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Freely traded markets are much like the weather - they are dynamic ,
non-linear systems with limited memory of previous events. And, like the
weather, it is futile to forecast their movement outside of a short period
of time. That being said, it is always advisable to have an idea of trends
in existence that are longer than our trading timeframe so that we can take
trades with the most likelihood of success. Longer term trends can only be
determined by lagging indicators.Also, we must understand that longer term
reversals of trend ALWAYS have their origination in a shorter timeframe. The
difficult thing is to identify the short term reversal that might lead to a
longer term reversal. To do this I have developed a number of longer term
models of several time frames and applied them to many components of the
equity markets. These models indicate that all elements of the Markets (
DJIA,S&P 500, NASDAQ, RUSSELL, ETC.) are in weekly and monthly bearish
trends. The OEX and NDX have signaled a bullish reversal on the shortest
(Daily) time frame however the number of stocks likely to reverse down is
twice as large as the number of stocks likely to reverse up. I believe we
will see one or two more days of deterioration before a reversal to the
upside. The energy, software, gold and semiconductor sectors are likely to
be bearish next week while Financials,Biotech's, and Healthcare should lead
any bullish movement. during the week.
The one caveat to this is we are moving into the final week before the
election. Any new and unexpected impulse from the political front could
reverse or reinforce the above outlook.
Jim White
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