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An extract from a market letter
I have received,
Thursday September 13Two previous historical events
offer some help understandingwhat to expect in the next days and
weeks.After bottoming in early July 1932 at 41.22 the DJIA rallied to
194.40in March of 1937 (335% in a little less than 5 years). On
December 6, 1941the DJIA was in both a long and short term downtrend and
closed at 116.60(Down 40% in 4.5 years). When Pearl Harbor was
attacked the DJIA fell for3 consecutive days to 109.01 (Down 6.5%).
After that it rallied for 4 daysto 111.15 (about 2%) before resuming its
decline to 106.34 (Down about 5%).It then experienced its Christmas/End of
Month/End of year rally and roseto 114.22 (about 8%) on January 5,
1942. The down trend resumed after that,bottoming in late April 1942
at 92.92 (Down 18.6%). Since late April 1942the DJIA has never been
lower.On July 16-17, 1990 the DJIA reached a clearly unconfirmed high of
2999.75and began falling. On August 2, 1990 Iraq invaded Kuwait.
The DJIAcontinuedto fall until October 11, 1990 bottoming at 2365.10
(Down 21.2%).The 2365 low in the DJIA is the lowest seen since that
date.There are other examples, such as the Kennedy assassination, but
none ofthemoccurred while the market was trending downward. The
1990 example is alittleshaky because, although the market was on the
downside of an intermediateterm cycle any longer term trend was clearly
upward.The market has been in a down trend for the past year and is
approaching thelower side of the down trending channel. In the past
few weeks new lowshave been building rapidly and sectors (such as small cap
value) that hadbeen holding up well were beginning to collapse.The
market is(was) very near an intermediate term low and is very over
sold.Foreign markets fell 6%-9% Tuesday (similar to 1941) and have
recoveredsomewhat.The fed has made it clear that liquidity will not
be a problem.Some panic selling would not be surprising and that should
wash out everyonethat is considering selling. After that the rally
could be a good one.In 1990 we were knew who the enemy was, but many
thought we would be unabletodefeat him on his home turf. Many
questioned whether we should sacrificeAmerican lives to liberate someone
else's oil fields.We are currently uncertain as to who or what the enemy
is. When the enemy'sidentity is determined, it appears there will be
very little politicalresistance to destroying him (it).We are all
saddened by Tuesday's losses, but, in the end, the world may bea better
place.Good luck
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