Even though the market has barely budged off it’s closing lows of last wednesday: COMPX +0.4%, INDU +0.9% and the INX +0.6%, I feel we have seen a major bottom; and the end of the ABC correction in the COMPX. I can’t rule out one more shake out to get the two other indices (INDU and INX) into oversold condition, but at this point that may not be required. This is why!
Since the bull market began in Oct. 2002, the INX has provided only four momentum bottoms: Mar.’03, Aug.’03, Aug.’04 and Apr.’05. In each of the three previous bottoms this index has rallied between 15% – 26%. Thus far it has only managed a meager 8% advance from the April ’05 low. Also, the INDU has provided five momentum bottoms: Mar.’03, May.’03, Jly.’03, Oct.’04 and Apr.’05. In each of the previous four bottoms this index has rallied between 12% – 19%. Thus far, it has only managed a 7% advance from its April lows. Thus, I feel both indices are in position to move higher without the need of a major momentum bottom.
The COMPX has been the leading index throughout the entire bull market. A comparison of the three indices will display this clearly: COMPX +77%, INX +47% and INDU +37%. The COMPX has also been the more definitive of the three indices, clear turning points in price trend and momentum trends. This is the reason I have been using the COMPX as the key index to follow this market, as you are well aware.
With last weeks selloff into the recent lows, I can now count wave C being completed, and the entire ABC correction (minute ii) completed in the form of a flat. I had mentioned this possibly on Sept 17th;
"The minute wave 2 (abc) correction COMPX, that started Aug 02, is now in it’s third and final phase: wave A declined to 2121 on Aug 26th; wave B rallied to 2183 on Sept 12th; wave C should now bottom either at 2110 -2120 (flat) or 2060 – 2080 (zigzag)."
Adding more conviction to this count is the fact that the COMPX made an intraday bottom of 2093 last thursday, retested that 2093 bottom on friday. Then rallied up 5 waves to 2133 by monday, and has since corrected to 2109 on tuesday, and retested 2109 successfully again today. Thus, I can see an impulse wave up from the intraday lows and a correction of that advance in the form of a flat. This would indicate that the COMPX should start heading much higher right about now.
I mentioned in the weekend update, that I was going to initate some positions in COMPX stocks. I have been doing this, and have been adding to some of those positions. I will update the charts, in the photo album accordingly. Let’s see what does unfold, but at this juncture, I feel the downside risk is limited and the upside potential clearly outweighs the short term risk. To be more precise. If we get the typical advance off of the momentum bottoms we have seen thus far in this bull market. It would project: an INX (1217) between 1310 – 1370, and INDU (10,473) between 11,210 – 11,910 (all time high), and a COMPX (2115) between 2440 – 2610 over the next few months. Will keep you updated!