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Cliffhanger Financial MarketsRyan Wilday Many of the financial market indexes are at critical points this week. These include the NASDAQ, Dow, US Dollar, and Gold. This has been an interesting year so far. Making money has been difficult due to the vacillating nature of the markets. It has also been particularly entertaining to read the arguments of Bull vs. Bear as well as Inflation vs. Deflation. What we've witnessed this year has been consolidation and correction. A decision point is yet to come, though a forecast of what that decision will be can be speculated upon. First let us take a look at the NASDAQ in a weekly chart:
Here we see 3 points of support and 3 of resistance defining a downward trend. Additionally, the NASDAQ is hanging on the precipice of its 65 week average. This average has provided resistance several times through the 3 year bear and was also a key breakout point from the '02 to early '03 consolidation. However, the RSI is nearing oversold which has often provided a lift to this index. Perhaps, the most striking feature of this chart is the volume during this correction. The volume is clearly more intense on the down weeks vs. the up weeks. There is clearly distribution occurring at this point. So, despite the RSI nearly bottoming, I believe this index will be going down. Now for the Dow:
I put a little bullish upward line for the hopeful because there is some chance this index could move higher. This is based on the RSI being oversold and because the formation looks suspiciously like a reverse head and shoulder in the making. I say it looks this way because the Dow did not confirm the NASDAQ's reach for the support line. It must reverse now to be bullish. So this week is critical! Will the Dow reach for the bottom support line or turn for the neckline? Perhaps the volume holds the key. Again there is some bearish distribution on this index, particularly in the last week. If the Dow breaks out I see 11000 as the ultimate top due to the measured move principle. But, more likely the Dow will continue downward. Now for Gold:
The price of gold is also at a critical point, hanging precariously above its 65 week average. This average has only been pierced once during the up trend of the past few years. This was in May. This average has supported the up trend several times. Will it provide a great buying opportunity or the beginning of another downward thrust? I believe that we will find out this week. Those waiting to buy should wait for confirmation of support. What gold does also depends on the dollar:
I am looking at the dollar a bit anxiously this week as it seemed to breakout of a downward wedge shown by the support line and the dotted green resistance line. I am nervous because I am foremost a gold investor. However, I now see another trend of important consideration. The parallel red lines show a downward trend with several points to support its recognition. I think this is the final resistance before the Dollar seeks its high in the 92 area. So again, we see an index at a critical point. Note that MACD is strengthening as well as the strength of this week's upward price movements. So we may see more upside in the Dollar. What an important week! Due to the fundamentals of world markets I remain bullish on gold and bearish on general equities. Yet due to the technical cliffhanger we are experiencing I will remain at the edge of my seat this week. No matter what type of investor you are: long term, swing, or trader, I believe the market will give more clues as to its direction during the following two weeks. All charts
courtesy of www.stockcharts.com The preceeding article was written with academic intentions. Therefore the opinion of the author is not to be construed as advice to buy or sell particular securities or investment vehicles. Investing in the financial markets can be very risky therefore decisions should not (unless you are being contrary here too!) be made without the advice of a certified financial planner. The author of this article shall not be held responsible for losses incurred due to action taken based upon the reading of this article. Ryan Wilday
and Jason Berryhill are the coauthors of the Lake Effect Forecast.
Lake Effect Forecast is an investment newsletter with an expected
launch date of Nov, 1, 2004. The Lake Effect Forecast will take
interest in the general global markets with a bent toward investing
in resources including precious and base metals, and energy.
Watch for more to come! |
