UPDATED chart(Above) on October 15th, 2011. I wanted to add the CURRENT Dow Jones chart to illustrate what the chart looks like now: Three weeks after i wrote this original message regarding the 'market bottom' scenario. My target is 12,000 on the Dow Jones which is about 400 points away now. If we somehow are able to get there before year end, we will have to re-analyze the price action and sentiment. Let's get there first tho! It won't be easy.
On Sept 23rd 2011, i sent this email and market analysis note to ART OF TRADING members. I am sharing it here because i think this is what is playing out right now and hints that we have bottomed and some possible targets.
I hate making these kinds of projections but it's always a good idea to keep in mind what are the possible scenarios and this way, you can be prepared just in case. Please pay attention to the action over the next 2-4 weeks. As i have been saying for a number of weeks now. This market will have the highest chance at a bottom if it retests and more importantly BREAKS below the August lows. The August lows and it's retest is SO crucial for various reasons. In my 15 plus years of trading, the BEST bottoms come when a key initial bottom or low(in this case the August 9th lows) are retested and hold successfully. As i am writing this email, I am expecting the markets to break thru the August lows sometime within the next 1-3 weeks. This break will force people and institutions to SELL their positions, this will create a very nasty and ugly collapse. If that happens or not that remains to be seen. HOWEVER, the purpose of this email to get you guys on watch for WHAT COULD HAPPEN IF we do indeed break thru the August lows. We need to monitor VERY closely what the market does in the days following this breakdown.
What i will be looking for is a POSSIBLE: 2B Bottom: here's what it looks like in case u never heard of it: http://www.trading-naked.
here's another good link that explains the 2B reversal: https://docs.google.
com/viewer?url=http://www. surinotes.com/Tradestation/ articles/suri2B_TJDec2007.pdf& pli=1
This scenario is what i will be watching like a hawk. If this 2B Reversal sticks and we will find out soon in my humble opinion THEN we are potentially setting up for a sweet rally that will most likely last a few weeks or even months. See the DJIA attache chart.
(I also attached that IWM Chart, an updated chart which i emailed you guys several weeks ago pointing to this BEARISH potential scenario which indeed played out nicely if i may say so myself). :-)
So bottom line, his is a scenario that needs to be seriously considered. Especially now that everyone is depressed as trading and investing conditions have deteriorated considerably. The market normally bottoms once the majority of traders/investors are paralyzed and shell shocked. Many traders contemplate quitting trading/investing all together and ironically that's when the market bottoms and bounces hard, only to suck you back in later after it's moved higher in a big way. Managing emotions in bearish and bullish phases for that matter is so critical folks. Just realize that trading and speculation in general works in cycles. There are bullish cycles, there are bearish cycles. there are momentum trading cycles, there are mean reversion cycles. Stocks do not go up forever and stocks to not stop for ever. catching the exact bottom or tops of move is not how the big money is made in stock market speculation, if you ask me, the biggest money is made by catching what happens in the MIDDLE parts.
I found this very interesting and this along with the idea that a lot of traders are depressed right now. CNBC polled their audience today: They asked bluntly: "DO YOU THINK WE ARE ENTERING A DEPRESSION?" not recession, DEPRESSION. Wanna guess what the poll results yielded?? 63% said we are in a depression!! 63%! Am i the only one that find this absolutely ridiculous?
So, bottom line, I am looking for a POTENTIAL 2B Reversal play soon. Whether it happens or not remains to be seen. For the time being, i am going to focus on short term trading only until i see evidence that we are shifting gears.
I hope this emails help you and if anything at least now you know what a 2B Reversal is!! :-)