Wednesday, January 13, 2010

Where We Stand in the Stock Market

Well, a near-impossible has happened in the past 10 months. Dow Jones Industrial Average went from March 09 low of 6,469 to today's close at 10,680, a 65% gain.

If you didn't believe in the rally in March and stayed out, you still had a chance in July to get in, as you can see in the 3-year weekly chart of Dow. That was really a last chance, as far as the index shows. But instead, many retail investors stayed out in fear, that July correction could be "it" and we were going down to test the March low. If you had dumped everything in DIA (ETF on Dow) in March, you would have gained 65%. If you had dumped everything in LVS (Las Vegas Sand), your gain would have been well over 1000%. What a game.

(If I had dumped what's left of the money in my account into MTL in March, the gain would have been 470%. Oh well.)

On the weekly chart RSI, there is no negative divergence yet. (On the daily Dow chart, RSI shows a negative divergence.) CCI set at 133 to see the macro movement is still below 100, a bull market territory. Slow stochastic set at 60 shows it has broken into a bull market territory in November 09.

Dow now poked above the 50% Fibonacci retracement line from the market top in October 07, and may be starting to climb further up the thin zone up to 61.8% retracement. There will be a resistance there.

Many retail traders/investors are actually angry that the market has ramped up (or has been made to ramp up) like this. All the bad economic news, mismanagement and deficit spending by the government, job loss, coldest winter in years, and the stock market keeps going up. I do not believe that the stock market is "forward-looking", as pumpers at CNBC would say. I think it is reactive, and it is not enough to simply look at the chart to figure out what is more likely to happen. (And that's why I have the other blog on macro issues.)

For now, the chart seems to say there is still room for upside, at least to the 61.8% line around 11,245. The Point & Figure chart shows the target at 12,050.

I am not going to call the top. The more-or-less normal stock market ceased to exist in September 2009, and that much is very clear if you look at the chart. Since that shock was so great and violent, all we have had may be nothing more than a big DCB (dead cat bounce).

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