The Chart du Jour

Rallying into the Wrong Day

October 11, 2001

By, Barclay T. Leib

Chart produced using Advanced GET End-of-Day

The chart above has arrows depicting each of the recent 8.6 month PEI cycle dates. For the better part of the summer and early fall we had hoped that our October 11th cycle date (now upon us) would yield a cyclical time and price low near 1409 on the Nasdaq Composite and 942-944 on the S&P 500. Those price objectives were of course reached, but on the wrong day (September 24th), and we have now encountered a significant reaction rally into our important cycle date of October 11th.

In our minds, this price action, far from encouraging us that the worst of the equity decline is over, makes us worry that much further downside sloppiness may still be seen all the way until February (4.3 months hence, or a further half cycle). In short, stocks have rallied into the wrong day, and we see this reaction rally as being ill-fated in the end.

Maybe the October-February period will only be a messy one, with two-way markets of chop and disappointment, but further declines that are small in absolute magnitude. Our underlying patriotic spirit hopes so. But in the two charts below we have streched our Fibonacci bands ever further down the S&P 500 and Dow Jones Industrial price charts. Might 792 on the S&P and 6016 on the DJIA still be possible? Beyond our recent September 24th lows, these would be our next best Fibonacci targets.

Chart produced using Advanced GET End-of-Day

Chart produced using Advanced GET End-of-Day

We are re-establishing trading shorts on these two indices at this time, while in the already bombed-out NASDAQ, we'll simply abstain and stand aside. Allowing for all the volatility and noise in the markets, stop-loss orders are best left above 1111 basis the S&P 500 Cash -- if one can bear such a distance.

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