Just passing on yesterday’s Worden Report from Don Worden, one of the founders of TC2000.

The Worden Report (Tuesday, June 15, 2004)

Trends and How They Act

We remain in a Minor Uptrend. We, of course, have been in an Intermediate Downtrend for most of the year and a Primary Uptrend dating back to October of 2003.

There are two ways of gauging the correctionary efficacy of a trend - by its duration and by its magnitude. This Intermediate Downtrend has lasted longer than most, but it has not been especially deep. That is, there is more room on the downside within the Primary Uptrend if the market so wishes to use it.

And that is where we stand. Some Users can’t get it out of their minds that the trend classifications tell us where we are going. Wrong. They tell us where we have been, which is what you have to start with before you can start building prognostications. You cannot look at the future without looking at the past first.

I believe these assumptions help remind traders and investors what highway we’re on. Once you know where you are coming from, it is amazing how much more clearly you can grapple with future probabilities.

There is the old saying, “The trend is your friend.” Most technicians believe this at least to some extent. I am among them. Trends seem to have momentum. They tend to persist. Therefore, if you know what kind of trend (or trends) that you’re in, you can glean some implications about the future. I’m not going to go into a complete description of trends here. There has been much written on the subject. You can read either of the two books listed below and learn a lot about the nature of trends.

As an example, however, a trend corrects itself and becomes healthier by retracing a portion of itself. A normal retracement falls between a third and two-thirds of the trend being corrected. Knowing nothing more, think of all the projections you can make for yourself. Think of the targets you can set up. There are many ways to estimate how far a trend is likely to carry, and many telltale signs to be noticed if a trend falls short of its normal objective. The more you know about trends, the more you will know about chart reading.

The fascinating thing about reading charts is that all they show you is the past. You must get into the habit of consciously realizing that. We can’t draw the future on a chart until it has become the past. So the past is all we have to go on. And that, in the hands of an experienced, observant and logical person, is a lot. But never enough to make you a fortune teller, which is something you have to come to terms with. You can’t divine the future, but careful observation of the way trends unfold can help you make some pretty darn good guesses about it.

What are you looking for now? You are looking for the market to surpass the April high. If it can do that, the six-month Intermediate-term correction will have been completed. If it falls back, you will be looking for support levels, particularly the worst-case support levels at SP-500 950, Dow 9000 and Nasdaq 1500, which would allow the last chance for the bull market to stay alive.

And then when you start adding indicators, news, special insights you may possess and finally a strategic approach with money handling paramount…man! You’re as good as our court magician, Merlin. -DW

ASSUMPTIONS

Primary Trend: Up
Intermediate Trend: Down
Minor Trend: Up

For ongoing remarks pertaining to ASSUMPTIONS, please refer to the notes attached to the appropriate charts (COMPQX, SP-500, DJ-30).

The concepts of Primary, Intermediate and Minor trends emanate from Dow Theory.

For a discussion of these trends, refer to “Street Smart Chart Reading - Vol. 2″-Pages 35-39 by Don Worden.

“The Technical Analysis Course” by Thomas Meyers is recommended as a broad-based introduction to technical analysis for beginners and as a handy reference guide for all traders.