Wednesday, May 13, 2009

Dow Chart Shows A Bear Market Rally!

Daryl wrote a comparison of Dow rally chart vs Hang Seng Index rally trend chart yesterday.

Key points to note on the Dow Chart:

  1. The Dow has all the features of a extended rally, but none of the features of a trend.

  2. A rally has a single trend line that has not experienced any significant rally and retreat behavior.

  3. It is difficult to place an accurate trend line on the Dow chart. The trend line that most correctly defines the behavior is shown.

  4. There is no rally, retreat and rebound activity in this period. It is simply a series of minor tests of the support function of the trend line. This behavior underlines the rally characteristics of the Dow.

  5. Where is the rebound point for the Dow when the current rally collapses? Is there weak support near 7,500 based on the spike lows in November? Or is there a support near 6,500 from the March 2009 lows?

  6. The separation in the long-term GMMA is narrow. This shows there isn't strong support from investors. There is a low probability investors will step into the market and buy as the index falls. There is a higher probability they will join the selling and accelerate the continuation of the downtrend.

"Many public figures are pronouncing the end of the recession. They are in many cases the same people who were unable to identify the start of the recession.

Fear and caution should not blind us to the opportunity to identify good trading opportunities. There are excellent returns available from rally and prolonged rally behavior in individual stocks. However, the strategic outlook suggests it is too early to treat these as investment opportunities. We trade for profit and act with caution."

My humble view: Trend or Rally does not make much difference to me because STI and Hang Seng Index are followers. "Lau Da" (big brother) leads the way. How much influence does "Lau Er" have? Hmm.. who is "Lau Er"

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