Reply #1: WrapUp by Tim W. Wood

[ozymandius]

THE DOW REPORT
"Is It Just Too Big To See?"

The chart below is a daily chart of the DJIA. If we just look at the price action since January 2003 and take it at face value, obviously we see that price is advancing and that all looks well.

Now if we back away from the daily chart and look at the weekly chart of the DJIA, the picture is quite different. We can equate this to looking at crop circles. When you are standing on the ground they are just too big to see. All we can see at ground level is that the crop has been mashed to the ground. However, when we can back away from this mashed crop by looking down on the field from above, the picture then becomes clear. To illustrate this phenomenon, I have included a second chart below. This is a weekly chart of the DJIA. I have drawn on it what is known as a Rising Wedge. This Rising Wedge encompasses the same time frame as the daily chart above. However, when backing away from the day to day price action, the picture is much different.

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Now look at the indicator that I have included at the top of the weekly chart. This is a moving average of advancing volume. Look at the divergences between price and volume. Advancing issues are diverging in the same way. Now, I have to ask, is this not clearly a sign that the internal strength of this market is growing weaker and weaker just as explained by Edwards & Magee? Have the talking heads on TV not been saying that we are in a “New Bull Market” just as explained by Edwards & Magee? Have Sir John Templeton and Warren Buffett not warned about the economy? Yet, we sit with sentiment readings at the highest levels in over 10 years and the average investor continues to believe that all is well. This is just simply nuts! If you are in doubt LOOK AT THE WEEKLY CHART! It does not take a rocket scientist to see that price has been advancing on less positive volume and that this has happened in the context of a historically bearish chart formation. Denying this is like going to the doctor and he x-rays your leg. He shows you the x-ray and explains that you have broken your leg. Because it really doesn’t hurt that bad and you can still walk on it, you tell your doctor. “Nah, everything is ok. That’s not really a break you see there doc that’s just a bad x-ray. See? I can still walk. Your little x-ray machine must not work any more.” Now that would be nuts and the situation with this market is now to that point. Please, step back away from the day to day hope and hype of TV crowd and look at this picture from a distance. It’s just like the crop circles or the x-ray. When you back off and look at reality the picture is quite different.

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