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Bad news ahead...



By Sandy Jadeja 28/08/2007 00:00

The Dow Jones Index is setting up its final stage for another big move. The question is – which way.

Historically, the index has rallied in the second year before a presidential election and the bulls are playing for this option. But also note that the seventh year of the decade is bearish for markets and the bears are trying to force the market lower. One of the two scenarios is about to show its hand.

Now that the Dow has rallied 7.48% from the spike low of 12455, it seems like the worries of Sub Prime Mortgages is starting to be ignored. After all, how bad can it really be?

However, it appears to me that with the pattern and price setup, the stock market may now be near the end of its “countertrend” rise. If our analysis is correct then the next major move will be a continuation to the downside resulting in much lower prices ahead and another winning point for the bears.

We were expecting a high to take place around Fibonacci dates of August 28th or September 3rd at 13222 – 13430. Currently the Dow has reached 13387 and satisfies price objectives as a Fibonacci 162% of wave 2 at 13367 has been met.

The possibility does still exist for the market to trade higher this week towards the upper band of 13430 before turning down.

Right now I am looking for a breach of 13165 which will confirm that the downside trend has resumed. If this scenario takes form then expect sudden volatile swift moves to break below wave 3 and head lower towards 11415.

September is upon us and markets fair poorly in the coming two months. There seems to be an eerie feeling out there and I suspect that a storm is brewing. It may be time to take cover – again. The markets are in dangerous territory unless someone bails us out.



Sandy Jadeja is Chief Market Strategist for ODL Securities and founder of www.Spreadbettingtowin.com where he teaches low risk trading strategies and money management.


Read more articles from Sandy Jadeja


 fred, kingsbridge added on 31/08/2007 09:59
"Sandy. With the markets reacting so violently to even the prospect of bad news, are we in danger of losing our 'respect for data'. I believe we are not giving due credit to our companies which are performing. Bad news is driving prices down but good news seems to have little effect on prices. Cannot the city be a bit more positive when the data reflects a good performance (medium/long term). CMR Fuel Cells, has delivered but look at the price? I expect the same to occur with Acambis, a leading edge compan"
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