More Misery Ahead

I suspect there's more misery ahead for the majority of investors who only invest on the long side. The traders may be nimble enough to "play" the market, but for the investors it's looking like the sellers are going to take the market down further. The trend at this point is obviously downward. At least that's what the charts are saying. 

Chart one below shows the DJIA strongly pulling back from the gains of October and November. For me the daily chart is the trading chart and it's telling me that the pullback has been too fast and too furious. I wouldn't be surprised to see a "dead cat bounce" on Monday or Tuesday. But looking at the weekly chart it's also obvious that this pullback has occurred in just the one week. Pullbacks rarely occur for only one week and then reverse. Looking at the weekly chart for the overall trend, the market looks to continue downward regardless of any volatility that may occur on the daily chart. 

With the DOW currently sitting at 17,280, the 10 week moving average at 17,320, the 20 week moving average at 17,127, and the 40 week moving average at 16,873, I expect the DJIA to fall further and test those averages. Since I really don't believe the DJIA is about to fall into recession, I would expect that the 20 week moving average would be rather strong support it falls that low. 

I'm a strong believer in the idea that investors can't make money unless they're seriously invested in the market and the idea that investors can't seriously avoid losses while holding positions in a down market. 

Those that read my articles on a regular basis know that in late November and early December I was writing that the market appeared to be overbought and rolling over, with the possibility of a pullback. I also mentioned that I was getting cautious. I am currently siting on my hands and monitoring the market closely to identify the best possible re-entry point. To me that means finding a point where the market is over sold and starting to turn up. I feel that should happen in the next couple of weeks as the market exhibits its usual Santa Claus Rally. 

Good Luck and Good Trading.

Chart 1. The Daily Chart

Chart 2. The Weekly Chart