The economy and the stock market usually don't turn on a dime. Their behavior is more like an oil tanker, needing time and space to change direction. In the stock market this shift is called a topping process and typically has two characteristics:
Now look at the chart below of the S&P 500 ... After Thursday's huge drop, a clear topping formation has suddenly emerged. Its neckline is defined by the lows of early November and mid-February. So Thursday's low was an additional test of this already established trendline, which is rising slightly.
If you measure from the April high of 1,220 down to last Thursday's low of 1,066 you get a range of 12.6 percent for this formation, thus meeting characteristic #1 of a topping process. And if you go back to the starting point — that is the November low or the October low — we are in the seventh or eighth month, thus fulfilling the minimum time requirement for characteristic #2. What to Expect Now ... I see Thursday's drop as a warning crack signaling the end of the medium-term rally off the March 2009 low. A warning crack is a very steep, but short fall at the end of a huge bull move. Typically it's followed by a rally back to the highs or even to token new highs. And that's exactly what I'm expecting here. Thursday had many ingredients of a panic move ... Especially interesting was the public's urge to learn the reasons, or even the culprits, behind the massive plunge. However, history shows that overvalued markets can hit air pockets, because everyone who is willing to buy is already invested. What's more, value investors will not easily step in to buy a market with a monthly price-to-earnings ratio of 22.8 and a dividend yield of 1.9 percent. Add it all up and you'll understand why I think Thursday was an important day for the stock market. It probably marked a short-term low. But at the same time it signaled the end of the medium-term bull move. There's an old Wall Street saying: "Nobody rings a bell at the top or the bottom of a market." Well, I have to disagree ...Because Thursday's warning crack was indeed a ringing bell. Sadly, though, most investors have decided not to listen. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
****************************************************************
NEW! ==== Check our LINKS and FILES sections for a world of information. REGULARLY UPDATED.
NEW! ==== Check "Tracklist" in Links and Files sections for Investment Ideas.
****************************************************************
No comments:
Post a Comment