January 2007 Commentary

Let us start the year with a look at the Dow Jones Industrial (DJI) . Although our Index still looks bullish, we should question if there is any momentum left. It has already reached very close to a Fibonacci projection level. This in itself is not an absolute as there are other levels but they are exponentially larger. When confronted to such a question, we must have sound information to support our assessment. First, why is the market so high? Is it fuelled by a strong economy, a war economy or any such strong driving force? Second, we have had an extension of an impulse and that is enough to distort Fibonacci projection levels; what I mean is that we should consider the initial impulse plus the extension to plot our projection. If we then overlay this projection over the one that is displayed, we look for closely grouped projections. It will yield a stronger probability although not a certainty. Finally we should look at other indicators such as Demand Index or Exponential Moving Averages.

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Once this is said, we need to take a stand on our position. Our biggest concern should be to protect whatever gain we have, hence we look at taking profits while maintaining a close look at the remaining position. In a future commentary we will look at a larger timeframe and draw a parallel with the present condition.

If you would like to react to this view, please send me your own comments. The discussion is merely technical and it should be backed by arguments of that nature.