(Published on Friday 8/17/07)
The past month I have been presenting forecast for this market. On the 3rd of August I said the first leg down in a bear trend should run 20 to 25% and last 90 to 120 days. That was based upon every bear campaign since the start of trading in the US Stock Indexes. In all instances one should know what is "NORMAL" for a circumstance. Of course one has to have the knowledge to define a circumstance, but everything in the markets are a repeat of the past, there is nothing new. Last week I said I could refine this circumstance a bit more and indicated when in a capitulating style of trend down, as this could be identified. The first thrust down to the first leg down should be between 14 and 18% and end between the 21st and 24th of August. There was no secret to this analysis and is a summation of all capitulation style of thrusts down eliminating 1929 and 1987. Yesterday was a capitulation of some sort but I still believe there is a further lower low into next week and that has a better probability of supporting a sustainable rally, but still a counter trend rally.
If the index does a weak three day move up into Tuesday or Wednesday then there is risk of a larger multi-day move down. I just don't like panic lows that come it at the "obvious" support levels. Those levels being a 10% decline and at a previous "obvious" low. It would be more normal to see a low broken to wash out sellers and set up a stronger low. How the index goes into the 3rd to 5th or September is still significant.
So any market your concerned with just go back in history and calculate the "normal" price and time for capitulating style of trends, those that don't rally more than 4 days. This is not an abnormal circumstance and has occurred many times before.
This does not change the forecast for a 20 to 25% first leg down, this is just for the first thrust within that leg. Eventually we'll see a 7 to 12 trading day rally and another run down