Technical Considerations for 2010
What’s in store for us in 2010? Let’s see…
There are certain technical patterns that are more reliable than others: “flags” in particular are good indicators that a move, once started, will continue in the prior direction of the flag.
Head and Shoulder patterns are also useful to determine when a prior trend ends and a new one begins.
As you can see below the inverted head and shoulders pattern from the March 2009 low would give us a measured target of 11,089 [to calculate the target take the low -6469- and the breakout point at the neckline -8779-, subtract (8779-6469=2310) and add to the breakout point to get the target (2310+8779=11,089)] on the DOW before this rally ends:
You’ll notice that the neckline slopes down and not up. Downward sloping necklines usually help performance so the target of 11,089 is probably a good one.
At 10, 500 though the DOW was showing extreme weakness internally. Each rally gets weaker in terms of the advance-decline line and up volume-down volume.
In addition we have reached the 50% retracement levels from the October 2007 highs in both the DOW and the S&P500.
Normally, if a correction of any kind is going to take hold it will do so at this 50% level.
What’s next?
According to Bulkowski (Encyclopedia of Chart Patterns, 2nd Ed., p. 366) , regarding inverse head & shoulder patterns: “Once price reaches the ultimate high, it tumbles about 30%, giving back nearly all of the gains on the journey up. Thus, selling as close to the top as possible is much better than a buy-and-hold strategy“.
A 30% decline from the target of 11,089 would give us our next target of 7,762. Wow.
Watch out below…
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Comments
Dave, I’m looking forward to learn more from you! Excellent videos and remarks. Thanks for all your dedication on teaching others.
Carlos
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