Jul 14, 2008 - Issue #119
War Clouds? Iran fires off missles and guess what happens to oil? And, of course, stocks
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
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
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%:
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%:
AIG, -*AXP, BA, BAC, C, CAT, -*CVX, DD, DIS, GM, HD, HPQ, INTC, -*JPM, KO, MSFT, -*XOM.
+/- denotes change of direction.
* denotes change of category.
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