The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

16 November 2007

More market trouble ahead?

From the fine people at Dorsey Wright (subscription required) comes this pithy, and important, market comment. Hey, one paragraph (I do not include the introductory paragraph) and one chart? That qualifies easily as pithy!
-- David M Gordon / The Deipnosophist

The benefits of technical analysis largely reside with its ability to provide objective information to investors, with which to avoid emotionally charged decisions at inopportune times. And so we try to avoid becoming overly bullish or bearish upon observing any single development on a Point & Figure chart, as it would run contrary to the very discipline that Point & Figure analysis supports.

That said, the S&P 500 Index/SPX is on the brink of what would be a very unattractive breakdown at 1430. Upon such a print the index would break a spread quadruple bottom, complete a bearish catapult formation, and violate the bullish support line as well. This trend line dates back to the March 2003 lows, since which this market index has produced higher tops and higher bottoms upon every major market cycle. A violation of trend would make the August lows the next logical test of support, and a violation there would effectively end the 4 1/2 year series of higher tops and higher bottoms. On the "glass is half-full" side of the equation, a potential buy signal for SPX is now established at 1,500.

[click on chart to enlarge]

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