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The First Leg Up is About to Fall Down
Tomorrow holds a good chance for a short-term market high. Tomorrow
August 22, 2002, is a high probability date for a change in market
direction. In our last special report, 7/27/02, I wrote that a tradable
short-term bottom could be in and we should see some, albeit rocky,
growth. I expected it would last about 5 to 6 weeks out to the 22nd or
23rd of August. Now with tomorrow being the 22nd it looks as though this
move could be over and profit protection could be in order. The 22nd
will be the 21st trading day (a Fibonacci value) since the low on July
24th. The market is approaching strong overhead resistance. The Dow, now
at 8957, should find the 9100 level difficult to surpass. The 9100 level
marks the 50% retracement of the 3/02—7/02 decline. (See Dow chart
on right.) The NASDAQ Composite is also at resistance, now sitting at
1409 which is the Fibonacci 23.6% retracement level. Even if the NASDAQ
can explode for a few day, the Fibonacci 38.2% retracement looms
overhead at 1530. The market appears to be too overbought to be able to
overcome that obstacle. The chart below shows the NASDAQ Composite with
Walter Breserrt’s 27 and 12 day Double Stochastic Indicators. As
you can see, the red and blue lines are at the top of their ranges.
While they can stay there for quite some time the confluence of price
and time at this juncture suggest that a correction close at hand. Who
is Fibonacci? Leonardo Fibonacci was a mathematician in the twelfth
century. It is believed that Mr. Fibonacci discovered the relationship
of what we now refer to as Fibonacci numbers while studying the Great
Pyramid of Gizeh in Egypt. Fibonacci numbers are a sequence of numbers
in which each successive number is the sum of the two previous numbers:
1,1,2,3,5,8,13,21,34,55,55,89,144,610 etc. These numbers possess in
intriguing number of interrelationships, such as the fact that any given
number is approximately 1.618 times the preceding number and any given
number is approximately 0.618 times the following number. There are
numerous other relationships I use within these numbers including the
ratios listed here. Why does a guy who has been dead for 700 years get
so much attention in today’s market? These numbers and ratios
continually show up in both nature and the markets. I find the markets
will often turn at future dates when the value or the ratio is added to
an important turning point in the past. At this time I will carefully
watch August 22 which is the July 24th low plus 21 trading days. If the
market does in fact turn tomorrow or on Friday then I will watch for a
decline into September 9 areas. (July 24 plus 34 trading days) if not
then September 9th will still hold promise as a possible top. September
9th will get a couple of extra day to produce a turn due to the
anniversary of the 9/11 terrorist bombing. Anniversary dates tend to
have a powerful push or pull on the markets. While September 9th -11th
is only 2.5 weeks away it can be normal for the pull back on the first
leg in a new up market to retrace 61.8 to 100% of the gain. The Dow has
increased over 20% in this rally and the NASDAQ half as much, but it
would be a shame to give it all back. So, if the markets start to show
signs of weakness over the next day or two, profit protection should be
the first order of business.
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