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May 12, 2008 - Issue #110

Where to Now?

From the 10/11/07 high of 14198.10 to the 1/22/08 low of 11634.82, a difference of -2563.28 points and -18.05%, rebounding (so far) to the 5/2/08 high of 13142.46 (+1507.64 points and 12.96%), that's a recovery of 59%. Now what?

Possible (fibonacci) bull case: 50% Pull-back to 12355 then upward move to 13904.

Possible (fibonacci) bear case: Immediate decline from recent 5/2 high to 10569.

The bearish case, obviously, assumes a failure of the 1/22 low to hold a further assult. Not a foregone conclusion.

What could cause the bearish scenario to come about? More sub-prime shoes to drop? Democrats promising to raise taxes? Continuing weakness of the dollar? Continuing rising oil prices? Continuing falling home prices? Weak retail sales? Iran with nuclear weapons capability? All of the above? Take your pick. There's plenty to choose from.

Traders have a saying: If in doubt, get out!

Remember, also, using Puts to protect long positions and Calls to protect short positions is always a sensible trading strategy. Your choice.

Dow score card for the week ending 5/9/08.

DJ-30: 12745.88 -312.32 -2.39%. The Real World (arithmetical) DJ-30: 52.18 -1.28 -2.39%.

UP: 6, Down: 24.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 5 (-10) 17%:

+*AA, CVX, DIS, +*HPQ, +*IBM.

Consolidating (Generally Lower Highs/Higher Lows) 19 (+6) 63%:

-*AXP, -*BA, -*BAC, C, CAT, DD, GE, -*GM, -*HD, -*INTC, -*JNJ, -*JPM, -*MCD, +*MRK, MSFT, -*T, -*UTX, -*VZ, WMT.

Declining (Generally Lower Highs/Lower Lows) 6 (+4) 20%:

-*AIG, KO, -*MMM, -*PFE, -*PG, -*XOM.

+/- denotes change of direction.

* denotes change of category.