The Average Investor's Blog

A software developer view on the markets

The Weekly Update

Posted by The Average Investor on Aug 21, 2011

Not much new developments in markets, just more of the same – the relentless free fall continues.

Index Weekly Loss
S&P 500 -4.69%
Nasdaq 100 -6.59%
Dow Jones Industrial -4.01%

The slump on Thursday and Friday ate all recent gains, but the lows from the week before were not broken.

S&P 500

Could it be that this bear market is bottoming? According to Dow Theory for the 21st Century, once the definition of a bear market is reached (-16% both on the S&P 500 and the Dow Jones Industrial average), the S&P 500 falls another 12% on average. The S&P 500 peak for 2011 was $1,363.61, thus, a 16% correction leads us to $1,145.43, about 20 points higher than where we are today. Another 12% from this level will leave us with an average bottom of $1,007.89.

Notice the two horizontal lines. They signify the important levels with respect to the Dow Theory. Breaking the red line (at the close), at the recent lows of $1,119.46, will confirm the bear direction, while penetrating the green line will trigger a buy signal. Of course, all these need to be with some agreement with one of the other two indexes (Dow Jones Industrial or Dow Jones Transports).

Last, the ARMA indicator losses on the S&P 500 now stand at -7.50% for the year, compared to -10.64% for the index. The indicator was short Monday and Tuesday, but long for the rest of the week. The position for Monday is long. 🙂

Happy Trading!


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