David Schirmer's Stock Market Indices Report - 27 August 2007

Welcome to my Stock Market Indices Report. As we now have subscribers from all parts of the world I thought I would add other markets rather than just the Australian stock market. This report is in no way indicative of what individual stocks will do but rather a general ‘crystal ball’ of overall market movements. Individual stocks often do not move in the same direction or the same magnitude as an index. To know what stocks to buy or what to sell you must do your own study and research. Please read the disclaimer below.

The big question this week is: “Can the Australian market break into new highs and head off up in another eutrophic rise, or will it falter here and continue its decline down into the 18-year cycle low?”

This same question can be asked of many markets around the world, especially the S&P and Dow Jones. Only price movement will give us the absolute answer. Let’s look at the possibilities.

I mentioned last week that:

My bias is still that most markets are moving into their longer term cycle declines and lows. People will start to buy stocks at what appears to be low prices (compared to the recent highs) only to see a short rally before continued declines. This is a time in the markets to be smart and to analyse the individual stocks to decide whether to buy or not. As I have said many times in my stock market workshops, any mug can make money when markets are rising; few keep it in the declines. These next few months will be a test to see how many people can keep their profits.

I have noticed that many world indices have fallen below their primary cycle commencement price; this is a strong indication of a bear market in play. The next signal we need to watch is if these markets can recover their falls and take out the previous cycle high – if they can’t then the following declines will be greater than what we have just experienced (that is my expectation).

That is still my view. The key is if the Australian All Ordinaries Index can continue to rise and take out the previous top at 6469.2 over the next few weeks. The number for the FTSE is 6754, Dow Jones is 14022 and the S&P 500 is 1555.2. We need to watch closely for signs of weakness as the markets climb back toward their previous highs.

The typical signal of weakness in the markets is a lower swing top (a price weakness) followed by more time spent going down then up (time weakness). An important key to remember at this stage in the market is that those people who bought stocks at or near the previous peak are hoping, wishing, wanting the market to continue up. They have little experience and are greedy. Already the ‘experts’ in the industry (stock brokers & financial planners) are telling them to ‘buy more while it is low – bargain prices’!! Remember, as I share in my Complete Stock Market Home Study Course, that the masses are wrong 90% of the time because of their ignorance. They will want to buy more as the markets indicate a bear move until finally a full on panic sets in. That hasn’t happened … yet!

Resistance levels for a rise this week are 6203, 6251 and 6469, major support is at 5675, 5518 and 5317 with minor support at 5994, 5920, 5839, and 5760. and ... Reversal dates are August 31 & September 4, with the later being a strong correlation of a Primary Cycle crest or higher.

Next report out on Monday, September 3.

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Yours in abundance,

David Schirmer

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Terminology

CAC - The CAC 40 index is the main benchmark for Euronext Paris (France).
DAX - DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.
DOW - The Dow Jones Industrial Average (The Dow) is the main stock market index for the New York Stock Exchange (USA).
FTSE - The FTSE 100 Index (or just the FTSE, pronounced footsie) is a share index of the 100 most highly capitalised companies listed on the London Stock Exchange. FTSE is an abbreviation of 'Financial Times Stock Exchange'.
Nikkei - Nikkei 225 is a stock market index for the Tokyo Stock Exchange (Japan).
S&P - The S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American, from both the NYSE and NASDAQ Stock Exchanges (USA).
XAO - The All Ordinaries (colloquially, the "All Ords"; also known as the All Ordinaries Index, AOI) is the main index of shares for the Australian Stock Exchange.

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