Tuesday, March 24, 2009

Next few days very crucial

Whose turn now ?

Since October 2007 peak, Dow has been moving lower to complete its Major Wave A as shown in the above 2-years chart. Currently Dow is in sub-wave iv of wave 5, the next pull back can be sub-wave v of wave 5. hopefully that is the end for Major Wave A.

The 6-months candlestick chart shows more clearly candlestick pattern the formation of sub-wave iv of wave 5. Lately, due to a few sessions of strong run up of New York market, some investors have started to question whether the low of 6547 set on 9 March is the bottom and whether Dow is going to move higher from here for the next few months. There is no definite answer to the question, if there is, the market can not exist. However we can talk about the possibility of the outcomes. To do that I have to magnify the sub-wave iii and iv of wave 5 as shown below.

There are many possibilities, I will discuss the 3 most likely outcomes (my personal opinion). The first possible outcome is what I have been advocated, a simple wave 5 consists of 5 sub-waves i, ii, iii, iv and v. It appeared to me that the Dow tuesday green candle marked the end of sub-wave iv, Dow has started its journey for sub-way v, and daily trading volume will shrink. The chart above shows clearly a typical corrective wave that consists of a long wave 1 and a short wave 3.

The second possible outcome is very very bullish. This is under the assumption that Wave 5 has only 3 sub-waves i, ii, and iii. Sub-waves iv and v are missing. With that sub-wave iii is the end of Major Wave A. Under this scenario, refer to the above chart, starting from point iii, the first wave up is a small wave 1 of the new up trend wave followed by a small wave 2, Dow is in small wave 3 currently. This wave 3 is expected to be longer that wave 1. This longer wave 3 consists of 5 mini waves, Monday and Tuesday candles formed the mini waves 1 of 3 and 2 of 3. Under this scenario, the coming candle on Wednesday or Thurseday has to be long (4% to5%) with very high volume. Mini wave 3 of 3 has to be strong, dynamic and convincing, and no doubt at all that the bull is running.

The third possible outcome is another version of the second outcome mentioned above. i.e. sub-wave iii marks the end of Major Wave A. Dow has completed its first up trend wave 1, currently in corrective wave 2 that has 3 waves a-b-c as shown above. Wave 2 can be an expanding a-b-c as shown with b higher than a (as shown) and c lower than a. Wave 2 can also take the form of a running a-b-c with b higher than a (as shown) but with c lower than b but higher than a.
The followings are the charts for some interesting and very high risk stocks. Normally very high risk means very high return if you are lucky.

From US$144.00 dropped all the way to US$1.42 a few days ago. Tuesday closed at US$2.65

AIG, one of my favorites. From US$72 it dropped to 35 cents and closed at US$1.48 for a two double gain from its low.

For Citi Groups and Bank of America, the worst that can happen is nationalization but Bernanke has mentioned that the US government has no such intention.

For Freddie Mac and Fannie Mae, if the government is using US$1.2 trillions to take over their bad mortgage securities, their future can not be that bad.

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