Jul 14, 2008 - Issue #119

War Clouds?

War Clouds? Iran fires off missles and guess what happens to oil? And, of course, stocks drop!

Earnings season is upon us, once again. Expectedly, retailers tank. A bank fails. All in a weeks work for a bear market.

CNBC's crew queries guest after guest with, 'Where should we put money now?' The only good response is cash. 'Are we on the bottom?' Response, 'If you have to ask, it's not the bottom.' And so it went. Oppenheimer's technical analyst, Carter Worth, suggested what we need is '300 points down, followed by 30 points up, followed by another 300 points down, followed by 30 points up, then another 300 points down until the bottom is finally reached.'

When a stock is beaten down to the point where it looks attractive to buy, volatility is probably high causing Put options to be an expensive form of protection. Average True Range (ATR) is high. A bar with a large 'bottoming tail' can indicate a significant bottom. Under such circumstances, it is usually good form to reduce the size of your normal trading unit when initially acquiring a long position in case you have to bail. Your objective is to establish a 'beachhead' from which you can gradually increase your position if the stock advances from there.

Important market bottoms are not usually of the V-shape variety. Rather, a sideways movement (consolidation) of some duration takes place (the longer, the better) before the next advance.

Study charts of past important lows to see what they looked like. Future lows should look similar.

Dow score card for the week ending 7/11/08.

DJ-30: 11100.54 -188.00 -1.67%. The Real World (arithmetical) DJ-30: 45.44 -0.78 -1.67%.

UP: 6, Down: 23, N/C: 1.

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

Rising (Generally Higher Highs/Higher Lows) 2 (+1) 7%:

+*JNJ, +*PFE.

Consolidating (Generally Lower Highs/Higher Lows) 11 (N/C) 37%:

+*AA, GE, +*IBM, MCD, +*MMM, -*MRK, PG, +*T, +*UTX, VZ, WMT.

Declining (Generally Lower Highs/Lower Lows) 17 (-1) 57%:


+/- denotes change of direction.

* denotes change of category.

Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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