Stalking Major Moves: Looking for Signs of Where the Market is Headed (Part 1)
10/13/2008 10:02 am EST
I have had the privilege of making my living as a professional trader for the last 37 years. I began my career by learning to draw daily bar charts on large sheets of paper, and I still update my own hand drawn charts on 27 different markets each afternoon after the market closes; I keep daily, weekly and monthly charts on each of these markets. I find this practice of updating these charts each afternoon invaluable because while updating each one, I am always on the lookout for a change in behavior in that market that will give me an early clue, that a change in trend is either imminent, or is in the process.
Over the past several years, I have been honored to be asked to speak four or five times a year at the Traders Expos and Forex Trading Expos, held around the United States. Besides teaching free and paid sessions featuring my own trading methodology, and meeting thousands of traders at each of the Expos, MoneyShow.com interviews me on four or five topics each time, and then these interviews are run between Expos on their Web site [and they are archived there as well]. Two of the topics that always come up are: Where are interest rates heading, and where do I see the Dow going in the next six to 12 months.
At the September 2008 Forex Expo, I was asked again to predict where I saw the Dow headed for the rest of the year; for reference, the Dow was trading at roughly 11,500. I told Tim Bourquin, the interviewer, that I had just updated my long-term Dow chart before getting on the plane yesterday, and I felt that the Dow would be below 10,000 in about a month, and was headed to 6350 by year’s end. Tim was surprised at the severity of sell off I was predicting, but I told him the charts I keep by hand had clear signs that a sell off was imminent. Later in the week, there were rumors that Lehman Brothers and AIG might fail and indeed, Lehman Brothers and another firm failed over the weekend, and the Dow did indeed accelerate to the down side.
After speaking with Tim Bourquin at MoneyShow.com this week, I decided you might find it interesting to see the ‘snap shot’ charts of the Dow I work with, recreated on a computer charting package so that they have the lines, prices, and formations that were on my hand drawn charts right before each Traders and Forex Expo since last November, as well as a current chart. Perhaps you will be able to see the signs I look for when stalking changes in behavior, and just why my prediction of this massive sell off of the Dow has been so accurate.
Let’s start with the Dow Jones daily bar chart that was drawn just before last November’s Traders Expo, held in Las Vegas:
The Dow made a new high in October of 2007, but then began to sell off its highs. It made one attempt to rally and re-approach the prior high made in October, but in early November, price began breaking below prior Swing Lows. It was clear that prices were not only making lower highs and lower lows, but the confirmation of breaking and closing below the prior Swing Lows [which was also a broad area of congestion] was a sign that the sellers were still in control of this market, and lower prices were coming.
More tomorrow in Part 2.