Stocks Bear Market Heading for Critical January 2012 Low

By: Donald_W_Dony

The low that is expected in mid-January will be critical in this bear market. It will represent the first test for support since the start of the decline in early August. Bear market bottoms are normally a series of troughs at the same level creating a base. This anticipated low in January could be the beginning of that foundation. It all depends on how deep this coming low will be.

The vast majority of bear market bottoms since the 1940s, are not in the shape of a V but rather at a level where the market finds value and tests for support once, twice or even three times before starting to advance.

The first low for global equity markets was in late September/early October. And as most world stock indexes trade on a 14-16 week cycle, the next trough is expected in mid-January (Chart 1).

The Dow Jones World Stock Index (DJWSI) reached a low of 208.34 in late September. If this anticipated low in January develops at a similar level then the probability of a base forming and the completion of the bear market grows substantially. However, if the trough is below this level (208.34) this suggest that a base has not formed and the probability of lower levels in early 2012 is very likely.

Bottom line: The mid-January low will be the first opportunity for the global bear market to build a base. Should this level be near 208, then the DJWSI is likely establishing a foundation for a bull advance. If this trough is below 208 (ie 200 or under), then the probability is high for the continuation of the bear decline into early 2012.

Note: More research on global market conditions are in the December newsletter. Go to member log in and follow the links.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2011 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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