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Investing
The DOW, Where to Next

By The Tactical Investor

For some reason the Market seems resilient to any kind of significant correction, every time one gets a slight feeling of satisfaction that we might be correcting, the market seems to bounce back and attempt to reach new highs.


This data could be looked at two ways, one camp could say that the failure to hold at or close to the highs indicates instability in the markets and shows the need for a decent correction. The other camp could say that, there is nothing wrong with the fact that we closed of the highs, we still closed up and we did so on higher volume, and this is bullish. The sad truth is that both camps are right, in the market sometimes the bulls and the bears could be right on paper but wrong when it comes to taking money home to the bank.

Right now if you talk to most bears, they are simply shell shocked after getting bludgeoned to death from trying to short at points that seemed on TA basis and from a sentiment Perspective (sentiment taken from bullish advisors and bearish advisors and not the pubic), and yet they have not been able to make any money or win, only the very nimble bears who kept taking small profits have survived this carnage.

Move to the bulls, most bulls are confused that the market keeps going up, when polled most bullís think that we should have some correction, before resuming the upward trend.

It seems that both bulls and bears agree on one point, they are both confused and both think the market should correct, the bears however are to nervous to commit to any positions and the Bulls to scared to take new long positions. Perhaps that is why we are having these sudden huge volatile moves, as it appears that more and more individuals out of fear of not being able to predict this market in any form have inadvertently becoming momentum traders, or traders that are basing their decisions on short term news events.

In the long run this is a very precarious way to do business and the market will pull back to the norm, what is the norm? The Norm if we are in Bull Market and it appears that we are in one right now (long term bear but cyclical bull) then the Norm usually represents Standard deviation points. One such point is the Mean and the other points are the -2 SD ,-3 SD , + 2 and 3 SD

Since March 12, 2003 we have constantly either pulled back to the mean and then taken of to hit the +2 but never have full hit the +3 SD Point or as in the last two occasions pulled back all the way to negative 2 SD points and rallied off. The first time we did that was on 8/6/03 and the Dow closed 9061 and rallied all the way to the new high of 9686 set on 9/19/03 with two pulls backs that held at the mean range. From 9/19/03 the date we hit the +2sd point , we pulled back to the -2SD point on 9/30/03 when we closed at 9275 and since then we have proceeded to rally again and we just touched the +2 Sd point on 10/15/03 and thatís when the Dow started to pull back. Now the question is will it hold at the mean the Mean which right now is 9500 and rally again and attempt to make a new high and first touch the +2Sd point which is 9868 and maybe touch the extreme +3Sd band which we have not done for awhile (now at 10011) or go back to the -2SD band which is at 9305 or the more extreme Ė3sd which is at 9160 ( this would most likely be a very good time to go long). Having said that the only time this Year we hit the -3SD band was march 12,2003 ( that was when the DOW made a low of 7416) and since then we have not looked back.

I suspect that when and if we hit the Negative 3SD band again, the Esoteric cycles will be close to an oversold condition. For those of you who use SD points or bands I will let you know when we hit this range. Even though Esoteric Cycles are in the overbought area, they for some reason which I find irritating ( perhaps thatís why they are holding off), have refused to go into the excessively over bought range.



http://www.tacticalinvestor.com




 
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