Decline Continues
Carl Swenlin
January 31, 2009
Last week I wrote: "While the bulls currently appear to be putting up a pretty good fight against a further price decline, and may even be able to spark a rally, decisive tops have been established, both in price and internals. A brief rally is possible, but following that, I expect that the November lows will be challenged."
Additional expectations from Last week: "It appears that a short-term bottom is currently forming from which a short reaction rally could launch. This is a common result of PMO crossovers, and the rally normally pulls the PMO back up toward its 10-EMA."
So far the market has been following that scenario to a "t" (although we're still waiting for the big decline to kick in). There was a small breakout, which pulled the PMO up toward its 10-EMA. Then prices broke downward, causing the PMO to top below its 10-EMA. This is a perfect setup for a continued price decline. Please keep in mind that "perfect setup" does not mean "guaranteed result". There is still a short-term rising trend line that needs to be penetrated.
The next chart shows that our medium-term price, breadth, and volume indicators are still in a down trend and have plenty of distance to go down before they reach oversold levels, so the internals still allow for continued price decline in the intermediate-term.
Bottom Line: The market hasn't exactly been falling apart because (I believe) the Fed and/or Treasury continue to provide support buying when prices fall too freely; however, the only rallies that have materialized are driven by short-covering, and they fizzle quickly. I still believe that the November lows will be tested soon.
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2008 TIMER DIGEST RANKINGS FOR DECISION POINT
#4 Bond Timer (*TD Index: 112.32)
#5 Gold Timer (TD Index: 126.33)
#9 Long-Term Timer Stocks (TD Index: 132.35)
*All timers are assigned an Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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