Part 1
Got this from yahoo! finance. I shall do some advertising for them, they are in a pretty bad shape. =D
Alright back onto the chart. Some repetitions from previous posts actually but they are important points to take note.
1. Nice long bull run since 1982
2. First Peak in late 1999
3. Bottom out in 2002 at about 7500
4. Some stagnation from 2003-2004
5. Wonderful bull burst to 14000
6. Down we go
So where's the support? Well, the first thing I look at is a whole number. Makes things easy. Not very accurate actually but at least it provides a guideline. So somehow, 10k catches a lot of attention. Looking back into history to see what happen at 10k before, we see some form of consolidation. We see that Dow broke 10k and had a pull back to the 10k mark, tested it and found a rock solid platform.
Conclusion - 10k support. But is that all?
Well I reduce the timeline slight and concentrate on the two peaks. To some extent the first picture was rather useless but it was important for the third part of this post.
Points to take note
1. A bottom at 7500 and a top at 14000.
2. Take some 50% retracement(elliot wave theory) we get 10250 (I round it up to 10500). But I can't see anything at 10500. It just doesn't appeal to me. I watch a video on cnbc talking about 10566 as a magic number. Honestly I think that's bullshit.
3. Somehow you could see a support at about 9750. To be on the safe side, we take it at 9500. This has suddenly become interesting.
Conclusion - 9500 but why?
Part 2
Here, I wish to introduce a theory that I believe in - Damping.
Not a very good picture. Now, superimpose this image onto the chart above where dow rises from the bottom of 7500 and breaks 10000. It does not just stop at 10000. It surpasses it to somewhere about 10500 and comes back down. So now do u get the idea of 9500? Reverse the image in your mind and you will get the idea.I admit this is a fuzzy logic. But if you apply this to the 11500 bottom we see at the opening for march low, think of the emergency fed meeting and how we rally back up to 11900 and subsequently move around the level of 12000, you will actually get a clearer picture of how all the events are strung together in retropect.
Part 3
I always talk about the Big Picture. This part is more for what I'm going to say for the weekend. I like to pre-empt. Most chartist will just look for a full formation to take place and decide what to do. But I see it differently, I tend to look ahead (no basis actually).
If you were to look back at the 1st chart, you would notice two peaks with the latter higher than the first. The first shape that comes to my mind is a super huge Head and Shoulders formation that takes some 10 or more years to complete. We are just finished with the Head portion right now and there is definitely a possibility of a potential right shoulder next.
This head and shoulders formation might be a real disastrous one. With all the problems we are facing right now, who knows?
Conclusion
Charts are still charts after all. Most people critcise them because it's based on hindsight. But a picture does tell more sometimes. As of now, I think dow will seek a bottom at 9500 to 9750. It is possible that we break 9500 fast and head straight to 7500-8000. But we can decide later on when dow really heads towards 9500.
Be sure to look out for weekend's post. As of now, cya.
I can measure the motion of the heavenly bodies, but not the madness of the crowds.
Sir Isaac Newton
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