It's a Struggle, But Downside Still Limited

Today looks like a good day to sit on our hands while we wait and see how this war at resistance plays out. Relative strength has been improving in the technical sector and the semiconductors have even recovered from a breakdown (breakdown failures usually reverse in the opposite direction). Our scans reveal some short set ups, mostly from the same group that has been showing up for several weeks now, but in general scans were neutral. Moreover, stocks that are projecting more downside over the next few days are deeply oversold on their weekly view severely raising the risk of stopping out on short covering rallies. Yes the market is at resistance now and yes we could experience more profit taking at this level. On a number of counts however the intermediate trend is now up and this means that the risk of surprise is to the upside. We saw a good example of this with NVTL yesterday. This 5-Month Downtrend is Winding Down to a Close As this 5 month downtrend winds down to an end we continue to suffer from a pattern of short, but quick moves followed by a period of slowly bleeding prices. This has done a number on our tight stop losses. As the market has struggled with this downtrend we have experienced quick periods of good profits where everything works followed by weeks of stops getting eaten up in the choppy market. If the pattern holds we are on the verge of a quick move – and this time a much stronger one – that should give us a nice bump up in our success rates. For those who are interested in a more detailed technical view of the market, this website, updated yesterday, explains a very bullish theory analyzing market structure and time turning points: http://marketclues.blogspot.com/ For those less technically inclined, the well tested and documented theory suggests that the market has been building a base and is about to make a strong move up that will last into the year 2006. As difficult as the market has been over the past 5 months, longer term views reveal strong support just below current levels and project a strong move higher beginning in coming weeks. It is important then to keep timeframes in perspective. What happens this week is not nearly as important as what develops over the next few weeks to next month. It is just a matter of time before this downtrend is behind us.