Market comment 8-20-11

Most bear markets have three or more waves down. Bill O'Neil usually points this out in seminars when reviewing past bear markets. There are exceptions like 1998.
I am thinking we are nearing the end of the first wave down although last week's 38.2% retracement may be a separation between wave 1 and wave 2. Since we have an unbroken 4 weeks running with each week closing lower I tend to believe we are still in the first wave down of a bad bear market. My current P&F chart projection is 1350-1800 on the NASDAQ which presumably could be next year.

The Dow Transports led on the way up and made a new 52-week high in July with a quick reversal, now the Transports are leading on the way down and have now correceted into bear market territory at -25.7%. I continue to watch this index for its future predictive capability.

Something I pay attention to is an inidicator developed by Edwin Coppock in the early sixties. It is shown below from [url]www.freestockcharts.com[/url]

The Coppock curve as Edwin meant it to be used is a weighted average of ROC curves computed on monthly data. Google it if you want to see the specifics. The ROC curves are 11 and 14 months duration which are averaged and then a ten month weighted averaged of the these is plotted. Sounds like voodoo I know. However, damaged markets take time to heal and when this curve goes negative and then bottoms the healing process has had time to settle in and a new cyclical bull market cycle is ready to rock and roll. Coppock chose 11-14 months because this is about the time for people to begin recovery from a major personal loss such as a death in the family. He has brought in the emotional factor that accompanies major market moves. So far over 100 tyears or so this is fairly reliable. Doing some side analysis this curve will probably not bottom until September of next year. So I am guessing based on history that all rallies bewteen say now and July of next year will be bear market rallies no matter how convincing they seem. Bear market rallies can be played and I would not be surprised to see a good one this fall through the end of year.

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