&F Traditional:



Still a bearish chart with a price target of 216. The price band mentioned previous is well defined.


Next chart is the DJW 10 year weekly line chart:



No changes here; we are still in a bear market as defined by the 13 week exponential moving average crossing below the 34 week exponential moving average.


Next is the DJW monthly candlestick chart:



Again no changes here. Bear market.......plain and simple.


The last 2 charts are the U.S. Dollar index. I wish I could be more positive given our Dirham ties to the USD but technically this thing is still in trouble.


First the daily line chart:



I got a short term buy signal back on Mar 18 but it has turned into nothing and the trade I put on to this point is flat.

While I do not want to go into specific Forex trades, I do need to point out that a potential bear flag is forming on this chart. A break of the lower support line @ 71.25 would project a further decline in the USD to 65.46......a further 8% decline from current levels. This is not to say it will happen but just to give you a heads up on the possibility.


Last chart is the USD long term weekly chart:



The channel is well defined.......note where the bottom is (off the page!).

Also note when the USD broke below its previous long term support level at 80.81 back in mid-2007 I added some Fibonacci projection targets. The first target has been surpassed and now we are looking at 69.54 followed by 62.58.


Bottom Line:

The markets have come off the late March lows but in no way have they indicated that we have found a bottom and this is the start of a new bull market. During bear markets prices move much more violently than during bull markets as price cycles between those who are trying to call the bottom and those who are scared and dumping long positions. Bull markets tend to be calm and somewhat rational; bear markets are much more driven by greed and fear.

I am still expecting a lower low before we start back up (as I've mentioned in previous blogs). I think we will find an interim low sometime in the next 2 months followed by a very nice rise into year end. I will be playing that bounce in my provident fund when I see it.

The USD is still technically weak and I have no reason to change my currency positions within the provident fund. It is oversold and long due for a bounce but there is no technical indication we are there yet.

Bonds are overbought and are a bit risky at these levels but the "flight to quality" out of the stock market and into bonds has kept them up so far. I expect when the stock market turns around bonds will perform very poorly but until then I continue to hide in them and make money. It is what it is.

My positions remain as follows:

International Bond Fund: 50%
Euro currency: 25%
Australian currency: 25%

As always, when I make a change in my positions I will advise you immediately.


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