john magee technical analysis::delphic options research ltd    

V bottoms are actually pretty rare and mainly occur in optimistic environments. So we would be more than a little surprised if the bottom shown here held. Typically after a sell off like the terrorist market sell off will be marked by a rapid recovery into which some late bulls thankfully offer their holdings and then prices drift lower till the bargain hunters gag on the bargain. On the other hand (as Jack Kennedy's economists used to say) we suspect this bottom will turn out to be an excellent long term buy for those who bought for the long term (5 years or more). Few traders have that patience so we will probably see bungee markets. Most of the above qualifies as speculation, meaning random verbalizing. As for analysis, trend traders will wait until a bottom is clear. This is because the downtrend which started in May shows no proof whatsoever that it has ended, and trends do tend to continue. Traders should have a field day here, selling strength and buying weakness. Above all it is important to understand that at this juncture NO ONE including ourselves can speak with any certainty about what the markets will do here. Mark and remember those who speak like confident experts here and remember to avoid them in the future.

The terrorists may not have terrorized the country, but they have certainly terrorized the markets which are in full meltdown. See our letter of September 10. If you are a reader and did not act on our observations you now realize the power of technical analysis. Free money is on the table right now in the form of deep out of the money puts (to write). Investors who are long now are reaping the full fruits of ignorance and denial and enjoying the benefits of listening to their brokers and fundamental analysts. Shortly we will write a follow up to our letter of January 2000 in which we noted that the markets would see saw between 9000 and 12000 for the foreseeable future. The future has arrived.

The Dow took out the low point at 9652 without much ceremony. It was not much of a support point anyway, more a benchmark. But, given that trends tend to continue and that the Dow has broken from all the trading ranges the next low, as may be seen on the chart is the March low at about 9100. Based on present momentum and economic conditions we would not be surprised to see this point penetrated also. Watching the S&P and the NASDAQ should give some indication. But if their lows fall the scenario is not pleasant. They are right now exactly in their critical areas. We have repeatedly advised our readers to be hedged or short. Crocodile tears will be shed by those who have disregarded that advice. Compare charts from Aug 31 to see the continuing deterioration.

The Dow has fallen from the trading range which formerly bottomed at 10200. It is now in a downtrend whose next test point is 9652 and whose next test point is in the 9000 area. In Jan 2000 we said the Dow would oscillate between 9000-12000 for the foreseeable future. The end of that future may be near. While many have considered the Dow (Schannep, Russell) to be in a bear market already we have considered that the Dow was in a monstrous line. If it does not return to the trading range now it may be said we are in a full fledged bear market and George Bush may preside over the greatest modern depression.

Long term investing: (from our comments of Jan 01) We see no reason to change these comments this week. Isn't that boring?

Dow: The Dow can expect to find support at 10000 and is buyable, but in small commitments or portions of a portfolio or additions thereto. We expect to see it in a very large see saw from 9-12000 for some time and would hedge at the high end and increase commitments and lift hedges on oversold conditions at the low end. Jan 15: Don't hang up. We change our minds everyday according to the conditions of the moment.

S&P: We have pretty much the same opinion about the S&P with the range being 1200-1500 and would follow the same strategy.

NASDAQ: This thing is on wheels--either that or a Roman candle (not referring to candlestick patterns, but to the fireworks.) Can you buy it? If you're faster than a scalded skunk. At least there is a line of defense about 3700. But it's definitely playing with fire.

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