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Weekend Stock Market Analysis

(1/3/09)

For the year the Dow lost 33.8% of its value which was the 3rd worst Yearly Performance going all the way back to 1896 as shown in the table below.  The worst performing year was in 1931 in which the Dow lost nearly 53%.

 Top 10 Worst Performance Years for the Dow (1896-2008)

1931	-52.67
1907	-37.73
2008	-33.84
1930	-33.77
1920	-32.9
1937	-32.82
1914	-30.72
1974	-27.57
1903	-23.61
1932	-22.64
1917	-21.71

Meanwhile if we look at some weekly charts of the major averages they all are exhibiting a rather classic looking Elliott 5 Wave pattern to the downside.  A simple example of what a 5 Wave pattern looks like is shown below.   Notice Waves 1,3 and 5 are to the downside while Waves 2 and 4 are corrective to the upside.   Once the 5 Wave pattern completes itself this is then followed by an "ABC" type rally.

A weekly chart of the Dow shows it's exhibiting a rather similar pattern as shown above and currently is undergoing the corrective 4th Wave up after completing Wave 3 down on November 21st.   Of course the big question is how much further will Wave 4 up go before it ends which will then be followed by the 5th Wave down?   My guess would be the Dow may attempt to rally up to the 9450 to 9600 range before Wave 4 ends.   The 9450 area corresponds to the Dow's 20 Week EMA (green line) while the 9600 level is the 38.2% Retracement Level calculated from the peak of Wave 2 to the bottom of Wave 3.  

The Nasdaq just like the Dow is exhibiting a similar looking pattern and is currently going through the 4th Wave up after completing Wave 3 down on November 21st.  It looks like the Nasdaq could potentially rally up to the 1760 area before the 4th Wave up ends.   The 1760 level is near the Nasdaq's 20 Week EMA (green line) and 38.2% Retracement Level calculated from the peak of Wave 2 to the bottom of Wave 3.  

As far as the S&P 500 it's also showing a similar pattern to the Dow and Nasdaq as it undergoes Wave 4 up.   At this point it looks like the S&P 500 could potentially rise up to around the 1000 level before the 4th Wave up ends.  The 1000 level is where the S&P 500's 20 Week EMA (green line) and 38.2% Retracement Level (calculated from the peak of Wave 2 to the bottom of Wave 3) reside at. 

Keep in mind once the 4th Wave up ends this will be followed by the 5th Wave down which would likely see new lows made in the major averages at some point in 2009. 

Finally one thing that bears watching is the Volatility Index (VIX) which has decreased substantially since the November 21st lows (points A to B).   This rapid drop is similar to what occurred from mid October through early November (points C to D) which was followed by a sharp sell off in the S&P 500 (points E to F).   Thus this is a warning sign that a sharp correction could development at anytime.            

In 2008 our ETF Strategies worked the best with which had a return of +33%  versus the S&P 500 which was down -38.5% for the year.

Meanwhile our 401K Strategy finished up +17.3% for the year.

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