Digestion Week Ahead...
Last week was one of the most turbulent week any trader has ever experienced with the Dow trading within a 1597 points range (19% range!), ending the week up 401 points.This week is definitely going to be digestion week for all the data that we got last week. Last week's economic data seemed to point towards some real recessionary numbers in the months ahead, but that didn't stop investors from accumulating in anticipation of a bottom. That optimism enforced a short term bottom at around 8500 points, which is an extremely important area supported by the monthly 200MA. The Dow is also forming a triangle formation right now, a typical continuation pattern. Such a formation occurring at this level seems to put the odds in favor of the bears. In fact, I would also expect to see one final capitulation in the stock market due to some real recessionary numbers before a real bottom can be found.
What in the world is options trading?
Labels: 2008 crash, fundamental analysis, technical analysis
posted by Jason Ng at 5:20 PM
4 Comments:
19% range! Insane!
So you see 8500 as a short term resistance on the downside for the Dow?
Looking at the 10-year chart, looks like some resistance around 7600 from back in the 2002 bear drop - but is that still relevant with the reshuffling in the Dow index that has taken place since?
I explained that in my post that 8500 may be a short term support level but it is definitely not yet the bottom.
As for the relevance of past data, nobody, including seasoned technicians who have been through formal finance education, can say for sure, especially with so much changes in the composite these couple of years. Weak form efficency has found more and more emphirical evidence of existence and that really does put a question mark on historical data analysis. So far, we have seen that support levels, long and short term, gets broken as easily as it is recognizable while technicians continue to data mine different time frames for another level to fall back onto.
Personally, I rely on technical analysis for very short term analysis of investor sentiments and not really to spot long term supports with data from decades ago. I would look closely at each support and resistance and then determine if they are relevant with the day to day action.
Predicting a bottom using the DOW is complicated. The method used to compute the DJIA is so conveluded, and everytime a stock in the 30 underperforms, it gets replaced by the latest up and comer.
I do agree with you though Jason; we will see the market capitulate as you said, with the S&P testing the 800 level before finding a bottom.
The one thing that my blog readers keep forgetting is that a market bottom does not conicide with an "economic bottom." The countries economy will continue to struggle for at lest several months after the stock market hits the floor.
Indeed, there have been emphirical evidence that the stock market moves about 6 months ahead of the real economy. Why is that so? Because the stock market is a discounting mechanism, not a reporting mechanism and a lot of amateurs seem to be ignorant about that fact.
The US economy is going to take years to get out of this one but the stock market is definitely going to bottom way before that.
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