(click on chart to enlarge)
CHART AU COURANT: This is it folks, the purge/plunge appears to be at hand. Whether it shows up this week, next week, or the week after, the test of 8000 that held earlier this month, will likely break in the coming days, setting up the ultimate test of the lows of 2002/2003. That number is 7200 Dow, 776 S&P, and 1100 Nasdaq. If these levels break, the next stops will be 5700-6300 Dow, 610-735 S&P, and 800 +/-50 Nasdaq. There is a very good chance that from the lows of the coming days, there will be a 50%-100% rally within the coming 6-12 months. It's rare that so great an upside bounce has the potential to manifest within such a short time frame. But, the more dramatic the decline, the more dramatic the bounce. Like a rubber band: the more you pull it back, the harder it snaps forward. The green box at the right of the chart shows the closing price from Friday of 8378. The blue vectors show the pattern I predicted from back in the summer, and have been adhered to very tightly throughout the decline. The upward pointing ones show what the bounce should look like once this low comes in during the next few days.
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MARKETS: Since there is NO WAY to know for certain in advance, there are various strategies for entry that professionals use to act from a position of strength, rather than from a position of weakness that the public prefers.
Here they are:
1. The aggressive stance is to put half your available funds in at a test of the early October lows and the other half at the old lows of the 7200, 776, and 1100 areas, believing that any further declines below these levels will be minor and brief, especially since the decline of the past year has been so deep and fast.
2. The conservative stance will be to put half your available funds in at the test of the 2002/2003 lows, and the other half either at the test of the lower ranges stated above, or on the way back up through the spike highs this month: 9800 Dow, 1045 S&P, and 1900 Nasdaq.
3. The very conservative stance will be to put half your available funds in on the way back up through the spike highs this month: 9800 Dow, 1045 S&P, and 1900 Nasdaq and exit all stock and mutual fund positions early next year on the wave "B" peak near 11,000-12,000 Dow, 1150-1250 S&P, and 2000-2300 Nasdaq.
These options should be used for individual stock entries as well. Once you pick an option, you should stick with your plan to increase the odds of success. The key to success is "planning your trade, and trading your plan". Both are incredibly important to the outcome; without both, the other is too hard to do.
As the title of this comment suggests, this will be a week or two of volatility not seen in history. Iron-like focus and stomachs, in addition to a clear plan set out in advance of the action, are the keys to emotion-free, position of strength, decisions. Any buys under 7000 Dow, and added to under 6000 Dow if that is presented, will be major money makers in the coming months, PROVIDED THE PROPER EXIT OPPORTUNITIES ARE TAKEN. This buying opportunity is the best one of the past year, but not THE buying opportunity of a lifetime, like the one in a couple years will be. Again, that is why the exit I've described above and for the last several weeks will be so important.
For what it's worth,
Ken
