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Stock Market Indexes Crash From The Symmetrical Triangle With Increasing Bearish Momentum
By Geoff Green | March 10, 2008
Anyone who is buying stocks now in this market certainly needs to have a long-term investing strategy.
Here at Profitable-Investing.com, we’ll sit on the sidelines until the market tells us what to do - and this week it said go-short as stock indexes crashed from the recent symmetrical triangle formation.
The last few weeks of trading saw a head-fake to the top of the triangle and then a strong bearish move to the 13000 level on the Wilshire 5000. (For new readers, we use the Wilshire 5000 index for very good reasons - it provides a more accurate picture of the direction of the broad market than any other indicator we are familiar with).
In more evidence that the FED is almost helpless to help struggling homeowners, Dr. Bernanke urged lenders to help distressed owners by lowering the amount of their loans. He believes this will reduce the number of foreclosures. Hmmmm, I’m sure it would help but it seems like lenders would find themselves on a slippery slope if they did that.
In addition to that tidbit of wisdom, investors had to contend with a long list of data that suggests the economy is continuing to slow.
For example:
- Construction spending declined in January for the fourth month in a row.
- Manufacturing activity contracted in February.
- New Orders Index fell in February.
- Durable goods orders fell.
- Foreclosures up, inflation up, average 30 year fixed mortgage rates jumped 1% over the last two weeks, price of gas is up….
I could go on, but you get the idea.
Let’s look at the chart below and see if the stock market is anticipating an economic contraction.
Judging from the chart I would certainly say that investors are anticipating lower earnings are firmly in the cards.
The chart shows the next 3 support levels for the stock market indexes. We have already crashed through the lows made in January of 2008. The next few support levels go back to the middle of 2006 - unfortunately for investors, support levels tend to weaken over time.
It remains to be seen if these levels will help the stock market find a bottom. Even thought we reached the 12,500 level as an intraday low in January you can read this post to see why a price drop to this level on a closing basis is a distinct possibility.
You can clearly see the ADX indicator is showing an increase in trending action after the breakout from the symmetrical triangle.
The Stochastics have turned down and the MACD indicator is showing an acceleration or increasing momentum in a bearish direction.
Our strategy for this week is to sell stocks short or buy Contra-ETF’s at the top of rally’s in this bearish environment.
Stay tuned for a new layout of the current recommendation pages which will be easier for most investors to follow. The new layout will be online by the end of March 2008.
As the author and owner of this article, you have my permission to publish these postings & articles electronically or on your own Web site, free of charge as long as the following by-line and functional Internet link is included in its entirety. <br> Written by Geoff Green, at http://www.profitable-investing.com Copyright 2008. .Topics: End of Week Commentary, MACD, inflation, interest rates, stochastics, stock market recommendations, support levels, technical analysis, trend analysis |
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