Time For A Rally ??? – 08/03/11 © ™

Today we had a one day reversal.  We were down into new low territory (July 21st onward) and then reversed and closed the day with a gain.  That’s a one day reversal.  Since we had been down for 8 straight days, a rally seemed logical.  Yesterday (Tuesday) was also a 94% down day and that’s usually followed by a rally of several days.  The upcoming rally could take us back above the neckline of the head and shoulders formation.

The decline appears to be in its second step down counting from July 7th.  It’s normal that the larger the decline the more the market will sub-step and the decline since July 21 has been almost straight down.  Consequently the steps are not well formed.

I have a couple of charts today.  The first one is the New York Stock Exchange Index and it shows a nice channel that has formed since July 7th.

08-03-11 NY STOCK EXCHANGE INDEX 10 MINUTE BARS

The next chart is the SP 500 and it shows the head and shoulders formation with the neckline.  The neckline has been penetrated and we should rally back to the neckline (or higher) before the head and shoulders destruction takes place (maybe?).

08-03-11 SP 500 DAILY BARS

Here’s a “what if” scenario.  Looking at the above chart, suppose the decline that ended in March 2011 was really step one down and the decline that ended in June 2011 was step two down.  That makes the current decline, step three down.  If this scenario is valid, it would mean the correction is closer to being over than I thought and the early resumption of the bull market is possible.  I’m unsure what would be the catalyst for this scenario other than the FED beginning QE3.  But I wonder how the market would greet QE3???  QE2 has been credited with job destruction and that hasn’t gone over well with the voters..

Moving to another reality, my original thought was that the decline that ended in June 2011 was actually step one down and we are currently in step two down.  That would mean we must finish step two, rally significantly and then decline into the third and final step.  The factor that could move the market upward after a more extended decline like this would be tangible evidence that the economy has resumed its upward trend.  Of course if that doesn’t happen, we might have begun another bear market.  It seems too early for that to happen but strange things can happen when your country is screwed up economically along with a lot of other western countries.

Moving on to tactics, you can see the conundrum of what should be done at the conclusion of the first scenario.  Short term investors would trade the rally but should intermediate term investors buy back into the market or wait???  This brings into play a major tactic in my investment thoughts.  I almost never buy into the market with the thought that this is an intermediate or long term investment.  I always buy on a short term basis and wait for everything to go right.  When that happens, my short term investments automatically turn into long term.  But long term only applies to stocks.  When you are trading SP 500 futures, the tax status is always the same regardless of the holding period.  The tax status for futures gains is 60% long term and 40% short term.  Pretty cool huh???  If you have questions about this see  Odds ‘N Ends in the category HUH??? for more details.

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See my charts (updated constantly)

  • The link above has charts that are updated constantly during market trading.  They do not lag market trading and are current at all times.
  • My lines and counts may not be up to date as they may lag the blog’s interpretations.  An email to me would prod me to update.
  • I think you will find these charts very useful as they cover time frames from minutes to decades.  The final section of these charts consists of growth stocks.
  • The growth stocks show daily and weekly market action.  Their respective time frames are 3 and 12 years.  This gives a good perspective to the past and how these stocks behaved during good or bad times.
  • Page 1 – Indicators (shorter time frames)
  • Page 2 – Indexes With 1 Minute Bars
  • Page 3 – Indexes With 5 Minute Bars
  • Page 4 – Indexes With 15  Minute Bars
  • Page 5 – Indexes With 30 Minute Bars
  • Page 6 – Indexes With 60 Minute Bars
  • Page 7 – Indexes With Daily Bars
  • Page 8 – Indexes With Weekly Bars
  • Page 9 – Indexes With Monthly Bars
  • Page 10 to Page 11 – Indicators (longer time frames)
  • Page 12 to End – Growth Stocks (daily and weekly time frames)

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