DJUA and Nasdaq Indexes..."Canaries in the coal mine"?

Sometimes one market index will lead the others in or out of a longer term trend. At this point in time the Dow Jones Utility Average has broken below its lower channel line. The Nasdaq Index has also done the same thing.

The other main US Indexes and the Canadian TSX Composite are close to doing the same. This may or may not turn out to be an important market turn but it is a heads up and the evidence is accumulating to support this conclusion. These two breakouts are consistent with other market price action I am following.

Important Market Downturn today? Feb. 18, 2010

Short Term Forecast

A number of signals are suggesting that the recent market rally from the lows on February 5, 2010 for the TSX Composite and SP500 Indexes may have ended and the downtrend that began at the peak of the 10 month rally off the March 2009 lows will continue.

Dow Jones Ind Aver...February 12, 2010

The DJIA appears to be doing the same thing as the TSX Composite Index north of the US/Can boarder. A well defined narrowing triangle pattern followed by a break out to the downside.

If I'm reading this correctly...the buy and holders on both sides of the US/Canada border are in for a very unwelcome surprise over the next number of months.

I won't speculate on the ultimate bear low or how long it might take to get there. Just that I'm expecting an ultimate bear low somewhere below the March lows.

TSX Composite Index Short-Term Expectation...February 11, 2010

Every once in a while I stick my neck out and make a short-term market forecast. The TSX Composite Index has a short-term wave pattern that has the earmarks of an index that will be making new short-term lows. The rising, so far, triangle shaped pattern with overlapping waves... suggests that the buyers are losing ground to the sellers. The probabilities favour the index dropping below Friday's low near 11,000.

TSX Composite Index February 1, 2010

An update on my last post.

The TSX index continues to look like the 10 month rally ended on January 11 at 12,070. The US SP500 is similar. The details of the waves since the possible end of the rally are consistent with what one expects following an important downturn. Now...the market can always do something different but so far it continues to look like the longer term trend has changed from up to down.

World Stock Markets Looking Weak January 28, 2010

I continue to study the market charts looking for more clues as to what is going on. My main tool is the Elliott Wave Principle (EWP). I also use other forms of Technical Analysis. I do not ignore the fundamentals.

The results of my review continue to indicated that the bear market will most likely continue below the March 2009 lows. The index charts for Canada, the US and Japan are all very similar and tell me the same story.

I can't say how much lower the stock markets are likely to go but the situation continues to have the potential to develop into another 1929-32 bear market degree of severity. The loss during the 1929 bear market was about 89 percent. For comparison, the current bear market was closer to a 60 percent loss at the March 2009 lows.

I only refer to the 1929 bear market to give people something for easy comparison. My analysis is based on a great deal more data than one particular bear market. I successfully recognized the approach of the bull market peak using the EWP and this was not the first important market turn that the EWP allowed me to recognize.

If we do see a 1929 type scenario, investors who currently subscribe to the 'buy and hold for the long term' are risking holding shares or mutual funds that may take 25 years or more to recover back up to the bull market peak (2008 for Canada and 2007 for the US).

A few comments on the economic situation and human psychology

The news from official reports (economists/government etc.) are anything but rosy at this time. Governments continue to be worried. And, many investors recently burnt by the unexpected bear market slide down to the March 2009 market lows remain nervous at this time. Many continue to be sitting in a relative loss position.

I speculate that any relatively fast downward market moves at this time may lead to a panic that will be comparable to, or worse than, what we saw leading down to the March 2009 lows. This is what occurred in the 1929 bear market. Believe it or not, this is normal market behavior under the EWP. Bear markets frequently exhibit three distinct legs, one down, one up and one final down move. This was the case in 1929. After a very strong rally of about 50 percent on the way down, the floor fell out of the market for the second time taking it to the ultimate 89 % loss bottom.

With us humans we tend to think and act with a herd psychology, especially when we are afraid of something. If a lion grabs a Gazzel at a water hole the rest of the herd panics and runs for safety. People act in a similar fashion in the stock market.

I wish I had better news.

TSX Composite Index, January 21, 2010

The stock markets may be near an important junction. The one year chart for the TSX Composite Index shows the rally since the March 2009 low. An impressive increase over a relatively short period of time. Without getting into a lot of detail....the circled breakout below the trendline has the potential to turn out to be an important market downturn. Other indexes in the US are at a similar juncture. We could see just a large temporary downturn in a continued uptrend or the bear market may continue to some point below the March 2009 low.