December 1st, 2009

2009 Rewind: Part 3

As you read this, my wife, our dog, and I are cruising down I-95. In the meanwhile, I thought you’d be interested in highlights of just a few of the 157 posting so far this year (there were 259 postings covering the difficult 2008 crash). This is Part 3 of a 4 part series.

June 30, 2009: Half-Full or Half-Empty Views: A Head and Shoulder Market Top?

One of the most popular and referenced (linked) articles was what, back then, was a bold call contradicting the prevailing belief that the market had formed a head-and-shoulder top and would soon break through the neckline. Finally, the long-awaited correction would arrive giving everyone who missed getting in since March another opportunity to then jump in the bull market (that never quite came, by the way). My view, granted from a longer-term perspective, was that a more correct interpretation of market sentiment was that an inverted head-and-shoulder would lead to a break out and an unabated continuation of the March bull market. As I wrote then:

“I’m a longer-term trend trader. Rather than seeing something negative in the above chart, I see something quite the opposite. If it comes about, I see the move down as the right shoulder of another head-and-shoulder pattern, one that’s inverse (upside down)….. Of course, I’m partial to my interpretation because I have more opportunities to be correct. There’s no clear-cut requirement for a right shoulder. The preference, of course, is to have it match in time and scale the left shoulder. But (and this is what it now looks to me like) it can turn out to be shorter and shallower due to the strength of the market driven by the sidelines money waiting to be invested.”

As it turns out, I was correct and, as we are all know, the market broke above the neckline at 950 and proceeded to roll ahead to 1113, a level that it’s hit 6 out of the last 9 trading days but so far has been unable to forge above.

July 20, 2009:The Campaign for Your Economic Mind

Throughout the summer, from June to mid-July, the contest between bulls and bears continued. The bears thought economic woes were far from over and whatever relief seen in the market up to that point was only a temporary reprieve before another round of declines of Crash proportions. The bulls, on the other hand, saw the economy improving (at least, it wasn’t still getting worse), the market had hit bottom in March and was anticipating an economic recovery.

I wasn’t going to attempt to predict the economy’s future but, what I did see was that the market was riding replicating a round-trip that was similar to the Tech Bubble Crash of 2000-03.

“The floors we stopped then could, in all likelihood, also be stops we make on the much slower ride back up this time….In 2003, the market had a “traders’ remorse” pullback to test the support of the double-bottom neckline at 1010; there could be a similar test after crossing above the neckline of the inverted head+shoulders bottom this fall/winter or early next year…..the beginning of that pullback lines up nicely with the upcoming effort to cross above the 300-day moving average…..After having successfully tested the current neckline and breaking above the 300-day moving average, whenever that happens (probably in 2010), there should be a clear run to the 1060-1160 range for a consolidation, the stops made on the way down in 2001-02 and the way up in 2004. We were on an express elevator as the Lehman and other financial calamities caused the market to skip the stop on the way down last year. There will be a consolidation pause, whenever it comes, and there’s a good chance it will be at around that level.”

Subscribe below or click here to learn more about help for navigating turbulent markets.