The real estate sector has been in a down trend since Feb 2007. Since late July ICF has entered into an upward tilted wedge continuation pattern, signaling that the down trend will continue. However, most wedges would have resolved to the downside during the last week or so. This one seems destined to delayed resolution -- it might exit the wedge to the upside in the short term, but since the downtrend since February has not reversed, it should continue on its down trend shortly there after. Eventually ICF should fall to the 50-60 range over the next few months.
Look at the charts of DUX (utility), RMV (mid-cap value), RUT (small cap) -- they are amazing. It seems a group of people have set up their 401(k) accounts for these funds around 2002 and 2003, buying the same amount of stocks from the same group of companies month after month. Moreover, not one of these people has tempered with their accounts since then, nor were there anyone new joined in later. The result is a straight line along the bottom of these charts, with the occasional hot money pulling the charts away from the line to the upside, but only slightly. But watch out, at least in RMV's case, some of these people have begun to pull their money out of their 401(k) accounts during the last month or so.
Nasdaq has been on a long-term down trend since the Spring of 2000. Recently it has completed its primary fibonacci retracement -- that is, it has recovered 38% of its losses between Spring 2000 and the Summer of 2002 (see chart). The fibonacci retracement level around 2700 will pose as strong resistance forcing the index to resume its downtrend.
SPX (S&P 500), on the other hand, has come back to the same level as its Spring 2000 peak, while DOW has proudly surpassed its 2000 level. We are closely watching the actions of these indexes -- it is quite possible that the actions in the market during the last 2 months, particularly the heavy sell-off during mid-August, may have constituted a reversal signal to the downside. If this is true, SPX will have exhibited a perfect double-top in its long chart: an ominous signal for the future of this economy.
Gold: not much to say here, the up trend since 2002 is still intact. Getting a bit too volatile lately, though.
The China bubble is a short one -- it's barely two years old, not the kind of 10-year bubbles that was in Nasdaq or Japan. The Chinese market is showing signs of fatigue, however, as the volume of its most recent 2-month uptrend is significantly less than last two up legs.
The Fed action today produced a bit of a short squeeze. This sort of short-term actions usually has no effect on longer term trends. But will it somehow delay or disrupt the pending reversal in Dow and SPX? We shall watch closely.
Postscript: this is a resumption of a market commentary series I've put out during the Nasdaq bubble/bust years. Selected articles from that series are being reposted to a sister blog.
Subscribe to:
Post Comments (Atom)
1 comment:
There could be a couple of more seesaws before another major correction like the last one. After all, the liquidity which itself is a result of the global over-evaluation remains high. The gamblers, including us, by nature are risk seekers. So the market will be volatile for sure, at least for a couple of years.
Market value evaporation is not the sole form of correction. Inflation, which may not be as painful as it seems, can be as harmful. Imagine, in a year with 8% inflation, you need to make at least 10% on the equity market just to make even.
In my view, the next major correction will hit us on both ends, with crashing stock market and soaring inflation. As for the timing, I will be cautious before any inflation data release towards the end of the year.
Post a Comment