Saturday, January 24, 2009

Chart Analysis: Comparing Bottoms

Chart Study: DJIA 02-03 bottom vs. DJIA 08-09 bottoming - when, where, how and why!

Many are calling the bottom here - and there is good reason to do so. The above charts are the differences between the 02-03 bottom and this 08-09 bottom. There are many differences, but many similarities.

  • 02-03 bottom went from 10500 down to 7500.
  • 08-09 bottoming went from 13000 to 7500 - giving us an Oct plunge that started at 10500 and ended at 7500 - that single move was equivalent to the entire 02-03 bottom.

This is a big difference in the "amplitude" of the "phase", or the measurment of the top to bottom of the cycle of the 02-03 bottom and this 08-09 bottom. That's why this one hurt so much because it was faster and had a bigger plunge.

On the charts posted, you will see the calculated targets for the first bounce off the bottom of this new "cycle" or "phase". Here are things assumed in order to reach those targets.

  • The bottoming formation of 02-03 bottom- Inverse Head and Shoulders: see chart for measuring technique and targets.
  • The 08-09 bottom is showing a very similar HNS pattern, as many have been predicting and waiting to confirm: see chart for targets and analysis.

A couple of things I have been waiting for.

  1. More Volume
  2. Vix hits resistance area
  3. New Highs vs. New lows continues in the right direction.

These all have been starting to show signs of dramatic improvement and confirming that the market could now be creating the right shoulder of the HNS bottom, and could now be ready to move higher until this summer - which will give a trader the best performance chances during this period.

Knowing this can also be a very tricky market where patterns emerge and dissapear, move in opposite of its original intention, etc. - risk management must be assumed.

PLAN #2 - Risk Management - possible scenario if we breakdown on the right shoulder here.

If this right shoulder doesn't hold with more volume to come, a possible breakdown to the 7500 retest would be considered the next support and also a place to then call for a bounce, or double bottom attempt. If that happens, then we will have a sideways market for the rest of 09 with a possible restest of the 7500 a third time sometime in Sept. or Oct. - and a day that would be a very scary moment, for sure, but I don't believe the probabilities are in this favor.

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