What A Game

Sometime I am just amazed at the game the market play. Within minute (I mean literally, a minute) before the market close, the DJIA is a few points below 8000 and you can see the manipulative forces at play to ensure the market does not closed under the 8000 psychological level. For whatever reason, the market and stocks have some sort of attachment to numbers divisible by 10, 100, and 1000. Next time when you see a stock dropped to some round number divisible by 10 or 100, watch how it trades to stay above that number, or watch how a stock trades when its price rises to one of these nice round number. It is the same with market indices, 8000, 9000, 10000, etc. These numbers have no significance other than psychological. When the market reaches one of these levels, it is like a spectator sport. The bulls will try to counter punch the bears when they try to bring it below the contested level, and the bears will come right back with their counter punch when the bulls try to pull it above the contested level. This tug of war can be as short as a few minutes, or it can last as long as a few weeks. The current battle for control of the 8000 level between the bulls and bears has been going on for more than two weeks.

On 1/15/09, the bears drove the Dow down to 7995.13 on intraday and the bulls took it back and closed on that day at 8212.49. The bulls remain to be in control on 1/16/09, then the bears took the control away from the bulls on 1/20/09 by driving the Dow down to 7939.93 and kept the bulls abated by closing under 8000 at 7949.09 for the first time since the Dow closed at 7506.97 on 11/20/08 (this is the next significant support level to monitor.) On the following day, 1/21/09, the battle continue with the bears drove it down to 7936.19, and the bulls took control back and close it at 8229.10. This continue for couple more days before the bears retreated and gave the bulls the control to bring the Dow up to a closing level of 8375.45 on 1/28/09. Then the bears start another attack on 1/29/09 by taking the Dow down more than 200 points, and stripped away most of the gains that took the bulls three days to accumulate. And that lead us to today's action where the bears continue to exert its forces to gain control by driving the market below 8000, until...a minute before the closing bell ring, and you know the rest of the story. The market closed at 8000.86, what a game!

What's in store for next week? Based on the technicals, the Dow is poised to go down to test the 11/20/08 low. But even if it does not come down to this level next week, I will be very defensive on any long positions I might take. Maintain reduced position size and set tight stops. It is not a matter if the market will go test that November 2008 low, it is a matter of when it will test the November 2008 low. As I have repeatedly stated, the primary trend of the market is still down, and the bottom has not been made. To be a bull now is to get slaughter. So be cautious. This is a market for traders, not for investors unless you have the time and the capitals to withstand major drawdown.

Here are the updated charts. As usual, click on the charts to get a larger image to view the comments. I will give my update on gold in a separate post.