Well, I guess a breeze came by and blew the market over the cliff. Recall on October 24, 2008 when the Dow Theory signaled us that the DJIA will see a lower low. Will tomorrow be the day that a new low will appear? The NASDAQ already made a new low today, and GOOG broke below $300 along with a lot of tech stocks making new 52 weeks low. Oh yea, financial did their things too, GS is around $65, AXP is asking the Treasury for a bailout, SKF skyrocketed more than 22 points today and closed near October 9, 2008 closing high. The energy stock such as XOM and CVX are breaking down once again.
When the DJIA hit a new low this time, will this be the bottom? From what I see in the technical perspective, NO! Not only it will not be the bottom, but a misleading signal can be present itself to throw off the unaware market watchers. This misleading signal is the Dow Theory non-confirmed DJIA low. This non-confirmation could cause some to conclude that the market has hit bottom. The reason this non-confirmation should be ignored is due to the recent falling crude prices. Most of the transportation stocks, especially the airliners were bid up. This run up of the transportation stocks has nothing to do with an improving economy. Its purely base of the possible improvement in gross margin due to lower fuel cost. The Dow Theory is based on the days when rails and trucks are moving goods due to the improvement in the underlying economy. And it is this first sign of an improving economy that foretell the end of the bear market by shaking out the last holder of the blue chip stocks. And based on the state of the current economy, we are not there yet to say it is the end of the bear market when a non-confirmed DJIA low appeared. The recession is just beginning. So keep monitoring what the market has to say. When that bottom is here, the message will be subtle and most of the people will miss it. Right now, too many people is looking for the bottom, and the market rarely do what everyone expect it to do.
