Wednesday, April 8, 2009

Bottom?

I'll start by saying anything is possible. I'll then continue by saying that we are in the midst of a secular bear market, and in my opinion, the chances of a bottom having been put in are near zero. The fundamentals aren't hard to identify: global exports collapsing, consumer demand shrinking, balance sheets merely beginning their necessary contraction, crippling government spending, etc.

There are many technical tools that add credence, including Elliott Wave analysis, that I will touch on at a later point when time is available, but as they say a picture is worth a thousand words. Below is the 15 year monthly chart for the Dow. Note that the resistance area from early to mid-1997 became the support level as the rally ensued over the next 10 years.

The weight of the evidence would suggest that you don't breach a long-lasting support level by 10% and then find a sustainable bottom in the midst of nothing but ozone. The market was oversold and due its countertrend rally.

The scary part is looking at this monthly chart and trying to identify a legitimate bottom. HINT: Without looking at Fibonacci retracements, it's way down there.


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