Don’t Lose Focus!

Everyone – I know Scrooge helped us see a really great market day yesterday.

But I don’t want you to lose focus as to what’s really happening. So I’m here to offer you some perspective so you don’t get sucked into all the optimism that’s flooding the markets.

We’re in a bear market! The financials are crumbling under leverage. Consumers aren’t buying because they’ve seen the price of milk and gas skyrocket. Consumers are having a hard time getting any new credit at all. 30 year mortgage rates don’t want to drop. Manufacturing in the US is sinking. Foreclosures are still rising.

You get the point. Now here’s a chart to take a look at – and it’s what I’m basing my future decisions off of:

Click on that chart and make it bigger if you have to. You see how there’s a downward sloping trend line (which shows the Dow in a downtrend)? Well, the Dow hasn’t been able to stay above that trend line since early October. But the Dow also hasn’t been able to go under around 11,750 (support). This has formed a descending triangle pattern, which is one of those distinctly bearish patterns.

In this pattern, the stock (or index) normally goes on to break under its support and the downtrend resumes. I’m looking for the same thing to happen to the Dow Jones as the economy continues to weaken.

But if the Dow Jones breaks above its resistance (and stays there for a few days) then that means we could see another swing higher.

It’s tough to say what will happen. If you want to be safe, wait for the break under support before you get into bearish positions. If you want to take some risks, then start inching into bearish positions starting today.