Special technical Bulletin (U.S. Equity Market—major indices) - sep 18, 2011

JAZIRA SECURITIES BROKERAGE

SPECIAL REPORT Sunday, September 18, 2011

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IF HISTORY TENDS TO REPEAT ITSELF, THEN “HIT&RUN”

The bull market in the Dow jones industrial average ($INDU) run out of steam well

below 2007 highs. It wasn't that serious, keeping in mind the major charting tenet

which states that “the current trend is supposed to be in force until the weight of evi-

dences state otherwise”. The evidences, major bearish ones, have materialized; a

down-breakout below the rising neckline of a topping H&S, a major rising trend line

and the 50-week EMA was a major bearish manifestation and indicated that a struc-

ture is going to change negatively. Momentum was giving also its own bearish signal;

the RSI penetrated the 50-line and the structure Bull Support line (see the circles).

However, the implications aren't usual, the index found support just at the 200-week

EMA (see the yellow rectangle). To answer the tough question you may be asking

while reading this commentary, we should investigate the 2007 topping pattern. Same

pattern, same rising neckline, same violent breakout and even same bounce off the

200-week EMA. The result was a quick pull back move to just the neckline and the

bear market continued its pace. Should history repeats itself, the index may continue

the current pull back move to the breakout level (nearly 11,700/ 12,000), run into

heavy selling near that range and then continue the bear market trend to still lower

prices. Even if the index attained some points higher that the neck line, that wouldn't

negates the expected bearish outcomes unless a new high is registered over 13,000.

So keep it simple; a current pull back move may continue taking out some points

higher but the major bearish move is expected to continue after that.

It was really amazing seeing the NASDAQ composite (identical chart to Dow jones

transportation average) (see next page) retracing 100% of the 2007/2008 bear mar-

ket. But the failure in DJIA and S&P500 to attain their 2007 highs put a major obsta-

cle in front of the Nasdaq progress. Similar bearish pattern and another serious pene-

tration in this technological-based index. The panic decline found support at just the

200-week EMA and in the meantime, the RSI also found support from the Bull Sup-

port Line. A new manifestation has materialized which needs another look to the

past. Continue...

U.S. EQUITY MARKET—MAJOR INDICES



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Continued …

The Nasdaq index succeeded in closing weekly over the broken neckline. Is this ac-

tion should trigger a bear trap signal ? Are we going to experience an explosion move

after such failure penetration. Well, the past action doesn't state this kind of outcome.

After a down-breakout below a rising neckline, the index not just pulled back to the

breakout levels, but successfully closing several weeks over this level giving a false

bear trap signal (see yellow circles). It was just an extended pull back move and the

bear move continued to March, 2009 bottom. The RSI during the early 2008 pull

back also found support just at the mentioned Bull support line only to threaten the

50- line and then continue declining to below the bull support line. Even if the current

pull back move attained much higher levels than the 2008 pull back, it should be stat-

ed that as long as the index fail to attain new high ground, the probability will con-

tinue to be in the favor of bears.

The Dow jones Utility Average shows totally different structure. The serious down-

breakout seems to be a fake manifestation and the index hovering around a major re-

sistance line (443). If the index made its mind to penetrate this level “decisively” a

thrust may continue to the next resistance level @ nearly 460. What is the message

we should get from this index ? Why this bullish structure while other indices are

tumbling? In the past, a rise in utility stock prices indicates investors anticipate fall-

ing interest rates. That's because utilities are big borrowers and their profits are en-

hanced by lower interest costs. As a result, it was a leading interest-sensitive index,

but keeping in mind that the U.S. interest rates nearly hovering around the zero

(0.25), no-interest based analysis should be employed, and a leading characteristics

should be questioned. In other words, the breakout in the utility should not be consid-

ers a leading signal and doesn't indicate any similar breakout in other indices.

U.S. EQUITY MARKET—MAJOR INDICES

BOTTOM LINE: The pull back move may continue for some time, but the bear

market is expected to continue. Traders can Hit & Run , while investors are advised

to Sell rallies

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Special technical Bulletin (U.S. Equity Market—major indices) - sep 18, 2011

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Transcript of Special technical Bulletin (U.S. Equity Market—major indices) - sep 18, 2011