Saturday, February 24, 2007

Analyzing The Dow

As you can see in the above chart, the Dow Jones Industrial Averages have been moving steadily higher in a very orderly fashion since July 2006.. Every dip has been supported by traders/investors who are eager to buy. As you can see, the dow hasn't been able to close below it's 25 bar moving average of its lows. In fact, the pullbacks in this market over the past 3 months have only lasted 3 days! It's very rare you see something like that. I take that as a very bullish sign.

I'm sure at some point the market will correct and the above pattern will change. So this is my take on the Dow. As long I continue to see pullbacks lasting 3 to 5 days and the 25 day moving average of lows continues to support declines, I will be a buyer. I know from my own trading this year, I have not made any money shorting. Fortunately I've done very little of that. Looking back at my purchases so far this year, I think I've been about 80% correct on almost every stock I've bought and it didn't matter what group the stock was in.

For those of you who are bearish, I think you are better off waiting for the above pattern to change before you try to short this market. Study the above chart carefully and at least wait until you see that moving average broken followed by a lower low and a lower high in the price swings. If the market is as bearish as people say, why try to pick the top?...Just wait for the first lower low and short the following first lower high. But until that happens, I'm a buyer of every dip and right now we have a 3 bar pullback which is above the moving average. I'm looking to buy next week.

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