DOW SET FOR A PULLBACK

Investor confidence has picked a bit since the mid December selloff of US stocks, as the Dow Jones Industrial Average has moved over 800 points from a low of 17 200. On the 18 of December I wrote that the Dow will reach 18 000 before year end and the S&P will reach 2075 to 2100, also before year end. Since then, both my predictions have come to pass and now I see a different story now. I recommend that you read my previous posts, look at the historical charts, compare my posts against the charts, and you will see how accurate these predictions have been.

My reason for starting this blog was to share with people my talent, the ability to read into the future of the financial markets, something I view  as an easy way to make money. I have followed stocks for years first as a hobby, then as a personal business, but I have since realised that there is a huge potential to help other people make money in the markets.

My methods are a mix of fundamental, technical and behavioral finance principles. However, I do not force myself to stick to the rigid rules of technical analysis or even the common sence of fundamental analysis. My method is not scientifically proven but has been historically correct. I do not claim that all of my predictions will come true but I can guarantee long term profitability by following this blog.

WHO CAN PROFIT FROM MY BLOG

Any trader who trades in the exchanges or any direvatives trader who trades in CFDs or a spread-bettor. Those who have followed me since the start of this blog have not had a single loosing trade under my suggestion, therefore, this blog is not bolony but the real thing. If you do not believe me, start following my blog everyday, and you will see winning trades being recommended to you, right before your eyes. Then you will tell everybody else you know so that they also may profit from this blog. Now back to the Dow.

DOW TO SELL-OFF THIS JANUARY.

This December rally of the Dow was caused by the Fed's language that interest rates will not raise anytime soon. US GDP figure for the quater came at an impressive 5%. Traders mysticaly believed in a so called Santa rally that occurs right after Christmas up to the new year. I noticed that this Santa rally did not actually occur as it did last year. This past week's rally has been a seemingly tired one with the Dow only gaining a bit over 200 points since December 22. The index seemed to float all the way up from 17 800 to over 18000 points, my target for the month. Remember the same thing happened last month when the Dow floated around the 17 800 figure before selling off.

Last week's action tells me that investors are fully in the market, not selling, and at the same same time not buying much. The upward movement is caused by the nibbling buyers who are not faced with a group of strong sellers because everyone believes the market is going higher.

ENTER JANUARY

Investor fatigue will begin to weigh in on traders and investors alike as they will not see a further spectacular rise in the Dow, say, to something like 18 500 in a week's time. Not seeing this will cause a number of them to take profits in order to look for other emerging oppotunities elsewhere. This will be the beginning of the avalanche as more and more traders and investors join in the sell off. Investment managers and hedge funds seeking to re-balance their books will sale their holdings for that year end bonus calculation, also adding fuel to the sale-off. I predict that the January sell-off will bring the Dow below 17 000, maybe 16 500, or at most 16 200, where it is most likely to find its floor.

When this will happen exactly no one knows but it will not take over six weeks for this sell off to begin. Something above 5% to 10% correction. After that then, they will be another quick rally bring the Dow again to its all time high above 18 000, around March 2015.

As a trader, I would short the Dow or the S&P with a stop loss of 200 points for the Dow and 20 points for the S&P. Say you short the Dow now at 18 038, if the rally continues, you exit the trade at 18 238, which is a loss of 200 points. Do not change the trade to long but let the rally continue until you see a 150 point reversal, then enter again your short with a 200 point stop loss again. If you loose, repeat the above system until this sell off I speak of takes place.

Look at it this way, if you get two loosing trades totaling 400 points, you will be compensated by the 1 500 point reversal in the coming sell off. Also, keep reading my blog for updates, for as we all know, financial markets change like the Cape Town weather, therefore, one has to be updated periodically.

Trade well, trade profitably

by Nqobani Zondo