The Dow Is Down. Is It Time To Buy?

01/24/14 04:56:13 PM

by Koos van der Merwe

The Dow has fallen heavily, but with so many companies coming out with excellent financial results, is it time to start bottom picking?

Security: DJIA
Position: Accumulate

So many companies, from Starbucks to Microsoft, reported earnings that were above expectations. Yet, the Dow (and the other broader indexes) are moving down. Is it time to start buying shares in those companies that performed better than expected? Buying a share as the index falls takes a great deal of courage, but if you can read your charts correctly, it could be an opportunity that should not be missed. WD Gann had a strategy that worked very well in a declining market. He called it the 7-3-7 strategy. Admittedly it did not work every time, but it was a guide he used in addition to his Gann Fan.

Figure 1. The Dow with Gann Fans.

Graphic provided by: AdvancedGET.

The chart in Figure 1 is a daily chart of the Dow with a Gann Fan and Elliott Wave count. Note how the WAVE C correction is within the parameters of the 4th Wave of lesser degree. Note too how the 1x1 Gann line called the top of Wave 5 with the 1x2 line of the following Gann fan. Is the Gann Fan teaching us something? Yes, it is suggesting that the Dow could find support on the 1x1 line within the 4th Wave of lesser degree. Do note the RSI indicator which is below the 50 horizontal and close to the 32 horizontal, the level at which an RSI indicator usually gives a strong buy signal.

Figure 2. The Dow with 7-3-7 count.

Graphic provided by: AdvancedGET.

The chart in Figure 2 is an enlarged chart of the Dow, showing WD Gann's 7-3-7 count. Note how the count was correct for Wave A and Wave B. If the pattern is going to be correct for the 7 count due on January 27, 2014 then we could see the Dow opening up lower, but ending the day higher as shown on the chart.

Does this strategy work all the time? The answer is "No" but it is a strategy that I feel should not be ignored. Bottom pickers, that is those investors open to greater risk, would start placing buy orders of the stocks they would like to own at really low prices. If they are correct, they smile all the way. If they are wrong, then they at least know they will not be wrong for long, based on the Elliott Wave count and the Gann angles.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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The Dow Is Down. Is It Time To Buy?

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