DOW JONES INDUSTRIAL AVERAGE: IS THIS THE NEW BULL MARKET?
Peter Zihlmann
The long-term picture
While the bulls are being carried away by the hope that the new bull market may indeed have already begun, the bears' hearts are filled with fear that the bulls may finally be proven right.
Under these circumstances, it is best to analyse the long-term picture in the most detached manner possible.
One indisputable fact to catch the eye is the enormous topping formation, which started in April 1999, and concluded in September 2001, when the DJIA finally broke the support at 10,000 points, falling like a stone to the low of 8,000 points.
A swift recovery followed, lifting this Index to 10,660 points, well below previous highs, and thus
establishing a down-trend which is still in place.
From the recovery high mentioned above, the DJIA went through another frightening sell-off, taking the Dow this time to less than 8,000 points.
There followed a period of fluctuation between 7,500 and 9,000 points. The Dow has recently broken above this resistance line but has not yet risen above the long-term down-trend line.
The big question now, of course, is whether a move back to the 10,000 area or above is likely or
whether we are being presented with a selling opportunity that will not return?
We believe that it is time to sell and we shall explain why a bit further down. But first let's look at the medium-term picture:
The medium-term picture
From August of last year until now, a perfect horizontal channel formed in which we easily recognize support and resistance levels.
Short-term breaks in these levels are not significant as they can easily be reversed, as was
demonstrated by last October's actions. We would therefore not attach too much importance now
either.
The short-term picture
Here, we can make out an up-trend which has been in place since March. But even a day-trader would probably rather cash in any profits than be an aggressive buyer.
Some technical indicators can help us here to determine whether we should listen more to hope than to fear.
Market Volatility Index
The Market Volatility Index has faithfully forecast any marked decline in the stock market (see white arrows below) over the period the current bear market has been under way.
It is therefore a compelling argument that at present we should discard our hope, swallow our fear, and short the market.
The Market Volatility Index tells they same story as many other technical indicators such as the
Bull/Bear Ratio and the Put/Call Ratio.
As a conclusion, it is clear that this is not the time to go or to remain long.
The market is ripe to be shorted!
The following recommendations were valid at the time of writing, viz. at
and may no longer be valid at the time of reading.
Peter Zihlmann, www.pzim.com, or email to forex@pzim.com
June 18, 2003
Disclaimer: P. ZIHLMANN INVESTMENT MANAGEMENT AG does not accept any liability for any loss or damage whatsoever, that may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in the trading recommendations or in any accompanying chart analyses, whether communicated by word, or message, typed or spoken by any of it's employees.
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