john magee technical analysis::delphic options research ltd    

We continue to be astounded at the pollyannish tone of the news. Here is the 5 year chart of the Dow looking more and more miserable at every turn. The bull market ended in late 1999 with a broadening top and has done nothing but dive lower on every sell off, including the terrorist low. While there have been individual issues which have bucked the trend this is so clearly not a market for long (or even mid) term investors that we consider incitement to long positions a species of denial, ignorance (or in the case of our friends the analysts on Wall Street) a confidence game. The Dow has now taken out the January low and will now test the 9000 level, likely break it and then test the terrorist low. As indicated by the horizontal line just below 9300 on this chart it rests on a crucial support area with downward momentum behind it. We lament the cause for the bulls. The qqqs already look dismayingly like the chart of the 1929 Dow. The S&P appears already headed for a test of the terrorist low. Welcome to bear country, and note, that if you read and understood out letters for the last three years and are not short or hedged we roll our eyes and recommend that you see an investment psychiatrist. The doctor is in. $.05, as Lucy would say.

We have breakdowns in all the major indices. There should be some support around 9900 to 9600 in the Dow. Failure of this support will direct attention to the lows at 9000. At this point we don't know whether the sideways trend (the Mule Market) will reconstitute itself, or whether the terrorist low will be tested. We do know it's not a time to be long, but we have known that for months, if not years.

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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