June 26th, 2008

Watch out Below; Approaching March, 2008 Low

I don’t usually post during the day but I couldn’t resist because of the action, so far. Take a look at the chart:

I’ll walk you through the highlights:

  • The Suckers’ Rally Zone: mentioned that several times here (April 22, May 7, June 6) became a reality. The index failed to convincingly cross above the 180-day moving average in mid-May clearly signaling that the hoped-for rally was failing.
  • Horizontal Channel Boundaries: Most other blogs or media talking heads have a very short-term perspective so you won’t see this in very many other places but I’ve continued to monitor this benchmark channel continually since March. It’s not unreasonable to project the index is now aiming for support at this bottom boundary trendline for the third time.
  • I’m not in the business of predicting the market but only reading signals as their sent. And it clearly looks as a short term bounce is possible both because of the support at that lower boundary and because the decline since mid-May has been so precipitous. It’s been almost as steep as the decline at the beginning of the New Year.

The humor from CNBC today is the call for investors to dollar-average, to buy into this decline, to snap up these “deeply discounted” stocks, to be long-term value investors. My only complaint with this view is the question of timing. Why now?

In my book, it doesn’t matter how good a stock or how undervalued, it only makes sense for you to patiently hold off until there’s are clear positive indications that risks are reduced. In the meanwhile, it may seem unpatriotic but let others build that base whenever they’re able to accumulate sufficient converts … besides you.

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