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D.B.
Hi Ike, how are doing?
I.I.
I am doing well, thank you.
D.B.
In our last interview on 1-17-04, you
said:
"...
At the moment,
according to all of the indicators that we
follow, the markets are at most 2%-3% away
from either a short, or, an intermediate
term top, unless they go vertical, which
can easily happen...Since
the bottom in October of 2002, every time
the 10 day trading oscillator got up to present levels,
NASDAQ experienced a pullback between 3%
and 5%. So, I would imagine, that at the
very least we ought to expect a similar
pullback coming from the
2160-2190 zone."
It
turned out that your 10 day trading
oscillator, was right on the money.
NASDAQ got as high as 2154, and then
it rolled over and it hasn't looked back
since. From its top of 2154 to its bottom
of 2012, it pulled back 142 points, or,
6.6%. Is this the end of the pullback, or,
there is more to come?
I.I.
Let's take a look at the chart.
First
of all, we ought to acknowledge that
NASDAQ has yet to violate inner
channel support. Notice that the green
line has been tested five times, and every
time it has held. Moreover, even if the
inner channel support line is violated,
there is still outer channel support at
1970, and even at 1925. So, NASDAQ can
fall another 113 points, or, 5.5%, and
still stay within its upwards rising
channel. My point is this, we can have an
additional 5.5% decline, but the
intermediate term up-trend will remain
intact. It will take a close below 1925
for the bears to claim victory.
Assuming that the overall character of the
markets remains bullish, and the intensity
of demand for speculative stocks
remains the same, then we ought to see
NASDAQ bottoming between current levels
and 2000. Not only 2000 was the break-out
level, but also the Andrews Pitch Fork
points to it, and there is a support
line from the October and December
lows. If the intensity of demand for
speculative stocks has abated somehow, but
the overall character of the markets
remains bullish, then we may see an
additional decline up to 5.0%-5.5% before
it turns back up again.
For
the time being I would wait to see where
it finds a bottom, before committing funds
to the long side.
D.B.
In your view, is the bullish character of
the market still intact?
I.I.
As I already pointed out, NASDAQ is still
in an up-trend. At the same time, the
NYSE, DOW, SP500, SP100, and Mid-Caps,
haven't even made contact with channel
support.
The
SP500, for example, is in a well defined
rising channel indicated by the two green
lines "1" and "3" It
could fall all the way to 1090, and the
intermediate term up-trend will still be
intact. At the moment, it is trading in
the upper chamber of the channel, and it
has not even challenged the support line
from the March '03, and November '03
lows (red line "4") At the
same time the McClellan Oscillator is
already in the -50 area. So far, the
action is quite similar with what we
witnessed between June '03, and
August '03. Of course, the SP is 200
points higher since its August '03 lows,
and there has been an excess of $200b
already invested in equities the last
seven months. Never-the-less, the point is
this: from its highs of 1015 in June of
'03, the SP pulled back 55 points, or,
5.4% to 960 by early August. Likewise, the
SP can pullback another 5.4% from its
recent high of 1159, to 1096 for a total
of 63 points, and it will still be in an
up-trend.
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Chart
courtesy of Carl Swenlin and
decisionpoint.com |
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Let's
take a look at another chart that
illustrates similar behavior. The
chart below illustrates whether the
underlying index is closing on a daily
basis near its lows, or, near its highs
for the day. What we are looking for is
confirmation. During rallies we would
expect the index to close
consistently near its highs, while
during declines, we would expect the
index to close consistently near its
lows. Notice the almost identical action
both by price, and by the indicator
between the last 5 weeks, and the period
between June 17th, and July 16th, of
'03.
In
other words, so far, the decline that we
have had the past few weeks, is quite
similar to the ones we have seen
during the past 12 months. Moreover, the
indices can decline another 5%-5.5%, and the
up-trend will still be intact. It will
take a decline in excess of 6%, for the
bears to be able to argue that the bear
market is making a come back.
D.B.
In your view, do you think the
indices will decline another 5%, or,
not?
I.I.
Let's take a look at the rest of our
indicators, and see if we can get an
answer.
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