THE DOT - if this turns orange or red be alert

Monday, July 7, 2008

The low is getting very close - Bear cover on Barrons

For a substantial low ( valid for weeks or months ) some factors are required. One of them is the official coverage of a bear cover like we have on the recent Barron's cover. The other component is the declaration of death for an icon - in these case the GM bankruptcy call of MER has done that. We need some panic - not reached entirely - due to a still reluctant VIX at 27 (but getting closer). Dow made a combo 13 today in a week 8 which is pretty good for a low. The NDX has almost reached the target area of 1780/1800 - we will within the next 2 weeks. Oil has reached target area 146/8 and is topping out. many technical indicators reached the oversold level and sentiment is bearish. The XBD has reached target area 135/40.

But yet it's still too early with the capitulation, which has not reached peak level. We need the smile of the talking heads to go away because they need to be scared to loose their jobs too - but that we might see at the big bottom which is due in 2 years.
[Cover chart]

Rydex made it down to .61 which is a clear low level, but by itself is not a timing indicator. We have reached 90-5% of the low factors but even my gut says with the VIX its still to early This is confirmed by another indicator XBD is counting a weekly 11 combo. We need another week down - since this is one of the leading downside sectors and Merrill and Citi might mark the low days finally next week.

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