December 2008 Commentary

This month we will look again at the Dow Jones and its direction. Rather than concentrating on a wave count, we will look at the basics such as support and resistance. If we look at the horizontal blue line drawn across the chart at 4475, we can conclude that we are at a major support level. Over the years the Dow Jones has found support at three different occasions. To push further our analysis, we applied a zigzag indicator that shows major peaks and troughs using a 21% price retracement level. Our concern at this point is to assess the type of trend we are facing, is it a corrective or an impulsive thrust? To be of an impulsive nature it must break the support level, thus be lower than 4475. If it does, there will be a major bearish trend taking place and it will last for more than one year. So far, in spite of the price decline, we cannot see a bearish wave pattern.

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The correction is very far gone to feel comfortable and I believe we should expect the support to be penetrated in the next few weeks. The momentum exhibited by the STORSI is very strong and it has gone too far down to be a correction. We should have a very prudent approach with a market that is at a turning point. First, we must wait for a decisive punch throuh the support level, then the support could turn to a resistance level as it often does. From a trading perspective, we might have to consider taking short positions in an economy where financing a margin for short trades will be difficult for many. The leverage is also an important factor so that one should be very cautious with the management of the trade.

I wish to offer my Season's Greetings to all readers and thank you for visiting AlphOmega's website.

 

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