Still Not Time To Open Long Positions In The Market - Tactical Investor
Still Not Time To Open Long Positions In The Market

Still Not Time To Open Long Positions In The Market

Article is based in part from data  extracted from the August 26, 2011 Market Update

V readings have moved up another 15 points to put in yet another all time new high clearly indicating that this volatile action is not going to stop anytime soon. In fact the ride could get even wilder.  For the record, extremely volatile action hardly takes place when a market is getting ready to trade to new highs.  This type of action is most likely to occur during strong corrective phases.   This action is seen pretty clearly in the chart below.

We stated several times over the past few weeks that we felt the market would put in some sort of bottom around October.  Whether this bottom holds or not remains to be seen; the current pattern suggests that the bottom will not hold, but the Dow could mount a rather strong rally in October.  Take a look at the chart below for it appears that this pattern could be repeated again.


The Dow first bottomed in Oct of 2008 (coincidentally that’s the same month we expect the Dow to attempt to put in a bottom) and mounted a rather strong rally. It rallied from 8000 all the way to 9500; a gain of almost 20%. It then shed all these gains and some and put in another bottom in Dec 2008.  Once again it rallied strongly, from 7500 to 9000; a gain of 20%.  Once again the bottom failed to hold and the Dow dropped all the way to 6464 before finally putting in a multi month bottom in March of 2009.

Now history never repeats itself exactly, but it does come pretty close.  Thus the Dow is likely to put in some sort of bottom in October that could lead to a strong rally, but this rally could  fail, unless the pattern changes.  We will be able to make a better call once the rally is in play.

The Dow is more likely to put in a stronger bottom in 2012 than in 2011.  The question then for 2012 will be whether this bottom will lead to another 2 year rally. Again the current pattern is indicating that this is unlikely, but potentially the Dow could rally for several months if it manages to put in a bottom formation next year.


Moving average

New Highs

New lows
100 day35180
I year20105

20 day moving average of new lows = 4615    (New all time Record set on Sept 16th 2008).

1 year moving average of new highs = 10       (New all time low set on Nov 25th 2008)

1 year moving average of new lows= 2225      (New all time Record set on Sept 16,)

Despite mounting a rather strong rally after testing the 10,600 ranges, all 3 moving averages of new highs still remain weak.  This indicates that there is at least one more selling wave before a trad-able bottom is in place.  Our advice therefore would be to wait for another sell off before opening up long positions.  We also feel that 2012 will offer far better prospects than 2011.

As one more corrective wave is expected before a bottom takes hold, it is still not time to open long positions in the market.