Friday, October 10, 2008

Intermediate Term Bottom, Now What?

Today's DJIA low of 7882.51 was 600 points lower than what I said we would see, just a month ago, so what do I know?
From 321 Gold:


Dow and S&P 500 Capitulation Pre-Alert

Bob Hoye
Institutional Advisors
Oct 8, 2008

The US markets are entering a time frame for an anticipated interim low. The indices are also getting close to generating important capitulation signals. If the S&P 500 and Dow Industrials close lower on the week of October 10th they will produce weekly Capitulation alerts. These are rare events for these indices, having occurred only twelve times in over a century. Following an interim low we will look for a multi-week relief rally that retraces 40-50% of the decline from the August highs and then a retest of the lows.

In the case of the Dow Industrials the last Capitulation signals occurred in 1966 and the later part of the 1929 to 1932 bear market; October 1931, December 1931 & May 1932. Prior to that there were two clusters; October 16th to 23rd 1903 and at the end of the banking crisis from October 18th to Nov 22nd 1907.

The S&P has produced seven clusters of signals since 1950. They all occurred around important multi-month lows;

June 8th to 21st 1962 Aug 26th to Sept 2nd 1966 May 22, 1970
Sept 13, 1974 March 23, 2001 Sept 21, 2001
July 19th & 26th 2002

The action around the signals has been fairly consistent. Seven of the twelve Capitulation alerts resulted in a bottom that week or the following week. Three bottomed within the second or third week. The conclusion is that if next week is down then the likelihood of an upside reversal in the second half of the month is quite good....MORE