Supply and Demand letter – ‫מכתב ההיצע והביקוש‬



The last few years, especially 2008 and 2009 – were few of the craziest years in the stock market. 2008 was a strong bear year and 2009 was a strong bull year. The big moves the markets have done proved to all that "long term investing" works only with gold – which has been the only commodity that went up strait during the decade. All other indeces and commodities went through big moves up and down but didn’t really give any gains. Nasdaq composite is still lower than 2000 highs same like the S&P500 and Dow Jones. The rally since the beginning of 2009 went on with almost no corrections – or small ones the weekly chart shows the corrections and their relative weakness:

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Supply and Demand letter – ‫מכתב ההיצע והביקוש‬
January 2010 was the first "real" correction that symbolized the beginning of weakness in the bull marker But those who shorted the market even at the highs of January – were losing if they still were short in march-april

In fact – the last up move of the market – from mid February to the end of april was an "end of bull market" move – with almost no real corrections to the up move, until the reversal in april.

At the end of april – S&P500 got to a level of 1219 points – had a false break to the upside and after a few sideways days – broke down and a sharp reversal began

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Supply and Demand letter – ‫מכתב ההיצע והביקוש‬

After the reversal to a bear trend – we got a big panic day in the 6th of may – when intraday action was crazy enough to print 1000 points down – on the dow jones industrial average. Even though the market closed only 300 points down – that move was a warning sign.

The down move in the market was related by all to the deficit and debt problems in the European countries and therefore in the weekend preceding – the European union leaders came out with an emergency fund of a trillion dollars – which sparked a secondary rally in the markets. That rally shook out the bears and confused the bulls into thinking the correction is over. How do you recognize a secondary rally? Its fast – sharp – starts quickly and ends quickly, usually the rally high will not pass the bull market top, like this rally. Afterwards the market continued the down trend – a little sideways, a little correction, but the trend continued to be down.

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Supply and Demand letter – ‫מכתב ההיצע והביקוש‬
In every up move the bulls thought "correction over – buy stocks" and a lot of bears thrown out of their short poitions. Too many people think its easy to time a bear market. It aint. A bear market is a volatile and risky market, which is better to hold a short position and stay with it for some time rather than enter and exit over and over again. Since the start of the bear market – the S&P500 moved in 9-10 days units – as the chart shows below:

Its easy to see that when up corrections get weaker the next down wave gets stronger and breaks to new lows on the way down. Weakness of moves to one direction – implies on strength to the other one The last down move brought the nasdaq 100 index to its longest losing sequence ever. A move like that tells us how weak the market is – and how hard it is for it to go up

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Supply and Demand letter – ‫מכתב ההיצע והביקוש‬

Where are we today? Well, the market has made a nice up correction – more the 50 points from the last low so the most important resistance lying ahead is 1069 which is 50% of the down move before the current correction. As you can see in the chart – the market is still in a down trend – lower highs and lower lows therefore every up move is a correction to the major trend which is - DOWN

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