Thursday, November 8, 2007

Rino: Market Outlook

What a day!

As much as I was tempted to switch my call positions earlier today, I held on, hoping for my read to be correct. Of course, the hindsight is always 20/20 so it's easier to come out and talk now. Nonetheless, with a confirmation tomorrow morning, I have high confidence in the pattern that I found in the market.

The retracement that started in the middle of October was reminiscent of the retracement that began in the middle of July. In fact, you can almost say that these two retracements are like twins because they resemble each other so much.

Taking the DJIA for example, back in July...

the first leg down - took 2 weeks; dropped 900pts
the second leg bounce - took 1 week; gained 550pts
the third leg down - took 1 week; dropped 1100pts; then a short term bottom was formed

entire retracement took 4 WEEKS & dropped by 1500pts

Now we turn to October...

the first leg down - took almost 2 weeks; dropped 800pts
the second leg bounce - took a little over 1 week; gained 550pts
the third leg down - took 1 week (marks TODAY); dropped 900 pts

entire retracement took 4 WEEKS & dropped by 1100pts

Now, for each leg, the retracement in Oct shows slightly more bullishness than the July counterpart. Add to this the formation of a candlestick with a long tail & small body that occurred today, which is also visible at the bottom in August. Lastly, the third leg took exactly 6 days before forming the bottom back in August. Today marked the 6th day from the start of this third leg down.

All in all, I am calling for a short term bottom here today. It is still a trading market so picking the right stocks will work regardless of whether it's a call or a put. However, I expect to watch the market rebound from here, and it'll be important to note whether this rise can take out the previous high on the last day of Oct. Failing to do so will provoke another massive drop.

Beyond that my guess is as good as yours. Hold onto your calls on the stocks that led the market. Alternative energy stocks, commodities, and big name techs are still good here for the call. One darkhorse could be the financials, most notably Goldman Sachs, to make a fast temporary rebound.

1 comment:

Simon Louie said...

there are 2 big differences in the two retracements.

1. an unexpected rate cut was the cause for the hammer-like candle last time.

2. the qqqq's were not as badly damaged last time. the qqqq's were quick to bring forth a rebound along with the financials.

you might be right, tomorrow will tell a lot. if your prediction is correct, tomorrow will be heavy in colume and very strong on the bull side.