The Dow

By: Sol Palha | Thu, Dec 6, 2007
Print Email

"Nothing is cheap which is superfluous, for what one does not need, is dear at a penny." ~ Plutarch 46-120 AD, Greek Essayist, Biographer

Marcus Aurelius born on the 26th of April 121 AD had this to say "what does it matter if the entire world cries out against you, if you are right?"

Too many individuals forget to hold their ground and let the worries of the masses slowly but surely break their resolve and when this happens you have a panic event; this entire year has been loaded with examples but a very good example is black Monday (Oct 1987). The masses lost their minds and many of the sane joined the ranks of the insane but the astute investors stood their ground and slowly dropped the books they were busy reading and took a long deep careful look at what was going on and they smiled widely for they liked what they saw; panic, fear and desperation were the main themes and while this was going on they were very happily picking up jewels that were being thrown out the window with the garbage for pennies on the dollar. Do not let the fear of the masses rule you for once fear takes over all other senses bow down and lose significance and the outcome as always is very tragic.

We are still bullish from the intermediate time frame perspective and still feel that all massive pull backs are nothing but buying opportunities. Right now risk takers should divide their money into 3 lots and deploy on lot in the 12800-12900 ranges. Deploy the Second lot in the 12530-12630 ranges. Hold onto the third lot for now. Once again this play is only for those traders who are willing to take on extra risk. Buy call options on the DIA or QQQQ's and make sure they have at least 6 months of time on them. You can buy options according to your budget; buy closer to the money options if you have more money and if not go further out of the money. Do not go overboard by buying options that are in the extreme zones for example out of the money options that have almost no chance in hell of being hit. Example; do not buy DIA 155 call options (this is the equivalent of Dow 15500 as one multiplies by 100 to get the value of the Dow). Market Update Nov 13, 2007

We have repeatedly warned about the need for a correction and stated over and again that such a correction was needed in order for the markets to build the steam necessary to surge to new highs. We have spoken about this issue for weeks on end and thus traders who were nervous had ample time to position themselves in a manner they saw fit to deal with this upcoming decline. We cannot advise one group of traders for fear of upsetting another group. In the end it's impossible to be kind to one group without being unkind to another. Thus we spend our time trying to determine what the markets are going to do and leave our subscribers with the option to determine a position that best suits their needs based on the information we have provided.

Risk takers who took our advice have now deployed one lot of their money as the Dow traded within one of the suggested ranges (12800-12900) and should now be on standby to possibly deploy the second half if the lower ranges are tested.

Since last week there have been a series of new developments most of which are positive to very positive in nature.

  1. The Short interest on the NYSE has yet jumped to another new high; it has been putting in a series of new highs. Note no bear market ever started when short interest were at record levels.
  2. The dumb money particularly the Odd lotters continue to increase their short positions.
  3. The number of short positions held by NYSE specialists has also dropped to another low. This is another strong bullish development.
  4. The VIX has almost spiked to its August high of 36. It has been trending higher for quite sometime now and this indicates that the public by large is scared.
  5. The Standard Deviation bands on both the Dow and NASDAQ expanded to record levels and this is yet another incredibly strong bullish signal. The NASDAQ has put in a series of highs in the last two weeks.
  6. Finally we have what appears to be a selling climax as indicated by the 3 moving averages of new lows and highs we keep. All 3 moving averages of new lows exploded upwards and this suggests fear is now rampant. Again this is yet another bullish development.

Not to long ago we stated that this market needed a correction in the 9-11% ranges; from a high of 14140 to the low it put in today at 12840 the Dow has corrected roughly 9.6%. Thus it falls within the stated ranges, however we all know that markets have a tendency to overshoot their mark and most of this due to fear. So if it does overshoot its mark look at it as manna from heaven and aggressive risk takers should start buying calls left right and centre on the Dow, SPX, OEX and QQQQ's; futures players can go long futures contracts.

Finally today we had what market technicians like to call a reversal day and at its low the Dow was trading down over 100 points but then made a massive come back which amounted to over 170 point gain its low to the close. The most important factor though was that this took place on very good volume; in fact the volume was the highest on record for the past 6 trading days. This is what we call accumulation; smart money is coming in and buying on the dips.

Conclusion

It appears that almost all the signals being generated are suggesting that the markets are setting themselves for an incredibly huge rally that could actually propel the Dow to put in its first all time true new high since 2000. Risk takers should use any strong pull backs below the 12900 level to add to their call positions. The rest should use strong pull backs to purchase shares in the stocks listed in our portfolios particularly in the Uranium, oil, gas and coal sectors. Finally on Monday the 19th of November we had another selling climax; down volume came in at 89.66% and for all intents and purposes that is as good as 90%. So in a span of 2 weeks we have 3 selling climaxes.

New Comments Dec 06, 2007

In a short span of time the markets have already rallied from the lows as we envisioned. Data on Wednesday illustrated that the economy was stronger than expected and today the labour department reported that applications for jobless benefits dipped by 15,000 last week to a total of 338,000. Yes we know this data is seriously manipulated for the most part but the masses believe it so that's all that counts in the end. Right now the Dow needs to stay above 13200 on a closing basis; if it dips below this level for more than 3 days in a row it will most likely test its lows again. Finally if the Feds should aggressively lower rates and issue statements indicating that they are going to continue to do this the markets will experience a massive move. It appears now that the Feds will most likely lower rates the question by how much; if they take their cue from the Bank of England which cut its key interest rate to 5.5 percent from 5.75 percent on Thursday then a .50 basis point cut is not out of the question.

"A common mistake people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools." ~ Douglas Adams 1952-, British Science Fiction Writer

A major portion of the above commentary was extracted from the Nov 2007 market update.

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

Copyright © 2004-2016 Sol Palha, All rights reserved.

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com