Detecting market tops and bottoms

[Vesselin]

Analysis

So are you currently long?

. This is too general a question. I have a small long position in the QQQs - I think this is the answer you were looking for. (Other than that, I am very long various gold mining shares, but this is not pertient to this particular bear market rally of the general markets that we're discussing.)

What percentage of your trading amount?

Oh, just a very small position - 100 shares. This is a bear market rally, after all, and these have to be played very carefully.

After fully covering, I had a terrible feeling that I was completely shaken out by what would probably be just a typical bear market ralley to the 50ema as we've seen in March and May which I now feel is all that this was.

I think you have been right to cover and should have done it even more expeditively (instead of gradually phasing it to August 20). Yes, this is just a typical bear market rally - but a major one, like the ones in January, April and September 2001. It has a fair chance of reaching the 200-dma.

We saw a perfect bounce off of major resistence at 1425.

Of course, because it is an obvious major resistance level.

I think once 1200 is reached we could either have a perfect setup for a double bottem, or a penetration would be a signal to go aggresively short.

I anticipate a bounce from around the 1250-1260 level. If that does not matterialize, I'll be stopped out of my position. I won't be waiting for the 1200 level to be broken - breaking the uptrend accross the July and August lows would be enough to stop me out:



I know further downside is at odds with your thoughts

. It's all a matter of time frame. I think that we'll generally go up in the next few weeks to a couple of months. Once this bear market rally ends, a major top will be put in place and another huge decline will start - similar in percentage terms to the one since the March 2000 top. I think that the COMPX will bottom between 450 and 1100; more likely between 500 and 800. So, yes, I do see a lot of further downside - just not right now.

Also, it appears that during a primary bear trend it requires that the indicators are in the extreme oversold level to indicate a bottem, but they may never reach the extreme overbought levels before a top is actually put in.

Not sure what you mean exactly. I don't mean just the conventional overbought/oversold indicators; I watch a whole range of market breadth indicators, the BPI indexes, etc. They showed quite a big top in the beginning of the year and suggested that the March Madness was going to be just a minor uptick within the generally down picture.

As such, it is not out of the realm of possibilities that we continue down from here.

It certainly is! That's what stops are for.

How are you projecting a tartet of 1550 on the NASDAQ?

That's not a projection; that's just an estimation of the maximum upside potential of this bear market rally. I am not saying that we'll go that high; I am saying that we're unlikely to go higher. (OK, one Elliott Wave cound suggests around 1960, but I'll believe it when I see it.)

Draw a line accross the January and March highs. It is currently around 1525 (and keeps falling - it's a moving target). We might have a small fakeout move above this downtrend (because it is way too obvious and everybody would expect that we stop there - and would buy the breakout) - but that's about it.

Alternatively notice the bull flag formed since the August low:



Implied upside target is 1295.8 + (1426.8 - 1205.7) = 1516.9 - i.e., in the same ballpark.

Vesselin, I think this will be a great board for the serious investor/trader.

I certainly hope so.

Regards,
Vesselin