No Comments Written by Anthony Truong on August 19, 2008 – 5:58 pm

EXTRA! EXTRA! READ ALL ABOUT IT!

- Dow and S&P500 break key support trendline, signalling that there is a high probability of the continuation of the bear market

- It’s going to be one long drop to a bottom

So following on from yesterday’s rather timely update, the US indices overnight shed enough points to close beneath their respective support trendlines (dark green on both the SPX500 and Wall Street charts), which is a very bearish signal. Even though the levels I cited yesterday have not been broken (11,300 in the Dow and 1,250 in the S&P500), the drop last night was strong and clearly looked impulsive, which implies that the larger trend down has resumed.

Note the evidence:

- Broken support (dark green and yellow lines) trendline that had at least 4 different touch points, emphasising its significance
- Bearish divergence in MACD between the wave A high and the wave C high (both in the Dow and S&P, see red line on the MACD indicator on the above charts)
- Two false breakouts in the S&P, where prices moved above the purple downsloping trendline (a line that is formed by the October 2007 and December 2007 highs) momentarily, before dropping back into the channel
- Clear 5 wave impulse patterns to the downside, with choppy 3 wave patterns to the upside
- This outlook is further supported by the fact that NYSE breadth and volume has steadily been moving lower throughout the July/August 2008 choppy rally, and yesterday dropped heavily.

I am now aggressively bearish.

THIS IS NOT A RECOMMENDATION!

Conservative investors: sell stock and hold cash, or at the very least (if you’re sentimentally attached to your shares) place a stop-loss around 15-20% below current levels, to protect your capital.

Traders: short positions all the way!

THIS IS NOT A RECOMMENDATION!

Should be a heavy week…

In other markets:

Gold: short term I’m bullish, as the recent drop has left an extreme level of pessimism – I’m looking for gold to head back up towards $830-$840. Long term I’m bearish, and see $600 as a potential target sometime this year.

Silver: as above, as silver tends to follow gold (or is it the other way around?). Silver has been underperforming gold to the downside, gold having fallen 22% since it’s high of mid-July whereas silver fell 43%!!! Looking for temporary strength, but the larger trend is down.

Oil: Short term – ambiguous; intermediate term: bearish (should approach $100-ish?)

EURUSD: Short term – bullish (way way way oversold at the moment; the daily relative strength index hit an 11 year low at the end of last week, so this sentiment has to be worked off); long term: bearish – tentatively it should approach the low 1.40’s, but we’ll have a better idea when the falls begin again.