Is It Too Late To Capture A Run In The Markets?

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What you’re looking at is a chart of the Dow Jones Industrial Average back in 2002.  This was the bottom of the dot-com blow-up and the start of the last five year rally in the markets.

I want you to notice a few things.  First is the big leg down in late July, followed by a rally.  Then an even bigger fall setting a lower low in October.  The market then had a big rally before falling again during the first quarter of 2003.  Notice how the low set in March of 2003 was higher than the October low.

This is a classic example of a triple bottom.  A chart pattern that often forms at the bottom of a bear market.

It was the signal the market was set to move higher.  And, over the next nine months it did rally, moving up 2,000 points!

Now, we’re not going to see the exact same movement this time around. The economic problems in 2008/2009 are much different from the ones back in 2001/2002.  With that said, however, I’d expect to see something similar.

Right now we’re trading right around 7,815 on the Dow and 1,564 on the S&P.  This represents around a 20% move from the bottom we hit in early March.  A 20% move from the bottom is widely considered to be a new bull market.

But, there’s one small problem.

May investors thought the November 2008 lows were the bottom.  We were supposed to retest those lows and put in a double bottom before heading higher.  As you know, a double bottom is when the market falls to a new low, recovers slightly, then falls back and retests (or at least gets close to) the lows.

Let’s look at the chart.



This is a recent chart of the Dow.  Here’s the problem.  We put in a new low in November.  Instead of finding support at the November low and moving higher in March, we fell significantly lower.  This is a continuation of the trend.

So the rally we’re in now is healthy, but I’m expecting the rally to roll over and attempt to retest the lows we set in March.  I think we’ll see a double bottom this time around.  That means we’re going to possibly retest the lows all the way back down towards 6,500 on the Dow.  Save for any further cataclysmic news in the world, we should head higher thereafter.

So back to your original question, no, it’s not too late to be buying this market.  But here’s the catch.

Wait for the market to start its retracement.  It might be aggressive, it might be weak.  I don’t know, but I see the markets rolling over at some point and heading lower.  That will signal the retest of the March lows. So, use the next down leg as an opportunity to add to your portfolio.  If I’m right, you might never again see stocks trading at these levels.

Then we can declare this bear market dead… and the bull market on a run.

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