Stockmarket update 18 Nov 208

"Are we there yet; are we there yet?" Welcome to the latest issue of ECAM.

Since my last update we have had huge percentage moves (both up and down) in the stock market indexes. In the last week of October we experienced a 21% rise in the Dow Jones World Index (from 154 to 187) in a little over 1 week that has all but been taken back in the past 2 weeks.

That is the nature of bear market rallies in that they tend to suck in the "pick the bottom" crowd and then proceed to remove money from their accounts. That is what you want to avoid.

During the period several of my charts switched to "buy" signals but I was unconvinced based upon other indicators I follow that did not indicate we were at the start of a true short to medium term up trend. Those indicators were correct and we have come down to retest the lows once again.

Are we there yet? As I have said before, there is no one who can say with certainty that we are "at the bottom". The only thing that will indicate this is time and price and nothing does a better job of indicating this than technical analysis.

On to the charts. As always, click on the charts to enlarge:


DJW 6 monthly daily chart:



This is my usual daily chart that I have redrawn to bring out a few of the technical indicators that I monitor that indicated the late October rally was not real and could not be trusted.

I have changed the price action from the candlestick chart I usually use to a daily line chart as the choppy price action over the past month is difficult to follow on the candlestick chart.

Keys to note:

This chart went bearish in early June as indicated. Note that during the late October price rise:

a) the RSI could not break above 50,
b) price did not break above the previous high at 191.47 (no "higher-high set),
c) the MACD never got anywhere near the zero line, and
d) neither the ADX +DI/-DI lines nor the AROON lines crossed (red lines stayed on top)

In a true trend change you would expect all the above to show themselves and they did not. As a result, I decided to sit on my hands and see what would happen and that call was correct. The indicators were telling me it was a false rally and kept me out of the market.


DJW Point and Figure (1-box) chart:



This is my short term point and figure chart. This chart actually gave a bullish signal on a price print of 185 but this turned out to be a false break as price peaked at 188 before falling once again.

It signaled a new bearish signal on a price break of 170 and continues to be bearish.


DJW Point and Figure (traditional) chart:



This is the more medium term point and figure chart. Normally this chart is highly reliable but it too got tricked on that fake bear market rally. It turned bullish on a price print of 186 which turned out to be a false break.

It just turned bearish again on a break below 162.

The lesson to be learned is it is dangerous to just rely on 1 or 2 charts to make investment decisions. You need a variety of indicators (all based on slightly different parameters) to get a true picture of the state of the markets. Only when all are in reasonable alignment do you have a reasonable chance of committing funds to equities and having the trade go in your favour.

I continue to monitor the indicators and when they tell me it is time to move back into the markets I will do so.......but I do not want to second guess them and attempt to enter too early.


DJW 1 Year Weekly chart:



The last chart is the DJW 1 year weekly chart. Note that as price has settled into a trading range the MACD histogram has been continuing to move upwards. This is a bullish sign that downside momentum is decreasing and is foretelling a coming price rally. However, until the range is broken to the upside it would be premature to jump into the markets.


Bottom Line:

I have yet to confirm a technical buy signal. Until all my indicators are in alignment I will continue to hold my cash US dollar position.

As of today, my "strategic" positions remain as follows:

-100% BlackRock/MLIM US Dollar Cash Fund**

(actual positions: USD cash 92%, equities 8%)*percentages are as per how funds were originally allotted. Due to market fluctuations and ongoing equity monthly purchases these amounts vary several % from that posted (refer to current % holdings).


Legal Disclaimer: The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES. The author will reveal his current market positions and holdings but actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.