Wednesday, January 14, 2009

The March to Below 740 is Underway; Jan. 14, 2009

I was wrong in expecting a rally in my post yesterday. But with the larger trend down, suprises will be to the downside. The break of 850 in the S&P (see red horizontal line on chart above) confirms the march towards breaking 740 is underway. The market won't get there in a straight line, although it has so far, so I'm taking small short positions off the table as the market falls. When the market rallies, I'll add those positions back on. This is the 7th down day in a row for the Dow and no significant rally has occurred while the S&P has dropped almost 100 points! So a strong rally should occur soon. But it's not required.

740 should be broken within the next couple months.


Michael K. said...

Thanks, could you gave an estimate date of the new low? And how high the market could still go, and when to expect a rally before the new lows hit (Fri.?)?

Todd S said...

Time is extremely speculative so I'm merely guessing here: there are a couple scenarios unfolding: 1) would have the new low occur very soon, like early to mid-February. 2) the other scenario would take much longer and would probably occur mid to late March. Today's breadth is so horrid that I'm leaning toward the first one.

With no significant rally to have a closer swing high, we have to look at the ultimate high for now at 943. However, as of right now the 78% retracement of the entire decline is 921, so the S&P shouldn't go above that level, but ultimately 943 is the top.

When will a rally happen? I don't know. The larger trend is down so it's not wise to plan too hard on countertrend moves. Today's breadth is so horrid that only some big news event could cause a rally today. With the market falling so much without any relief, I have no problem taking some profits as it continues to fall and then adding them back when it rallies. It's easier to pick tops than it is to pick bottoms when the trend is down.