Saturday, March 31, 2007

Second Quarter Forecast

End of the quarter time for the guess for the next quarter. First I remain largely a Bull on the market - of course I was born to be a Bull - forever optimistic - just as other people are born to be Bears - forever pessimistic. Of course sometimes there are good reasons to be short the market especially after you see something like #3 on the chart below -

That's a good reason to be short the market (or be out of the market) because that particular candlestick generally bodes ill for the market. So when you see something like that on the weekly charts of an index fund - duck - at least for the near term.

Unfortunately at the time I missed it completely which is why I'm now doing a continuous weekly study in my own lab and maybe, next time, I'll see it and let everyone else know too.

The last thing I actually looked at was #2 or that neat ascending triangle breakout at the end of January. Last quarter I did a post regarding the flatness of the market and once we had that breakout in January I was thinking that we were on our way again. This is why you have to use the weekly charts to forecast the months coming and forget the daily charts except to forecast the next day or couple of days ahead.

The main emphasis on this chart however is indicated by #1. You can see where we were last year in June/July and how once the ATR started rolling over and going down again we began a steady ascent. You can see by the current ATR slope that it hasn't rolled yet so we are in for some choppy going still. And while we should have another major drop on the weekly basis it could happen as a sequence of smaller drops over a several week period. Regardless the volatility has to come out of the market and it can't come out all at once.

So I'm forecasting further choppiness with the potential for one or two modest weekly drops until we actually bottom and the ATR rolls over and begins coming down.

This story is told on every large cap index chart. Here is the DJI -

But the good news is that that small cap index - the RUT - seems to be rolling over already and may lead us out of the morass.

So I wouldn't get too defensive - just be cautious and keep an eye on the weekly charts.

Also keep in mind we start the silly earnings announcements again and nothing hurts P&L worse than earnings.



Excellent move

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