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I think that the dramatic turnaround we've seen in stocks and bonds during the past week is telling us something important.
In my last message (GG#17182, September 17), which outlined the implications of my square of 9 calculations for T-bond futures, I said that short term calculations called for a move to 114 but that it would be the last gasp prior to a multi-week downmove of 6-10 points. The reason for the bearish intermediate term view was that there was then long term resistance at 112-20 and again at 113-20.
In the event the bonds eventually got as high as 115-04 on October 8 at which point the higher of the two long term resistance levels had risen to 114-20.
The market took longer to establish its highs and went further than my short term calculations led me to expect. Even so, the high velocity break from 115-04 to 108-15 (so far) has clearly broken the rhythm of the upmove from the March '02 lows and the 6-10 point break I anticipated is at least halfway completed. My best guess right now is that a low will occur around 105. From there the market will probably rally past 115 to the 120 level.
I think the break in bonds is telling us that the economy is not in as bad a shape as the constant drumbeat of negative earnings surprises has led stock investors to believe.
In GG # 14651 (July 24) I said that square of 9 calculations showed intermediate term support in the cash S&P at 781 and that the market had begun a rally back to 1000 or a bit higher. (In the event it only got as high as 966). I also identified long term support at 690 cash in the same message.
In GG # 16695 (September 4) I said that the 876 level should be the start of the second upleg to 1000 or higher. Instead the market rallied only briefly to 925 and then dropped all the way down to 768 on October 10. In the meantime, the long term support which had stood at 690 on July 24 had risen to 754. (I might add that my square of 9 calculations showed long term support in the Nasdaq 100 in the 810 - 825 range so these two markets appear to be on the same page in this respect.)
The strong rally in stocks from 768 on October 10 coupled with the postion of long term support at 754 coupled with the big break in bonds makes it likely that the stock market has just completed a successful test of the July 24 low. The odds favor at least a move into the 1000-1050 range in the S&P. My long term calculations suggest that this will actually be the first leg of a bull market which will last for two years or so and carry the S&P up into the 1200-1300 range. More on this last possibility in a later message.
Carl
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