john magee technical analysis::delphic options research ltd    

From the 3rd Edition of our Major Turning Points Letter, dated September 13: "Bull, he dead. We think that the most likely course, the course of gravity, the course of least resistance, the course of the greatest pain for the greatest majority is, sorry, Down".   

Within days this gloomy prognosis is confirmed. With the August lows taken out, like a homing pigeon the Dow heads for a test of the 7500 low. Is there any one who doubts the pigeons are coming home to roost? The likelihood of the Dow making a bottom at 7500 are severly damaged by the NASDAQ going to five and six year lows. Remember those NASDAQ commercials? "Where do you find such companies?" The real question is where do you find such pigeons as to buy a pig in a poke? Is 1000 possible in the Dow? Keep mind open to all possibilities. Go with the trend. Also, considering the traditional October crash, remember that the 1929-34 Dow saw five waves of panic selling. The inexorable deterioration is vividly illustrated by looking at chart snapshots taken weeks apart. Here immediately Sept 20, below Sept 1 foretelling Sept 20 with the break of the steep short trendline.

As will be noted the steep trendline of the present bear market rally has been broken. In addition the rally is smack up against the trendline from the March highs. Now that the real traders are back from the Hamptons they will take care of this rally and feed the foolish virgins to the bears. Note that the stop for trend traders was back about 9400 (roughly) and will remain there until this high is taken out or proves to be a basing point. Remember, as T.S. Eliot said, October is the cruelest month.

And no sooner were the words out of our computer than everyone who was afraid of missing the bottom rushed in to buy the bottom and get positioned for the next bull market. The bear market will not end until all the fund managers have capitulated and stocks have moved to strong hands. The NASDAQ led the way up. And the way down.

Once again the price of ignorance of trend analysis and the folly of impatience is demonstrated.

Our full analysis, Major Turning Points 3 will be available shortly. See Paid Services. For the moment, if the low (note, "low") at 7500 is taken out the bears will be picnicing for some time. On the menu: toasted fund manager.

Attempting to buy the bottom here will be like trying to catch the falling knife. Intelligent Magee chartists will let the paniced and the greedy kill each other off and mop up the carnage later when a bottom has formed. Next, real estate.

If the formation from 98 to 02 is a head and shoulders, a possibility, then the S&P could be headed for 480.

Eerily like 1929.

A bull market that died hard. That actually was dead for some years, unbeknownst to those unfortunate fundamentalists who can't read charts. And the naive, analyst misled. It would be interesting to us to know how many of our readers read our letters and didn't act. Next time of course they will and that will be the time we make a mistake. Sigh. The Dow is shown from the beginning of the present down trend. Line charts of the qqqs and S&P are shown to dramatize the situation (if that is needed). As we have remarked the qqqs look like the chart of 1929 Dow. Neatly answering the question, can a market take back more than 100% of its base? In case you are curious as to where we think the base of the S&P is it is between 400-480.

We have repeatedly asserted that this was not a market to be long of. For three years (since .82 to the dollar) we have been saying investors should get long the Euro. So much for prophets being without honor. We are now considering and writing a letter on where investors should hide now. If you guessed real estate guess again. The new letter, titled "What to take to relieve the hangover: Investment Policies for the post debacle." Interested readers should email edwards-magee@edwards-magee.com to be informed when the letter is ready.

Chastened readers who may now see the simple power of technical analysis and are willing to go back to the drawing board (or school) can examine our seminars this site, or email edwards-magee@ucd.net.

Long term investing: (from our comments of Jan 01) We see no reason to change these comments this week. Isn't that boring?

Dow: The Dow can expect to find support at 10000 and is buyable, but in small commitments or portions of a portfolio or additions thereto. We expect to see it in a very large see saw from 9-12000 for some time and would hedge at the high end and increase commitments and lift hedges on oversold conditions at the low end. Jan 15: Don't hang up. We change our minds everyday according to the conditions of the moment.

S&P: We have pretty much the same opinion about the S&P with the range being 1200-1500 and would follow the same strategy.

NASDAQ: This thing is on wheels--either that or a Roman candle (not referring to candlestick patterns, but to the fireworks.) Can you buy it? if you're faster than a scalded skunk. At least there is a line of defense about 3700. But it's definitely playing with fire.

©1999-2000 w.h.c. bassetti dor