This Week

This week we witnessed what we call a Shakeout on Wednesday, marked at Point A.  A shakeout is a very powerful sign of strength and usually signifies higher prices to come.   The chart below is a daily chart of the Dow Jones.  At Point A (the shakeout) the price shot down significantly during the day only to close on the high.  This is done deliberately to catch stops, to knock traders out of long trades, and to mislead traders into thinking the market is falling.  The following two bars, at Points B and C confirm this shakeout by being up-bars.  These bars have very narrow spreads and show not a great deal of enthusiasm for the upside.  However, Tom Williams (who I saw today) says that the shakeout is the strongest force and this is what influences his analysis that the market is bullish at the moment.  We will wait and see this week.  It is often common for the professional money to test the market on a Monday, which would look like a down-bar, narrow spread, with low volume, and would confirm higher prices for the week.  But this does not always happen.  Always be careful in thinking you can predict the market.  The market is designed to mislead you.  If I do not see a clear principle then I am happy to admit I do not know what the market is going to do!  It's better to be safe than sorry.