Friday Update

My system moved higher to +525 today keeping the buy signal on. We have now moved to an area in my system where according to similar past moves, the momentum should halt in the next 1-2 days if we are going back to -1000. Otherwise, I would expect a move to +1000 which will be only the second time in almost six years that this has occurred where the intermediate term bottom came below -500 but above -1000. It looks like the earnings that come out on Tuesday and Wednesday will be the deciding factor of whether the rally is over or not. If it isn't over, we should blow past 956 on the $SPX next week. If it is over, then a test of 869 comes into play. Have a great weekend!

Wednesday Update

My system moved higher yesterday to -400 confirming the buy signal and today it moved all the way to the zero line keeping the buy signal on. That is an astounding 400 basis point move in my system today which is pretty rare. The only indices still in net negative territory in my system are the S&P 500 and S&P 400 although they should join the net positive party as early as tomorrow. Even though a pullback is possible tomorrow, this rally likely has another 3-5 trading days left in it. Previous rallies from the bottom in my system last week at -600 have moved as far as around the +500 level give or take a 100 basis points. Although there has only been one instance where the rally went to +1000 first (after bottoming between -500 to -1000) and not eventually to -1000, I have to add that my system wasn't created until December 2003 so it unfortunately does not capture most of the greatest stock market year of this decade (for bulls) which was 2003. That year, the market was still coming out of a bear market and rallied for most of the year. So, it is entirely possible that the market had intermediate term bottoms in that long rally that didn't hit -1000 either. That is just something to be aware of. The other major technical consideration today is that the S&P 500, by breaking 931, has officially caused a head and shoulders failure pattern which is the most reliable pattern in the market. This means that 9 times out of 10 (actually some MIT guys once calculated it to 87% of the time) the market will now move above the head which is at 956. If the market were to instead break 869 before breaking 956, this would be the very rare "failure of a failure" which you've probably by now calculated occurs around 10% or so of the time. The odds are heavily in favor of the bulls here. The one thing nagging me is that we never got to -1000 in my system which would have solidified a major rally. Nevertheless, if the market trades down tomorrow, I would expect it to be the only opportunity to buy for that 956 break. The QQQQ looks like a lock over the next 3-5 days to surpass its recent high at $37.23. The $HGX still looks sick even with today's gains and it will likely rally over the near-term with the market but until it moves to the 95 level, the bias is for a sideways to down move over the next several months even below the recent low at 72. I think the bottom is without a doubt in at 54 for this index but the rally in this index to the 100 level might not occur until late 2009 or early 2010. Again, hitting the 95 level in the near-term would change that bearish scenario. My next post will be on Friday.

Monday Update

My system declined on Friday to -600 but today moved higher to -550 putting the buy signal on. A confirmation up day in my system is needed tomorrow. So, it's a difficult spot to trade here because we have not reached -1000 but short-term traders may want to jump on the uptrend if tomorrow looks like a follow through to today's action. As I have said in the past few weeks, there has only been one time in my system where an intermediate term bottom occurred between -500 and -1000. However, there have been rallies from here to the +500 to +600 area before moves down to -1000 which are substantial rallies. With options expiration this week and the onslaught of earnings, it will be interesting to see if the market enters a fast trend after the slow drip of the last few months. My next post will be on Wednesday.

Nearing -1000

My system moved lower last Thursday putting the sell signal on and it hasn't looked back, going down every day and again today to -525 keeping the sell signal on. Now, the area between -500 and -1000 is an interesting one. There are often bounces from this region sometimes for a few days before heading down to the -1000 level and then sometimes they can be fairly impressive multiweek rallies that get to the +500 to +600 area before heading back down to
-1000. There has only been one instance in the almost six years of my system that my system bottomed between -500 and -1000 (not hitting -1000) and made it all the way back up to +1000. The good news for the bulls is that the S&P 500 has to break 783, last quarter's low, in order to say this isn't a bull market. With my system already at the -525 level and the S&P still a 100 points higher than this level, it looks unlikely that this will occur and we can assume that if my system does end up going to -1000, the S&P intermediate term bottom will likely occur above that 783 level. The next leg of the rally should take the S&P 500 above its high for this year or something is amiss with this bull market. The $HGX hit 72 and change yesterday and I have closed out my XHB shorts although it certainly can go lower here. It seems that every news outlet is talking about the head and shoulders formation on the S&P 500 and this is a major bullish signal. The best pattern in the stock market and the only one I actually use because it makes money 90% of the time is a head and shoulders FAILURE. If a head and shoulders formation breaks the neckline and then moves up past the right shoulder, it will 9 times out of 10 clear the head. For the S&P, that means if 931 is broken to the upside, then there are extremely high odds that 956 will then be broken. The area between 931 and 956 is where the bets should be increased substantially and then sold when the index breaks 956.

Finally, there is an interesting chart on the Bespoke website from yesterday where it says that if the Dow earned the same annual return it has since 1900, then the index will be at 137,783 in 2050. Before you scoff at this, I bring it up only because I noticed something interesting recently that relates to this. If you take the bottom of the secular bear that occurred in July, 1932 which is 40.60 and divide it into what many consider the high of the following secular bull in February, 1966 which is 1001.10, you get a multiple of about 24.65 over a timeframe of about 33.5 years. Now, if you take the bottom of the following secular bear market in December, 1974 which is 570.00 and divide it into what is obviously the high of the secular bull market in October, 2007 which is 14,198.10, you get a multiple of about 24.90 over a timeframe of almost 33 years. Remarkably similar, don't you think? Well, if the Dow bottomed in this secular bear at the March low of 6469.95 which is certainly up for debate and we multiply by both multiples of 24.65 and 24.90, we come up with a range of 159,484 to 161,101 somewhere around the year 2042 which certainly doesn't make Bespoke's number look so crazy. To get Bespoke's number exactly, this means a bottom for the Dow around 2017 from a range of 5533 to 5589. Of course, I imagine this goes out the window if we follow Japan into the abyss. My next post will be on Monday.

Jobs Eve

My system has moved higher to +300 and the buy signal is still on. There's not much to add from what I've said in the last few posts. After the jobs number tomorrow, I will be headed out for a one week vacation and will post again next Thursday. Have a great holiday!

Weekend Update

My system moved higher to +25 on Thursday and higher to +100 on Friday confirming a buy signal. However, as I mentioned last time, there have been bounces from near the zero line lasting a few days to a few weeks but there has never been a move to +1000 from near the zero line after coming down from +1000. So, this could be that one time where it happens but this would be going against past history. My next post will be on Wednesday.

Net Negative

My system moved lower yesterday to +75 and today went net negative and moved lower to -50 keeping the sell signal on. Sometimes, there are bounces from the zero line or nearby but usually nothing that lasts more than a few days. What is more likely is a move to -500 which provide good bounces in bull markets. However, a -1000 reading is needed to mark a solid intermediate term bottom. Within my system, the S&P 400 actually went net negative yesterday while the S&p 500, 600, and my Bank/Tech index joined that index today in net negative territory. That leaves only the S&P 100 and Nasdaq 100 in net positive territory which means that the large caps are holding up this market right now, not a great sign. As soon as the selling gets to these large caps, you'll get the bigger down days in the indices. A move up from the current level back above +1000 (without going to -1000 first) has never happened and a move from the -500 to -1000 area to back above +1000 (without going to -1000 first) has only happened once. Therefore, the odds are very high that we will find ourselves at -1000 before we find ourselves back at +1000. With those odds, that -1000 reading will almost certainly come in 2009 and there's no reason to deploy a large amount of cash until we get there. I will post again this weekend.