Wednesday, September 10, 2008

Dow 9K in 6 months?

I will translate the following chart's speech to English for you;

1- For the last 3 months, the market has been correcting its oversold condition by consolidating near the lows.

2- This consolidation is caped by the mid line of the channel created by the crash 1987 implying that the move may want to resemble the originating event.

3- Since the move is now defined within the lower half of the channel, the next important bottom should be around 9000 level (rising channel bottom line)

4- During the last 3 months, by fixing oversold condition below the mid channel, the market built a cause to move further down. This move will commence by a triggering event. This can be a quad-expiration, coming warnings (earnings) season or a Fed announcement. Any market moving event can do it easily. The more we consolidate, the more we will compact energy for the next downleg.

I will talk about Shanghai index tomorrow. I have a strong feeling that the triggering event will come from China.
It is somewhat obvious to me that SSEC will go through a severe selling climax or a true crash. A strong selling in China may trigger a global panic which may get quite nasty given the current long term oversold conditions on major indices (DJI and SPX monthly RSI is at 25)

The biggest drops in a bear market usually occur under oversold conditions. Sizable drops in a bull market come from overbought levels.



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