Market View So Far – Upswing in Progress

Jan 10, 2008: 9:42 PM CST

Despite all the bad press and media in terms of “recession” and “bankruptcies” as well as technical analysis pattern breakdowns, the market has shrugged off all this news and rallied strongly the last two days.

Here’s a look at a “Swing Chart” I view in TradeStation:

Despite being in a confirmed downtrend, and making new momentum lows, and breaking from a descending triangle pattern, the market (Dow Jones) is in the middle of a proposed up-swing (counter-swing) in price that should terminate around 13,100, which corresponds with recent support (now potential resistance) and overhead resistance from key moving averages (specifically, the declining 20 period).

I know quite a few people who have moved into cash or bonds, particularly this week, who are temporarily upset at their decision.

“I just moved into a defensive position out of the market! Why is the darn thing going up?” they’ve asked me.

I’m not a long-term analyst, nor am I qualified to provide long-term investment advice, but I tend to follow market patterns and prices one swing at a time. Currently, we are experiencing an upswing which is no surprise at all to many market participants.

Price moves in a wave-like motion of reaction/counter-reaction or swing/counter-swing or impulse/counter-impulse which “trends” price higher or lower. Lower prices either attract new sellers or they don’t, but they do so in a swing-like motion where prior levels are tested for new buyers and the cycle continues. Price rarely jerks from one level to the next without some sort of counter-measure or counter-test.

That’s what’s happening right now and it’s totally natural. In fact, aggressive traders can be playing to the upside and making profits on the daily chart which is even in a nice and potentially fresh downtrend.

Recall that downtrends are – at their core – a series of lower lows and lower highs in terms of price swings.

Let it also be written that the fabled “Plunge Protection Team” may be working their influence as much as possible at these levels, which have held as support two times prior.

Make no mistake at the timing of the Bernake/Bush/Congress reports/headlines/stimuluses that are being announced. Something ‘strange’ always seems to happen when the Dow hits about 12,500 or the S&P 500 hits 1380.

A rate cut is announced, a new string of economic stimuli including tax breaks are announced, etc etc. It’s fun watching how the charts react to such pronouncements by government officials.

Anyway, be safe and best of luck. It’s dangerous out there for both longs AND shorts.

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