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Wednesday, January 27, 2010

December Low Indicator Warning!

According to Stock Trader's Almanac:

“Pay more attention to the December Low Indicator. If that low is violated during the first quarter of the New Year, watch out!”

When the Dow closes below its December closing low in the first quarter, it is frequently an excellent warning sign.

Dow closed below its December 2009 closing low of 10285.97 (Dec 8 09), triggering the dreaded December Low Indicator.

Since 1950 when the December Low Indicator has triggered, the Dow has fallen an additional 10.9% on average. This was precisely the case the past two years with the Dow losing an additional 42.1% in 2008 and 17.6% in 2009 before surpassing the previous high. Excluding 2008’s drop, the largest of them, reduces the average subsequent drop to about 10% -- that would put the Dow at about 9155.

The most prudent course of action is to refrain from major new purchases, tighten stops, take any sizable short term profits and assess the conditions at week’s end.

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