Today's Market
by Dr Invest


Someone asked, "Is it time for the axe to fall?" As usual, we have a host of analysts suggesting that "Now is the time to buy". Oddly enough, with all this talk about buying on a "pull back", we don't see a rise in volume in stocks purchased, instead; we see a rise in the volume of stocks sold. What this tells me is that investors are taking profits and waiting.

So, where is the market going? As said in a previous post, only a fool would predict where he thinks the market is going. As a point of humor, when a reporter asked the famous Jesse Livermore what the market was going to do today, he said, "It's going to go up and it's going to go down". That is a sure answer that encompasses the movement of the market in a day.

Review of the "Head & Shoulders" Pattern

On Thursday, I pointed out what appeared to me as a "Head and Shoulders" pattern. I have been watching that pattern unfold. It takes time for the pattern to mature and we are watching the right shoulder as it continues make a clear shape. Today's FALL IN THE MARKET was expected if the shoulder was to continue to take shape. The left shoulder is somewhat in-distinct, so it is hard to predict accurately where the shoulder started. It if take the smaller shoulder on the left, the right shoulder will take at least until the end of the week to reveal itself. To form correctly, we will need to see some more days of the market going back up and the market going back down.

We could be in this pattern for 10 more days if the right shoulder's shape progresses to the shape of the small shoulder on the left. On the other hand, the right shoulder might need 20 days more to progress if the left shoulder is actually larger. Take a look at the graph below:

We can see the begining of the left shoulder, being fully matured after 20 days. If this is indeed a "Head and Shoulders" pattern, we should see the right shoulder fully formed around 20 days or at the end of April. It is possible that the "Head and Shoulders" pattern will break and no longer be a threat, but the better part of wisdom says, "Take warning!".

If you are going to broker your own stocks, you need to be familiar with this pattern, understanding that it is simply a flag of warning. When you see it, move your STOP-SELL closer to the current closing price of the stock.

• If I had gained 12% since January in a particular stock, I would move my STOP-SELL from 5% to 3% under the closing price.
• In this case, the right shoulder is going to peak before turning down. I've already identified the pattern three days ago and I am expecting a sell-off.

Now, I did have stock that sold when the market dropped off the head. So in my case, the STOP-SELL was close enough to protect me from the right shoulder. I won't buy back into the market until I see what the next few weeks bring.

Tomorrow the Fed will meet and Bernanke will make promises that any dramatic changes will be covered by a new Quantitive Easing. This will be a promise, but not an action that the Fed will take. The promise will bolster the market for a few days and the weakness in the world market will creep back to affect the U.S. market. Don't expect a return to market strength.

As for now, I remain patient until buying opportunities resume... likely in October. Those who want to short stocks are welcome to do so, but that is not my game.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)