Saturday, August 25, 2007

TSX Going Below 12500?

Once again I feel the urge to stick my neck out a little and make a stock market forecast.

Patterns in a few stock market (price and volume) charts suggest that the drop in the stock market, the one that started back in late July 2007, may continue, and that the current rally is just a correction in a longer term downward trend. If true, it means we will see the TSX Comp go below 12500 before the index recovers from this correction.

The pattern is present in the TSX Comp Index. Bank stocks like BMO, RY and TD also show a pattern of decreasing volume. This pattern is very pronounced in the chart for BMO.

The key information is that the current rally over the last 8 trading days is being made on decreasing volume. Decreasing volume is consistent with a "correction" or pause in an overriding longer term trend.
The decrease in volume means that the volume of buyers is diminishing each day. If the crowd of buyers continues to shrink, to the point where the sellers outnumber the buyers, the prices will begin to drop (basic law of supply and demand at work here).

What value does this forecast have? If your a "buy and holder"...continue to be patient. If your trying to time the market and buy low, there may be better bargains ahead.

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