I’m finding it somewhat amusing and yet a tad aggravating that people choose to argue semantics (is it a Bear Market?) while professionals are obviously distributing stock to rank amateurs. We’ll deal with the semantics first and the distribution second.
From Investopedia: Bear Market- A market condition in which the prices of securities are falling or are expected to fall. Although figures can vary, a downturn of 15-20% or more in multiple indexes (Dow or S&P 500) is considered an entry into a bear market.
From Wikipedia: Bear market
What we can learn from the above links is that there really is no generally accepted definition of a bear market. Now that we can put those semantics behind us, I think we can all agree that the following characteristics give us clues that there is distribution.
1. Dow Jones is beneath its 50 and 200 day averages.
2. Dow Jones failed a double bottom breakout and is back within a base or trading range.
3. Dow Jones failed to stay above its primary downtrend line, which started in October, 2007.
4. All high volume days since April have been sell-offs.Â
5. MACD has been negative for almost a month.
What should we learn from this, and the chart above? The basic assumption we should make is that a majority of market participants are expecting lower prices in the future than today’s prices. Forget about the pundits and a 2nd half of the year recovery. Forget about the Dow Jones components having “international exposure.” All you need to know is that many money managers, most likely smarter than me and you, are selling, and have been selling for well over a month.
Rant On
I’ve suffered through multiple displays of idiocy as many pundits have remarked about the failure of technical analysis during this period. They are complete morons. Please, if you encounter this crap, run as fast as you can away from them. The only thing that has failed is their ability to profit during a difficult market environment.
Clearly, from the chart above, technical analysis has not failed. That particular chart should be an advertisement for technical analysis. The Dow Jones has tested almost every basic technical element: moving averages, trendlines, and support/resistance. The response of the index to these technical elements has been textbook. When support has held, the index moves up. When a test fails, the index has moved down.
Rant Off
Now that we’ve established that there is distribution, that the market is still in a down trend, and that technical analysis has been a great tool for gauging market health, what is our take-away? I think it is obvious: The market will test its March lows. You might ask why I feel so certain of this. I think it is very simple: The market has been moving down for 9 months. With the exception of the Nasdaq 100 (which will roll over again too), there are absolutely no signs of the decline stopping. Therefore, the market will eventually reach its March lows.
Some may choose to wish and hope their way out of this decline They can make 100 excuses as to why the market shouldn’t be going down or why it will soon stop going down. They are disillusioned, and are ignoring the obvious peril evident in the technicals.
Agreed 100 percent, great post. In fact, I am busy tonight reviewing and adjusting stops on all of my positions. I can’t stop the market from going down but I can make sure I don’t get hurt in the process.
No argument here. I’m just planning to swing trade the bumps and dumps.
I hear ya Dog. I still want to be long some breakouts/trend following plays, but I will mainly be swinging.
thanks for the insight-warning, time to load up on SKF, FXP, SDS, QID, EEV, EFU?
Other ideas are welcome.
Any of these RSI(2) < 10?
Could oil going back to $100 or less save us from testing March lows?
If the slide in oil continues, will the refiners keep going up?
Can u recommend some stocks or etf’s besides DUG to play the oil down scenario?
many thanks
Short OIH come immediately to mind.
Buylo, I have failed at almost every attempt in 5 years to trade oil or oil related stocks. I had a great trade in GDP one time though, and a profitable short of XOM. Other than those, all fails. Long story short, I’m not the one to ask about trading oil stocks.
As for testing the March lows, if you think high oil is the only thing that is keeping the markets from going up, then it is safe to assume that lower oil will mean the market will move back up. I think it is much more complicated.
I don’t expect the market to go straight down. If you get real short here, you are going to get jerked around and end up covering at the high of the swing. Choose your entries carefully, and start small.
You could nibble just a bit at some of the inverse ETFs every time the indexes RSI(2) are > 80.
Jake, OIH will test the 50 day in about 7 points. I expect it will resume the uptrend after that.
Buylo,
Mid-day selloffs are preventing index ETFs from getting overbought, while afternoon rallies are preventing most index ETFs from getting oversold. The exception is DDM, the double long Dow 30, which has an RSI(2) of 6.03. SSO is at 12.58 and QLD is at 22.36.
I plan to keep an eye on DDM and possibly open a position sometime this week, but as Wood pointed out, the Dow technicals suck, so I wouldn’t be surprised if the Dow falls a bit (or a lot) more before we get a bounce.
Shed, I tend to agree, unfortunately. Going to get rid of this nonsense DUG soon.
I saw DDM gave a signal, but I think my sub-concious is trying to make me ignore it for the reason you listed above.
Yeah, my first response after looking at the chart was….but I don’t want to!
The Dow has the worst looking chart with no obvious place for a bounce to occur. S&P and Naz are in relatively decent shape, for now, but the Dow is just scary looking. I would feel more comfortable pulling the trigger on DDM on a minus 300 day.
wood,
geez, i did not mean to aggravate you. sorry for that. let me skip the semantics so you don’t get aggravated. as you know ta covers a lot more than the things you mentioned. allow me to share with you some of the positives as i see them.
1- new all time highs by transports- often a leading indicator.
2- out-performance by the q’s
3- out-performance by a/d line and secondaries, which i suspect is one of the reasons ibc machine was bullish in march and throughout the rally.
4- new lows have not been expanding- often a sign of the severity of the potential decline.
5- sentiment measures have reverse rather rapidly.
6- dollar bottom 2 or 3 months ago.
7- most commodoties topped 2-3 months ago
8- dow and spx took out 5/27 lows but not confirmed by trannies q’s r2k nasdaq with their corresponding lows of 5/23
9- this is only my opinion, but i think crude is going towards par.
i suspect that the dow will go to the .618 retracement of the advance from march and hold, at around 12,250 if that.
as a matter of fact i would be willing to bet that we don’t get a full retracement of the advance.
btw, most money managers don’t give a shit about ta even though i do, which i consider to be a valuable tool.
Chivas, you know I respect ya dude, but I always know when things get dicey because you start coming back around and pleading the bull case!
I agree with 12,250 on the Dow. I see that as likely support as well and meant to mention that in the analysis.
You make a strong case, as always.
However, answer this one question: Which direction are the Dow and Spy heading? The analysis you provide seems to say they shouldn’t be heading down, yet, they still are.
Also, the $COMP is not looking nearly as strong as the Qs. Furthermore, the Qs were the most oversold during Jan-Mar. and therefore had the most to rebound.
As for money managers, I wasn’t making a case for them and TA. I simply meant that they were selling.
As for the other measures you speak of, A/D line, New Highs/Lows…I am not expecting a swift decline, rather, a long, slow grind. Those measures are reading exactly what I expect they will during that scenario.
Chivas, meant to say that I agree 100% that the transports are bullish! There is no denying that!
Do you know any ETFs that allow one to play the transports?
Wood,
thanks, the feeling is mutual.
i have only stated the bull case with vigor at the jan and march lows, and posted those feelings in the pg. if you recall one of those postings generated quite an argument with ducati.
corrections are normal market occurances.
btw, i feel quite comfortable trading from either side. i just go by what my work tells me. usually a combination of monetary and fiscal policy, valuation and sentiment.
thanks again wood.
iyt
A long slow grind… like a meat grinder making Italian salchichas. It’s our fate, I can feel it coming.
Chivas, you were dead on in Jan. and March. I have not forgotten.
Have you tried or been able to quantify your measures into a sort of one size fits all reading or indicator?
Wood,
thank you for remembering.
yes i have.
I just got done drawing lines on some graph paper and I cut one of my fingers off, by accident.
Developing…
Wood,
Transport ETF…IYT
ISHARES DJ TRANS AVG: Top holdings
Top holdings
Company name % Net assets
Union Pacific Corporation 13.40%
Burlington Northern Santa Fe Corporation 9.50%
FedEx Corporation 8.87%
Overseas Shipholding Group 6.96%
United Parcel Service, Inc. 6.70%
Ryder System, Inc. 6.07%
CSX Corporation 5.81%
CH Robinson Worldwide, Inc. 5.45%
Norfolk Southern Corporation 5.10%
Alexander & Baldwin 4.75%
Percentage of holdings 72.61%
jog on
duc
lol @ Fly…Pray tell, what the hell were you drawring [sic] with?
Thanks duc..
Wood, you have been dead on with your analyses. My sell indicator goes off when there is better than expected or good news, yet the mkt sells off. this was confirmed this week when the market sold off on better than expected econ data and lower oil. i think this is an inflection point in sentiment that is sure to lead things lower. until bad news becomes good news again, i’d be short stocks and not try to get cute with intraday trading.