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If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks. - John (Jack) Bogle
Isn't the above quote exactly the current problem? Majority of participants can't even factor in a 2% loss let alone a 20% fall! - BRING out the Contrarian!
Near the end of August the Dow Jones sat at 10000 and the crash talk was extremely high. Contrary to this we now have Dow Jones hitting 12300+ today and the crash talk is relatively dead.
So by hitting the current Dow levels have we obtained the same feel as 14000?
Dow Jones Quarterly Chart
The relentless upward grinding action has been extremely frustrating in which volatility has been non-existent. Even in 2007 I would say we had more action in terms of movements.
The chart above obviously would have NO need to talk about crashes. No need whatsoever. Instead many would talk about bull markets? New all time Highs? A double top at 14000? High Volatility to never return?
Well the contrarian in me says one thing and one thing only. Sending the Dow back to 14000 in conjunction with the chart above is very probable but it is also highly blatant. This is the very problem in which the markets are tuning people's minds to think of the obvious and not to think of the abnormal to occur.
If you look at the two parallel red lines you will see the markets gave us a dot com bubble and after which markets went on to bottom around the time of the Iraq war after which a breakout took us to new all time highs, eventually. Since those highs the markets were very much battered and yes a bounce/rally/ upward action was high likely all though it did seem like the end of the financial world at the time.
The problem now is however many are being sucked into the notion of a bull market? How many are thinking 14000 Dow or all time new highs?
Are we not missing something? Does the term 'dead cat bounce' not exist anymore?
What is this so called bull market based on? Yes you may argue that by looking at traditional Fibonacci retracements the dead cat bounce notion has been long quashed. This is exactly as it should appear! For the dead cat bounce to seem void the very current price action and environment has to exist!!!
We would say markets could well start to display some downside from levels of 12360 to 12480. Yes 14000 is a possibility but it is an unlikely possibility even in the current context of price action simply because the anticipation for such number is VERY high.
We have downside pressure ranging from March - August timeframe and the later the market leaves it the steeper the fall will be. The credit crunch moves will simply seem normal once the next fall is printed.
The ones that spoke of crashes at Dow 10000 are now talking about Dow 14000 all after 6 months of upside. That is enough to say optimism is reaching a new paradigm and this time it like every other time, it won't be different!
Four Hour Short Term Action
The grinding upward action has two channels at play; the yellow channel and the purple channel. Price has not been moving significantly over the last two weeks and we must see if the Dow Jones is respecting the purple channel as if it does some downside must emerge. If the price is marrying the yellow channel then price will move high. Thursday highs will be important as we are at a decisive point to decline from here or move higher.
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