Dow Jones struggling ? - Set to fall ? Jason Kelly's buys and sells.

Comment

Comment by Adrian on February 4, 2009 at 2:05pm

@ KC - Actually, if you read Phil's Blog, he kind of contradicts himself, saying that he also thinks that 'averaging down' is a useful strategy ... I don't really like it, though: you could have 'averaged Enron down' to ZERO ;)

Comment by KC on February 4, 2009 at 8:54am

Sorry for the delay in replying to your comment. I see the date-stamp is pre-Christmas, but the e-mail advising me of your comment has only just arrived in my mail box.

My comments are, to some extent, me showing off that I've been to at least one seminar where they claimed to have taught me about "technical analysis". Proponents claim that if you have had some training in what to look for when you study a current stock price chart, then you can take a more informed view of the likely future direction of the Index or the chart.

All I was saying was that the Index had tried on a couple of occasions to break through 9000 and had failed, so although some people may claim that all figures on a stock chart are equally arbitrary or insignificant, for chartists that repeated failure makes that level significant.

For now we will regard it as "overhead resistance" and if it approaches it again, we will be looking out for whether it again proves to be an obstacle (thereby confirming it as a "ceiling"), or if it just sails straight through, demonstrating that the market has significantly changed, by showing that it now has renewed upward vigour.

It was a sweeping comment, designed to report on how the overall market appeared to be doing, so I take your point that some industries, and some individual stocks could well be moving counter to the overall market trend.

But given that we're in a downturn, and there's pessimism all around, then conventional investors will be on the outlook for any indications that things have turned around, and that it would not be foolhardy to actually buy something.

So effectively I was saying that its probably not a good time to expect stock prices to go up, as technical analysts can see a level overhead above which the Index seems loathe to go, so maybe now is not the time to buy.

Looking at that chart, you can also see, on the lower side, there's only been one dip below 8000, and then it came back up into the old zone, hence the suggestion that if later the chart ploughed down through 8500 then it would look like "the floor was giving way", and further downward travel might be expected.

I've just posted about Phil Town's book, and he says "don't get in when the indicators hint at a falling stock price"; and "get out if your current stock holding shows a 3-way indication of a likely fall". These too are numerical tools that technical analysts use when assessing the view they're "seeing" on a stock or Index chart.

As for when to set your hook - as Phil Town says, you can't make a profit if you buy stocks in a falling market.

Comment by Diane on December 22, 2008 at 12:10pm

Confused, KC! Are you suggesting that if the market starts to break an "alert-me" threshold, you want to be notified so you can get out of it (the entire market) or are you saying that you want to buy a PUT to offset it... Seems arbitrary numbers are just that - arbitrary. If you're buying across all those industries in the DOW (are you? can you?) then perhaps it makes sense. Otherwise, look for your industries and for related industries I would think. Think which industries will be well - infrastructure? telecommunications? food? - are all those two diversified still to pick a specific stock that will rise out of the clutter of those that will fall in general....

I still say look for those companies who sell something that will do good in a downturn/depression.

Add to that the general idea that the rich will always get rich/-er so that there are some things out there that will do well (or perhaps that's all real estate, then maybe some REITs would do well, once the market bottoms and starts to turn up - so perhaps the buzzer should sound when that happens, not when it starts to tank....every go bass fishing using worms for bait? How do you know when to set the hook?