The Herd Instinct

As in my last post, I've stated the market needs to hold the resistance it has broken in order for it to have a chance to rally to the next higher level. But as it appears to show some positive sentiments that a rally might be in store, the market once again reminded us that it is still in a bear market and its primary trend is down. After the first couple trading sessions of the new year, the market resumed its downward direction. All of the sudden, those talking heads that been barking on TV about a bottom has been made back in November 2008 are now all silent.

Here's where things are, the market retreated from the beginning of the year and the Dow went below 8000 on last Thursday's session. When it dipped under 8000, the market turned around purely due to all those that believe the market has once again passed a test of support and that it has once again confirmed a bottom has been made. Well, if you are part of that herd, you will end up holding the bag once again. One only need to ask the question, "what changed?" The answer is "Absolutely nothing". If anything at all, things have gotten worst. Citigroup is in trouble again after $50B bailout, BofA stock has fallen more than 40% in a week, unemployment continue to climb, and the housing crisis is nowhere near the end. For those of you that think the market should go up because things are so bad that it can't get any worst are overlooking the fact that the worst is yet to come.

With the herd instinct and a new President being sworn in, there could be a short rah-rah rally to move some money from the sideline back into the market. But once again, these bear market rally will be brief and will terminate suddenly. When the market resume its primary trend, the drop will be abrupt. So be careful if you decide to catch a swing. Here are the updated charts, click on the image to read the comments.