I received several calls after the market "broke the neckline" and fell from 13,000 to a intra-day low of 11,509 on January 22: "What happens next?" According to Edwards and Magee:
"The maximum indications (how low it can go) are quite another matter, for which no simple rules can be laid down. Factors that enter into this are the extent of the previous rise, the size, volume, and duration of the Head-and-Shoulders Formation, the general market Primary Trend (very important), and the distance that prices can fall before they come to an established Support Zone."
While the market appears to have found some support the past few days due to the Fed cut rates, my experience is that often there is a retracement to the neckline (a rally) and then the market falls again. Back to my day job.
In other words, Edwards and Magee have no clue what's next ;) Let me take this time to recommend the book, "The Black Swan". Seems appropriate to the times :)
Posted by: p-air | January 30, 2008 at 08:11 PM