THE DOT - if this turns orange or red be alert

Tuesday, November 11, 2008

The DOW about to generate a big sell signal medium-term

About next week, the DOW's 50 week MA will cross the 200 week MA, which usually produces a bigger (10-50 %) sell-off within a few months. Actually, it coincidences with an observation I made that very short-term the market might even go the other way briefly. Let's see what the basic pictures says, we broke below a major trend line and could not take it out again but did a retest. We are currently oscillating within a triangle pattern, which should lead to the final minor sell off to complete the current bigger downleg. That indeed should trigger a bigger rally but we have to drop about 1500 points below the breakpoint, approx. from 8500 down to 7000, which is more or less the 2002 October low. That can easily trigger an 50% rally back up to 10000 though. Too many people looking for this year end rally now and mostly Hedge Funds, which need to liquidate assets for their redemptions. Either the big invisible hand helps them or, as within this obscure conversation between Paulson (Secretary of Treasury) and Fuld (CEO Lehman), it was claimed that someone goes after the Hedge Funds and forces them to liquidate at the lows.

Excerpt:
http://www.fiercefinance.com/story/will-regulators-lower-boom-hedge-funds/2008-10-16

Well, an interesting email has surfaced--an email from no one other than former Lehman Brothers CEO Richard Fuld. He wrote that Henry Paulson wants to "kill the bad Hedge Funds and heavily regulate the rest." The email surfaced via Congressional investigators.

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