Why
so Much Confusion?
Even with
more Americans working today (numerically) than ever before in
US history, the cry of woe and hardship continues. With
about 6% unemployment currently, this recession (now mostly past)
has been rather mild. The third quarter of 2003 showed the fastest
annualized rate of economic growth as has been seen in some
years. Corporate earnings have been better than expected, as
well. Yet
the markets are now indecisive after
a
perhaps “too strong” rally since March of this year.
Concerns for
the future and the present, both domestic and on the world scope,
have alternately trickled and then gushed cold
water on investors. Add to the mix new terrorist threats and outright
attacks, which have been shockingly successful, and we have now
seen several weeks of essential stagnation in the Big Three Indices.
I believe that there is considerable pent-up energy that awaits
the opportunity to throw itself into equities. What the signal
will be for this sidelined money to migrate into stocks is not
clear.
DOW
What is clear,
though, is that the charts are telling us that we are at a balance
point
in terms of imminent price change. In
the above chart of the Dow Jones
Industrial Average, you can see that over the past several sessions, price
has retreated to a rather specific point, creating identifiable
support. The line,
at about 9620 points, has been the stopping or starting price on 5 occasions
in 5 bars. You might also recognize the “Reverse Lincoln’s Hat” formation
from an earlier discussion. This Bullish bar is the very last one on the chart
(far right) and indicates that prices will probably rally on the next bar.
“Let’s
Step on Back a Ways”
The next chart of the DOW takes in a year of data. It is as if
you have taken several steps back in order to see more of the picture.
DOW
From this
perspective, the same DOW chart has a different feel to it, doesn’t
it? The current level of support that we saw in the first chart
is part of a larger process. Current prices
have pulled back to a line of rising support that encompasses
about 7 months rather than 4-5 days. If you’ve listened
to the financial news the past week or two, then the gloomy and
negative talk has not been lost on you. With even mild price
drops, a host of Bearish forecasters can be called upon to plead
their case before millions of individual investors and traders
such as ourselves. The arguments for why the DOW is “in
trouble” can be quite convincing. However, if we step back
to consider the market action of today, in context with the past
half year, then a far different picture emerges.
In the next
edition, we’ll
look at the DOW once again in reference to what we talked about
today. Why? Because, the ability to draw
your own conclusion is far more valuable than the ability to agree
with someone else’s.
Until then,
Dr. Stephen Cooper
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