The Trend
Sol Palha
Hope in reality is the worst of all evils, because it prolongs the torments of man.
Friedrich Nietzsche (1844 - 1900)
One look at the above picture and it throws a lot of wrenches into the chatter by many market pundits, that the market is destined to crash and burn. If you look at the charts you will notice that the Dow transports and utilities were actually rising in the face of higher oil prices. Many Dow theorists, Elliot wavers and other market technicians missed this obvious blatant positive divergence. Instead they jumped onto the bandwagon of the doom Sayers and proclaimed the markets were poised for a huge crash.
We would simply like to state that the KISS principle rules and nothing follows the KISS principle more closely then the trend principle. It states that if the trend is up then play in that direction and vice versa. In the end all theories and systems are nothing but mechanical in nature and as such must fail, because nothing mechanical lasts forever. Pattern recognition is key after trend recognition; everything else is a mixture of fortune telling and hand me down information.
We are going to post some excerpts from past market updates that were sent out to subscribers to illustrate how we followed the trend principle. We did this even though the majority kept screaming bloody murder and predicting the markets would crash soon.
Dow and Nasdaq closed up strongly on much higher volume = long term very bullish. However we are not out of the woods quite yet. Most likely this next up move will be mistaken for the real thing and the hubcap chasers will be swiftly rewarded with a deadly blow. We will most likely correct one more time and set a new intra year low before we slowly start to take off and pick up speed. The perfect set up will be to set a new intra year low and in the process flash a huge positive divergence signal. From the July 27 2004 market update
Dow transports and Dow utilities
The Dow transports have started to rally in the face of higher oil prices, could this be another sign that the Dow is close to putting in a bottom or is it just another dead cat bounce. What is strange is that the utilities to are doing rather well; both these indices started to rally from May and their up trend lines are intact.
Conclusion
We still believe that the market will mount some sort of rally, the first of which will be mistaken for the real one and then proceed to correct once again. Most likely this ensuing correction will result in the market hitting a new intra year lows before setting the course for a rather spectacular rally that will last till the end of the year. Market update August 2, 2004
The old saying that a market climbs a wall of worry and drops down a cliff of joy is very true. With all this uncertainty in the markets we are most likely going to build a base for a rather sharp rally that will last till the end of this year. The only thing that will blow the market of its feet is a terrorist type event. Just remember when everyone starts to scream the end is near, the opposite scenario usually ends up taking place. With more and more individuals jumping on the gloom and doom bandwagon we can conclude that the markets will change course sooner than later.
We have already set a new intra year low and we need to see if this intra year low holds. Once it is in place the market will need to put in a higher low to indicate that the market has finally bottomed.
One possible scenario is that we now rally for the next several days, cross above the 10k level and then in September set a new low. September is usually known as the bear killer's month, because you get a sell off and then a very fast reversal.
Market update August 10 2004
Gold
Gold traded as high as 415 yesterday but was unable to stay above 412, as it dropped a whopping 7 dollars today. It started to rally based on inflation fears, but with oil prices actually starting to cool off and the dollar refusing to crack; Gold is having a very hard time. It looks like we might have put in a triple top. We have now broken above 410-412 three times and failed to hold. We think that the current action is suggesting that we will correct till November and that Gold has a strong chance of testing the 360 ranges once again; this would be a mouth-watering buy. So those of you that decided to take part in the higher risk plays, start closing out your positions slowly over the next few days. Market update August 24, 2004
Sol Palha
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www.tacticalinvestor.com
It's a bit like breathing.
Alan Lunt
I feel that the object of analysis is to tell the truth, if it does not then it is flawed by many measures and will keep me away from making those decisions that are required on a timely basis. Whether I use weekly charts or minute charts the object is to glean the truth from the lines and squiggles. Sure the market may be headed into the pits, or 2 trillion dollars will hold it up, who knows for sure. I want to know what is happening Now, Next Week, and Next Month. Most systems come back to channels (two trend parallel lines), divergences and extremes. There is no need for any other mathematical formulas based on those 3 principles. I have thrown out most of the TA tools over time because they told me lies, and believe me some of them have been the "best". No TA indicator can singularly read noise, ripples, waves, tides, and hurricanes all in the same breath and say what's coming next with any degree of precision, but a ruler and a timeframe change can keep me out of trouble. A simple trend line can be a median average (MA), combine that with a Macd for extremes. (Preferably one with a histogram) and use combination type charts for divergences, for example www.stockcharts.com with the symbols $INDU:$GOLD. (Use a MA of 27, a macd of 9,21,11 and change from daily to weekly). Happy hunting.
© 2004 Alan Lunt
www.tacticalinvestor.com
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© 2004 Sol Palha
TACTICAL INVESTOR
www.tacticalinvestor.com
info@tacticalinvestor.com
17 August 2004
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