Technicals Forecast a Stock Market Turn

Where Now Oh Dow

The November low for the equity markets is captured in the 7500 number for the Dow Jones Industrial Average (DJIA or Dow). The markets are now retesting that low and many investors will flee if it is broken on the downside – fearing a slide that has no bottom. Others will greet a positive ” bounce ” off the lows as a signal that the market has indeed found a bottom and will, over time, rise. Either direction may be a self- confirming prophecy. Billions of dollars are sitting in cash, money market funds and gold – awaiting the outcome of the battle.

Why is that number so important?

Even if you don’t believe in technical interpretations the number has a great pschological importance – especially so in a time of great investor nervousness.

Every investor knows the Dow Jones Average and every media outlet – print, radio and television announces the daily outcome of the market in terms of where the Dow finished.

A failure to hold the Dow will be a major news event – summoning stories that the market is plunging into unknown territory. A sustained rise will bring the stories of a market turn heralding the end of the nation´s worries and a return to profits for all who have the wisdom to enter the markets again.

The Market and The Dow Anticipate the Future

Today we are focused on the series of the rescue packages President Obama is assembling to lift the U.S. economy. Success of the bailouts will result in increased industrial and consumer demand which in turn means great demand and profits for a wide range of listed companies. That is the focus of those hoping for a revival of the economy and the Dow. Others maintain a watch for the economy – expecting the economy and the Dow to fall into an abyss.

As one example of the foolishness that pervades the discussion,Dennis Gartman – a media personality and market letter writer – was quoted Wednesday as saying: ” There is nothing underneath it.. some support at 7000..until you get to Dow 4000 “. Headlines sell newspapers and fear attracts the most readership and ratings.

Yes,It IS A Technical Signal – Market and Economic Fundamentals May Be Different

The DJIA is a technical indicator designed by newspaper man Clarence Dow when he founded the Wall Street Journal. focused on only the 30 large cap U.S. based industrial stocks. It is criticized as being too narrowly focused to truly represent the stock market and all its dynamics.
It has enormous power to influence trading because it is so widely known and followed – even if other indicators like the Standard & Poor´s 500 ( S&P) are more broadly based and accurate.

In addition to the numbers, you can review the chart ” action ” and see the long term rise of the Dow from 2003 to 2008. In a matter of months ( in 2008 )years of prior gains were erased. The questions for the technicians and all investors are:

1) Will the market signal the break will continue OR
2) Is a bottom being formed that will lead to gains.
Gains from today ´s lows mean that the market is offering up bargains. When the market entered a bull phase from 1995 to 1998 equities doubled. A further low or series of lows, however, means that bargain hunters went shopping too early.

The Bottom Line: Where Can You Place Your Portfolio Dollars Today?

There may be few safe places other than cash. The Apprentice Millionaire Program book has relied on developing a long series of AMP Watchlists. These lists are the key stocks in each sector and based on fundamentals represent value and growth. There is no need to commit funds fully. You can decide which sectors will do well in the present economy and buy in on a sliding scale as the market direction becomes more clear.

Currently the AMP favors technology and gold. Our tech list has been expanded in the most recent AMP Book.The recent rise in the gold commodity price is a mirror reflection of funds coming out of equities and seeking a safe haven. Our own exclusive technical indicator is The Richardson / Bass Quant which signaled an upturn in gold and continues to signal strong price support even at today’s levels. This has proved to be a profitable call in a time of equity market jitters. Greenlight Capital ( David Einhorn ) reported that it´s largest single holding is now the bullion ETF ( GDX) – the filing was done Tuesday, February 17th, 2009.

You can review our selections in past columns and the AMP Book. Only you can decide if you want to commit to major producers like Barrick ( ABX) and Newmont, intermediate candidates like Yamana Gold ( AUY) or a selection of juniors such as Centamin ( CEE on the Toronto Exchange ) or an ETF. I mention this last company because it carries as much mythology as the Dow. Centamin is scheduled to be in production by mid- year in Egypt – at a deposit mined in the time of the Pharaohs.