Technical View: 12/4/2007
Principles of the Stock Market

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Have You Seen This?

Have You Seen This?

TECHNICAL VIEW. The Dow Industrials have recouped some 44% of its losses from its October 9th high to its November 26th low. The S&P 500 has rallied back 41% and the Nasdaq Composite 40%. According to my 50% Rule, if something bounces back over half, you know like a teeter-totter moving more than halfway back up, the bias is to go all the way back up. And on the wall charts, I note we could be putting in some reverse Head & Shoulders, a.k.a as Head & Shoulders Bottoms in all three key indices. Also, as you’ll note in the IBD 100 "NEW NAMES" section below, Investor’s Business Daily turned bullish last Friday. But remember no one really knows the future, we all just try to play the odds. IBD turned bearish, bullish and then bearish again during the last correction so there’s no panacea out there for any of us. Schwartz View: We’re at a critical juncture in the stock market now. In determining whether we (1) keep this rally going, taking us back up to the old highs, whether we (2) back off again temporarily, to finish building the second shoulder of an upside down H&S’s bottom or whether we (3) fall through last week’s lows for this correction … which would turn more bulls bearish. I figure the way to play it here is to hedge ourselves. Have some shorts hedged by some longs. I’m shorting what I see as the weak sisters, the financials and small caps. At the same time going long the defensive sectors, like staples, utilities and health care since I foresee a sinking US economy with the Fed trying to resolve things with lower rates.





Posted 12-04-2007 5:15 PM by Richard Schwartz