But you can't say we didn't warn you. The Dow Theory has served us well so far, so let's see if there's anything we missed.
Here's the latest from the charts: After some non-confirmation of new highs, the Dow and The Transportation Averages are sinking lick rocks - which we expected, although things are already precipitous.
There are a few scenarios that could play out.
#1 - Both index sink 5% as we hypothezied before, and then begin a reversal pattern, perhaps on some good news out of Spain (or the A.D.H.D. markets temporarily forget about Spain because a favorite celebrity darling is spotted in Turkey eating a cow lick ... I'm not saying that happened or will happen, "I'm just sayin' is all").
#2 - Spain gets worse, data out of the US continues to underwhelm, and the markets sink until all the bad news is priced in. In scenario 2, there would a similar degree of volatility as we saw last November, with the Greece disaster rocking the markets. For a reversal to be semi-confirmed, both the Dow and The Transportation averages will hit new intermediate lows, followed by a rebound forming a "v" pattern. Once the V pattern is fully visible, one may be able to jump back on the bull train early.
We'll keep you as updated as possible. These are exciting, albeit DANGEROUS investing waters. Trading the highs and lows would be an almost a certain disaster, as when things are falling, no one will want to buy and when things are heading up, no one will want to sell. The only people who will stay in these markets are folks who are long on their positions.
Dow Theory Averages - Painting a fuzzy picture that will soon focus
You can see from the Chart below, that the Dow has already passed a significant resistance level, while the Transportation Average is not quite there yet. This is REALLY IMPORTANT. If both averages pass their resistance levels and keep going, you would do yourself a favour by expecting no less than a 15% drop in the market indexes from the previous highs, and potentially much worse drops in individual stocks.
[ED Note] I can't shake the feeling that this particular drop is going to be temporary, and we won't see the capitulation it feels like we should be heading for. However, that's just a tinkling, and the averages should confirm or deny that tinkling soon. Until then, stay nimble!
