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Market Direction: Monthly Trends Suggest November Will Not Exceed 1100 SP

November 1, 2008 12:58 AM

downagain2.jpgI am not a huge follower of trend-lines and not much of a follower of monthly trend-lines either. They are sometimes right, and sometimes wrong. However, it is best to understand that they are there or buying - or selling - can come out of seemingly nowhere. With that said, the monthly downtrend looks like it is somewhere just below 1100 on the SP and about 10,500 or so on the Dow.

While these trend-lines should provide resistance in those areas, common sense is more likely a reason to sell there. If the market was a strong sell at 1200, how can it possibly be a buy at 1100? It isn’t. Profits have climaxed, possibly for years. Profits have dropped this quarter 11.7% for companies reporting thus far, and this takes into account energy sector profits when oil was at it’s height. Those profits will also decline, possibly sharply, in coming quarters. This is why I have said to ignore the TV talk about “how cheap this market is” for a year. It is only cheap - or expensive - if people know future earnings, and they don’t. If earnings drop 12% this quarter, and another 12% next, then a seemingly cheap market just got a bit expensive. And I believe this is exactly what will happen.

Update: I looked at the trend lines again after the month closed, and the lines are lower. It appears that the downtrend on the SP is about 1030 and the Dow about 10,100 or so.

Written by Tom@StockBlade.com · Filed Under General Investing/Trading Commentary 

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