Board-Ansicht
Mix-Ansicht- HEAD-AND-SHOULDERS CHART TALK - leibovitz, 23.03.2003, 21:37
HEAD-AND-SHOULDERS CHART TALK
-->NED DAVIS RESEARCH INSTITUTIONAL HOTLINE
FRIDAY, MARCH 21, 2003, DJIA = 8286.60
1-800-241-0621
Note -- With the war underway, my main thoughts are with our troops, but we will try to also focus on the markets.
HEAD-AND-SHOULDERS CHART TALK
While we are big believers in being in harmony with market trends and momentum, we shy away from the traditional technical"chart reading," because we feel the various artistic conclusions are too open to"making one's own reality." In other words, if one is heavily invested, it is easy to see some formation that could be bullish, while the person who is short could look at the same chart and have a bearish conclusion.
That said, one of the chart formations that is supposed to be highly accurate is the head-and-shoulders formation.
On the chart below, one can see that between 1997 and 2002 the market appears to have traced out the mother of all head-and-shoulders tops and when the neckline around 965-970 was broken, the bears came out in full force, predicting
immediate"gloom and doom" disaster. But by July and October of last year, a lot of our indicators turned short to intermediate-term bullish, and so we began to look for a cyclical bull within a secular bear. And while it is hard to
believe, the market has traced out what looks like a reverse or inverted head-and-shoulders bottom formation, the S&P 500 did not break the October low, and in fact a lot of stocks have indeed rallied over the last eight months.
So now we have this potential head-and-shoulders bottom formation trying to put together a good cyclical rally, but we also have this huge head-and-shoulders top. My artistic interpretation of the chart is that it is right in line with our views of a cyclical bull within a secular bear.
Here are some points I am watching to see which one of these powerful forces ultimately prevails: (1) The recent right shoulder bottom came at the 800 level on the S&P 500 -- a violation of the low would imply a failure of the bullish
case and it would revive the bearish potential from the head-and-shoulders top. (2) However, if we can rally above 939 we would have completed an October low, November high, a higher low in March and a higher high. That would lift hope for a test of the big neckline at 965-970. And above 965-970, the bullish case would get a huge lift.
In conclusion, I continue to have a short-term bullish trading strategy, but I see only a rally in a secular bear market.
But I have provided in this Hotline some spots that would call in to doubt bullish and bearish conclusions. -- Ned
<ul> ~ http://www.ndr.com</ul>
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