DOW JONES INDUSTRIAL AVERAGE: ARE WE HEADING FOR A DISASTER?
The Dow Jones Industrial in fact hit a peak of 10,753 points on February 19 and this has been the resistance to watch.
The conclusion we can draw today of course is that it will be very, very unlikely that this high of 10,753 points will be superseded anytime soon and that those who are long have indeed to be in a state of anxiety.
The long-term picture
In January 2000, the Dow Jones Industrial Average peaked at 11,750 points. This all-time high has so far not been superseded and any subsequent pinnacle situated itself at a lower level, such as those of September 2000 and May 2001.
The highest point reached in February of this year (10,753) was equal to the one touched in May 2001.
The Dow Jones Industrial Average would certainly have to close above the February high in order to invalidate our bearish appraisal of the present market situation. That this will occur seems to be more unlikely with every day that passes.
The medium-term picture
"The medium-term picture not only shows massive resistance from the down trend line connecting the tops reached in 2000, 2001 and 2004, but also from the peak reached in 2002. We feel certain that the down-trend that started in February will not reverse, and apart from occasional pull-backs, it will likely pick up speed.", is what we said in May and we see no reason to disavow. On the contrary
The short-term picture
What we perceive in the short-term picture is a trend-reversal and, as we know, lower highs and lower lows is what characterizes a down-trend.
While a pull-back towards the 10,500 level is a possibility, this is a worst-case scenario and we rather view an initial move towards the 9,000 level as more likely.
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.
Be that as it may, by February of this year, the VIX had fallen to a low not seen for a long time and we would like to put into words positively and with conviction that the bear market rally has most likely run its course.
Furthermore, you can see that this index can easily jump from less than 20 points to 40 and more. A valuation of less than 20 points can at least foreshadow what may be in store during the coming weeks and months.
We conclude therefore that it is still time to sell the US markets short!
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
investment@pzim.com
forex@pzim.com
August 16, 2004
Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so. The author is a shareholder in the company and will benefit from any increase in the company's share price. Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information, nor the opinions expressed should be construed as a solicitation to buy or sell this stock. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock.