October 28 2008. Dow up almost 900 points as jaws drop. Some jaws are very prominent jaws. It makes one wonder whether the Dow has snatched victory from the jaws of defeat. Mark Hulbert (one of the jaws at issue) at Marketwatch in his current column opined that the Dow had failed the bull case. That is, a close lower than that of the October 10 close had been made last Friday and this Monday. This is true.
In fact that is not the way we do it. We look at the low of the day to determine consequence. And, in fact, we would not consider that the downtrend was confirmed and continuing until the low had been taken out by significant price behavior. “Significant” would be a low 3% lower, or a powerful down day, or steady depressed price erosion. So we don’t consider that the low has been definitively tested. We regard the pattern as essentially incomplete.
The market has often been known to display an impudent disregard of our analysis. This is irritating, but what are you going to do with market disrespect? Lick your wounds and curse and swear. Pouting is also good. Now, under ordinary circumstances, we might say that days like this should eject one from his position. We call them signal days, or power bars.
We regard today as an economic aberration. Thousands of jobs are being liquidated. Millions of home mortgages are being liquidated. (As Nixon said about the farm surpluses, what we need to do is get rid of the farmers.) (What we really need to do is get rid of Congress.) Today’s action occurred on non-exceptional volume. Today we think this bar is more of the same within the present pattern (which shall remain nameless to protect the impudent). Not really nameless. We are either continuing or reversing.
Fortunately — check this– the present pattern has told us where to place our stop: 5% above the high of October 14, or 10284.09. The nervous might put the stop 3% above the high.
If the market takes out these higher stops then the panic low may considered tested.