 |
May 28 2004 A cowardly dog of a market
At least one thing can be said with certainty about this market: it lacks the courage of its convictions -- if it has any convictions at all. Barking dogs aside (lack of which was also a sign of lack of conviction) Thursday and Friday, gapping on shrinking volume, were further proof that we are in an area pattern. We have pointed out previously that the gaps in March and April were signs of a developing area pattern as is the previous gap in May. At the moment we take this pattern as a consolidation of the beginning of a downtrend, so minor upwaves should be of no great concern to long term traders and investors. In fact it is a wonderful opportunity to build bear positions.
|
 |
Nonetheless we are clearly in a changed cycle -- a rally against the general bear trend. As we analyzed last week crude seems to have topped for the moment. Note breakaway gap. News could cause a rally next week, as Islamic fanatics attacked oil workers in Saudi Arabia after the markets closed Friday. |
 |
As also observed last week gold has broken its down trend and staged a new advance. We think gold can be bought and thrown in the drawer. (Head slap. Did we really say that? Major retracements will continue to occur. Either trade and hedge them or have sufficient capital to not care.) |
|
|
 |
May 21 2004 The Curious Case of the dogs which did not bark in the market
As market detectives we are now confronted with the curious case of the signals which did not bark in the night, or perhaps the signals which whined in the day. Whipped by crosscurrents this week price broke, (or did not break) (DIA) a short term trend line. Wednesday the market gapped up like Smarty Jones on his way to the roses and ran away. Later in the day it spooked (according to some pundits) on the price of oil. Naturally news trading is always an excuse for technical causes. The day in question would have represented a decisive thrust breaking the short term downtrend. What it's really saying is there is too much uncertainty to sustain a rally so let's hang around and whip the short term traders. Failure to break the 14 day trendline, as occurred once again Friday (when price failed to close above the trend line) leaves the expected retracement upwave in severe doubt. There is no doubt about the dominant trend — sideways to down. There is also no doubt about the posture of mid and long term investors and speculators. Short hedged or out.
|
 |
On the other hand if you just have to be long something, how about gold or silver? We are considering futures trades in gold and silver (not to be attempted by amateurs) who might consider buying a fund. |
 |
September silver. Not a small risk. The stop is at 55850 but we think the long term uptrend is due to resume. And the short term downtrend appears broken. Note rashness of this recommendation. 40 day MA is still down.
We of course will blame it on Karnak if it goes bad. |
 |
For the speculator who needs a little more speed in his diet, the time has come to short the crude -- if it's not too late next week. |
 |
May 18 2004 Bombing the market and other desperate economic pleasures
Or desperately seeking to master computer technology, more likely. And apologies to our readers for our “desperation” messages sent in error and out of deep technical ineptitude. There is of course a lot of desperation in the air, which is what we were thinking about when we pressed the send button. The administration has every right to be desperate about the reelection of George Bush, and the market is desperate about the political uncertainty of the identity of the next president and the uncertainty of the size of the butcher’s bill in Iraq (BIG in treasure and blood).
Find the two significant days at the end of this chart. Hint: It’s not the bombing sell off (next to last bar) which is notable for its lack of comparative volume. Is this the end of the downtrend? Absolutely not known yet. Technical conditions (3 days away rule (see 8th edition of Technical Analysis of Stock Trends)) not yet satisfied.
The two significant days are the two high volume days in May. A resounding sell off and a resounding bounce. Meaning: Smart sellers and dumb buyers, and a message that the issue is not yet decided, this could turn into a trading range before the five month pattern bleeds downward.
|
 |
Odds of penetrating 108: 0%. Don't you love it when we go out on the high wire like that? Try and find another analyst with cojones like that. Of course, if wrong we will blame it on our evil twin Karnak. Later this week we will post at <http://www.edwards-magee.com/NewFiles/3rs.html> our editorial titled ?Putrid Politics Makes for Execrable Economics?. Meantime, combine all this misery about this wobegone war and then blow up the leader of the Iraqi Governing Council and you get a bombed market. Ever notice how these things go with the trend?
Notice the gentle angle of the last downtrend line. Augurs long painful struggle. (For bears.) A little acceleration lately, but a steeper line cannot yet be drawn.
|
 |
May 7 2003. Wait wait. Let us get short some more.
New low. New low. New Low. Yes, we read Barrons. Yes, they read us. April 26 they quoted us on Brazilian samba dancers. Some of the other people they quoted obviously can't read charts. Or the handwriting on the wall. Which says, Mene, Mene, tekle trickle down economic disaster. Someday some obscure biblical scholar will annotate that line. And in economic hell, where he is being pronged by Paul O'Neil George Bush will say, "They told me that tax cuts and war would stimulate the economy. What did I know?"
Our esteemed colleague Jack Schannep (thedowtheory.com) says, "It's the War, Stupid." As economists we care what caused it. As traders we know a dying bull when we see one. this one is badly wounded. Will the muleta come out for the moment of truth? The March low will tell us. Take that out and bleeding will accelerate.
|
 |
Do we need to be more blunt or explicit? Loyal readers, new readers, passers by who came to scoff and stayed to worship, TELL US. To all readers of our books, students of our seminars the previous panel will be screamingly obvious. The Dow (and the other major indices not shown here) are making lower highs and lower lows, and the major trendlines have been broken. Present price is confined, like a wounded bull between March low and April high. Penetrating the high is not definitive, but a confirmation of a trading range. Penetration of the low is a potential for disaster. Write us at cb@edwards-magee.com if we were too obscure in the previous panel.
And note where we shorted the bonds (m+l). Were you too shy to follow our lead?
|
 |
If you were too shy to short the futures (don't try this at home unless you are a professional) you could do the SHY or the other ishares. Broken 40 day moving average. Gap. Gap.
Our greatest character defect (among the multitude noted by a sharp eyed spouse) is exulting in saying, "Told you so." Are we angry? Yes. Do we express it here? No. Here we get even. If you want to read angry see our editorial at
http://www.edwards-magee.com/NewFiles/3rs.html.
|
