Market Insights™

Week Beginning 12/03

The Dow Industrials made its most recent high on November 22, just four trading days prior to the Bradley turn date of November 28. Then this past week the index broke down out of its 5-month uptrend (view chart). The Bradley window shuts at the end of trading on Monday, which is not enough time for the Dow to post a new cycle high so it looks like the top is in, right? Not so fast.

All three of my daily, weekly, and monthly stock market timing models are positive, as is the Trendright allocation model. The market leading NASDAQ 100 index has yet to break down out of its uptrend, and the home construction stocks also continue to rally. No indicator is perfect so the Bradley could be letting us down here and we won't know that unless the Dow exceeds the November 22 peak. Or, it could be that my stock market timing models are in error and a new downtrend is underway. Before I can declare that, I will need to see the NASDAQ violate its uptrend line and make a weekly reversal on the chart. Even with that I am not likely to short this market until the 80-day MA is violated by both the NAS and the S&P 500.

Week Beginning 12/10

The picture this week looks very similar to what we saw last week. As I said then, "All three of my daily, weekly, and monthly stock market timing models are positive, as is the Trendright allocation model. The market leading NASDAQ 100 index has yet to break down out of its uptrend, and the home construction stocks also continue to rally." Looking at my models, it still appears that higher prices lie ahead in what is tradtionally a bullish period between Thanksgiving and New Years. Major tops more often than not fall into either the summer or the winter months.

The high in the Dow Industrials that was posted on November 22, within four trading days of the November 28 Bradley turn window, remains intact. This past week that high was retested but price remains below the intraday high of 12361, closing the week at 12307. This index is, for the time being, trapped in a trading range between 12100 and 12350 (view chart). If the Dow breaks out above 12350, then the Bradley turn will have been a minor bump in the bullish road. If 12100 is cracked to the down side, a major reversal will be in play.

Week Beginning 12/24

The waters got very muddy this past week. On the bearish side of things, my daily stock market model flashed another sell signal. Before acting on that sell signal, confirmation in the form of bearish reversals in both weekly charts of the S&P 500 and the NASDAQ 100 is required. The market leading NASDAQ cooperated but the S&P 500 remains in an uptrend. The price behavior in the NASDAQ was actually quite bearish as the recent uptrend was violated after posting negative divergences on the weekly chart (view chart). By week's end the NAS was resting on important support at 1750 which was enough to turn the Trendright system from stocks to cash. Also displaying negative price action was the Dow Transportation average which tumbled through critical support at 4575 and is on its way to 4440, setting up a negative divergence with the Dow Industrials. A rally above 5014 would confirm the bull while a sell-off below 4135 would signal the beginning of a new downtrend and a likely 4-year cycle top.

On the bullish side, both my weekly and monthly market models remain positive while RPCM2 money supply is exploding (check the link above). So if the NASDAQ takes out 1750 and the Trendright system turns red, I will use any subsequent rally as a shorting opportunity. But I will keep very tight stops until my models move into negative territory and the Transports confirm to the downside.

As far as the homebuilders go, they very well may have begun a second leg down. One very bearish Elliott Wave count would indicate that the first leg down was an A-B-C correction that lasted precisely one year from July 2006 to July 2007 (view chart). That was followed by a 38% Fibonnaci retracement in both price and time (20 weeks) that looks like anything but an impulsive advance. In other words, it looks more likely to be an X correction to the first leg down than the beginning of a bull market. Those interested in shorting should consider Hovnian Enterprises (HOV) which looks particularly negative. The 50-day MA has been a very useful tool for determining entry and exit points in this stock over the last two years.

Week Beginning 12/17

Stocks continued their winning ways as the Dow Industrials broke out to new record highs. That makes the so-called major Bradley turn window of November 28 +/- 4 trading days just one more casualty of this relentless market. About the only economic indicator remaining that has a chance to stop this run-away freight train is short-term interest rates. According to my monthly stock market model, a significant break above 5.35% by the 3-month Treasury bill (currently at 5.00%) should do the trick. If that doesn't trigger the long overdue four-year cycle top then 6.00% might. T-bills above that mark have historically brought on some significant declines including the 1969-70 and 1973-74 bear markets, the 1987 crash, and the 2000-02 bear market.

Although the S&P 500 and the Dow Industrials made new yearly highs, neither the market leading NASDAQ 100 nor the Dow Transportations have thus far. This divergence should be watched closely for signs that a stock market top is forming.

Week Beginning 12/31

No newsletter this week. Happy New Years!

Week Beginning 11/05

The first crack in price we witnessed last week turned into multiple fissures this week. On Wednesday, the Dow Transportation Average, the NASDAQ 100, and the NASDAQ Composite all broke down through 3-month uptrend lines. Then on Friday the Dow Industrials followed suit. The broader S&P 500 index is the only major average of these that has yet to follow, but it ended the week resting right on its uptrend line. I am still waiting for weekly confirmation of the October 26 sell signal from the daily stock market model -- the NASDAQ needs to close below 1693 (ended the week at 1704) and the S&P must fall below 1357 (closed at 1364).

The homebuilders finished the week more negatively. The Dow Jones Home Construction Index completed a bearish head-and-shoulders reversal, penetrating the neckline at 648 on Friday (view chart), while Toll Brothers broke down through a 4-month uptrend and formed a low-volume reversal on the weekly chart. From here I would expect a little follow through to the downside from the DJUSHB -- perhaps to the uptrend line drawn on the chart followed by a bounce back up to test the neckline. That could present a very timely shorting opportunity in the homebuilders. Downside target from the head-and-shoulders is 600.

Week Beginning 11/12

All those price breakdowns of last week turned out to be mirages -- well almost all. Both NASDAQ averages and the Dow Industrials all turned up again and now trade above their bullish trendlines. Only the Dow Transports remain in a bearish configuraiton. Also looking more bearish is the S&P 500 index which is still trading below the 1389 close it made on October 26 when my daily stock market model flashed a sell signal. I would caution the bears here, however, because the NASDAQ 100 is the market leader and it is setting new cycle highs. So a new cycle high for the S&P would not surprise me. Should the NASDAQ 100 take out its January high of 1761 both my weekly and monthly models would flip to positive while an S&P close above 1389 would do the same to the daily model.

While the bulls appear to be in charge in the broader markets, the home builders are looking friendly to the bears. The Dow Jones Home Construction Index traded down to its 3-month uptrend line on Wednesday and Thursday and then rallied hard on Friday (view chart). When it gets back up to its head-and-shoulders neckline around 648, it will also be challenging the 50-day MA at which time I will be looking to enter a short position with a mental stop just north of 650.

Week Beginning 11/26

The NASDAQ 100 is closing in on its multi-year bull channel at the same time that the RSI oscillator is about as overbought as it has been over the same period. As with prior turning points, the CCI is setting up a negative divergence (view chart). We now find ourselves in a major Bradley turn window of November 28 +/- 4 trading days. My weekly model is trying to turn negative but still requires a final push upward in stocks that will drop the CBOE put/call ratio below .75 for a number of days. My daily model also demands a final push higher by the S&P 500 index -- somewhere into the 1420 neighborhood -- to switch it from positive to negative. Meanwhile the monthly model is waiting for short-term interest rates to climb above 5.35%.

I fully expect the home construction stocks to end next week with a negative reversal. We shall see...

Week Beginning 11/19

The stock market continues to defy all historical relationships, not to mention logic. The NASDAQ 100 moved into new cycle highs, closing the week at 1801, 40 points above the high set in January. That was all that was needed to move both the weekly and monthly stock market models back to a positive bent while the S&P 500 close above 1389 did the same to the daily model. This market looks heavily manipulated to me, having shaken off a total of eight monthly inflation rates above 3.60% between August 2005 and August 2006 -- levels that in the past would have triggered significant declines (e.g., March 2000 and May 2001). The latest CPI reading for the month of October has year-over-year inflation running at a paltry 1.31%, so this indicator is far from giving another sell signal. The last two Bradley turn windows turned out to be nothing but short-term hiccups that are barely visible on the charts. And the current interest rate inversion where Treasury bill rates now exceed 20-year bond rates have also thus far been brushed aside (view chart).

That said, the end of the month is shaping up to be very interesting. On November 28 (+/- 4 trading days), a major Bradley turn window will open up -- the last such event since late May which played out as important bottoms in both the Dow Industrials and the S&P 500. Though the daily model is now positive, it is just a whisker away from flashing another sell signal. The monthly model is also very close to a sell -- all that is needed is for the T-bill rate, now at 5.09%, to jump above 5.35%. The weekly model, meanwhile, relies on two sentiment indicators -- the Investors Intelligence survey and the CBOE put/call ratio. This past week the percentage of bullish newsletter writers in the survey beat out the percentage of bearish newsletter writers by 34 percent, putting it in bearish territory in my model. Now I will be watching for the CBOE put/call ratio to average below .75 for at least a week to turn the weekly model negative once again.

Also, keep in mind that although the NASDAQ 100 is at new cycle highs, the Dow Transportation Average is still trading below the high of 5014 it set in May. As long as it remains below that peak number, the Dow Transports are in bearish divergence with the Dow Industrials. And one final thought, 49 months have passed since the October 2002 4-year cycle bottom and rallies lasting more than that are exceedingly rare in history (only three since 1893).

Week Beginning 10/01

Both the Dow Industrials and the S&P 500 averages set new highs for the year, closing the week above their early May highs of 11670 and 1327. At the same time, the NASDAQ 100 managed a close above 1645 resistance. All the averages blew past the September 15 Bradley turn window, the first time that has happened all year (view chart). Now it looks like stocks could continue to rally into the October 11 (+/- 4 trading days) turn window. For the Dow and S&P 500, this means that the bull market that began four years ago in October is still intact. The market-leading NASDAQ, on the other hand, officially moved into a bear market in the third week of September. That was when its 50-day MA traded below the 200-day MA for 50 straight days. As of Friday that situation is now in its 74th day. It is the fact that the NASDAQ is trading below its January high of 1761 -- and only that -- that keeps my weekly and monthly models in negative mode.

Even bigger news, the Dow Industrials are challenging their all-time closing high of 11723 set back in January 2000, and within spitting range of the all-time intraday top of 11909. It's possible that the secular bull market in the Dow Industrials is still intact and that new highs are on the way. That is the case for the Dow Transportation Average as well as the NYSE Composite Index. Alternatively, the Dow Inudustrials could be in the process of forming a massive seven year long double top. At this point, it appears to me that the latter is the more likely scenario. While the Industrials are at new highs for the year, the Transports are trading 11 percent below their May highs so it seems more likely to me that the Transports could break critical support at 4140 and signal the end of the bull cycle. The 4-year cycle low is due in 2006 but now looks as though it will come a year late, as it did in 1987.

Toll Brothers broke out of the head-and-shoulders pattern and continues to rally. Not a good time to be short this stock.

Week Beginning 10/08

The Dow Industrials plowed its way into new closing high territory. It closed the week at 11850, just shy of the 11909 all-time intraday high set in January 2000. My daily stock market model remains positive so I see no reason why the Dow will not set a nominal new intraday high. Even if it does, this still qualifies technically as a large double-top unless there is a significant rally from here. But the averages are all getting overbought and we have entered the October 11 Bradley turn window (+/- 4 trading days) so I would anticipate a pull-back in the next week or so. At that point we will have to reassess to determine if the markets are ready to head south toward the 4-year cycle low. The next upside Fibonacci targets for the NASDAQ 100 is 1695 which should be reached about the same time as 11909 on the Dow. After that there is 1726 followed by the January high of 1761.

Toll Brothers is trying hard to get through its 150-day MA, currently at $28.48 and falling (view chart). Just north of that is pretty significant overhead resistance at $29.30 which TOL touched a couple of weeks ago. If it gets past that, the next target becomes $36.00 but an Elliott Wave analysis of the rally tells me that this is a likely place for a reversal or, at the least, a short-term retracement.

Week Beginning 10/22

On Monday the S&P 500 index made a new cycle high when it closed the trading session at 1369.1, just slightly above long-term resistance at 1366. From there it backed off slightly and then rallied back to close the week at 1368.6, once again slightly above resistance. At the same time this was going on, the Dow Industrials spent the week testing psychological resistance at round number 12000 and closed the week at 12002. These do not represent significant penetrations of important resistance and the market could just as easily reverse and head lower as climb higher from here.

The market leading NASDAQ 100, meanwhile, fell back away from resistance at 1726, closing the week down 18 points. Perhaps more significant, when the S&P 500 made its cycle top on Monday, my daily stock market model flashed its first sell signal since the one at the end of February. Sell signals from the daily and weekly models require confirmation with a weekly chart reversal from both the S&P 500 and the NASDAQ 100. That sell signal in February was not followed by reversals and proved to be a false signal 11 trading days later. To confirm Monday's signal would require a weekly close below 1675 by the NAS and 1355 by the S&P. I am also watching for the S&P to break down out of the bearish rising wedge it has traced out (view chart). A violation of trendline support should send the S&P quickly down to its target at 1290.

Week Beginning 10/15

This week I would like to discuss the recent behavior of my monthly stock market model and how in many ways it is mimicking its year 2000 action. This model went negative in March 2000 in response to its inflation component. All three major stock averages I follow (Dow Industrials, S&P 500, NASDAQ 100) fell from March into May and then recovered into late August. The technology-heavy NASDAQ was hit hardest and its recovery was slight. The large caps as measured by the S&P 500, however, rallied all the way back to challenge the March all-time highs. In fact, August 2000 was the highest closing month ever (March set a higher intra-month peak) and stands today as the highest monthly average of daily closes (1486) in history. It was in late July, though, that the interest rate component of my model kicked in with a sell signal as short-term interests rates zoomed ahead of long-term rates at the same time that a short-term interest rate "trigger" in my model was tripped at 6.10% (view year 2000 chart). Stocks topped six weeks later.

What has been occurring in the current year is similar with a few notable distinctions. My model went negative a full year ago, due once again to the inflation component. All three averages ignored the spike in inflation and continued higher. In February 2006 a second spike triggered a sell signal and this time the NASDAQ began to crumble. It wasn't until the third spike in May that the other two indices followed the leader. But as in 2006, we see the large-caps challenging the earlier peak with the Dow actually setting nominal new record highs. At the same time, we are seeing the interest rate component once again flashing red. Short-term rates have exceeded long-term rates which has never been a good thing for stocks. However, the short-term interest rate trigger -- which my model tells me is now at 5.50% -- has yet to be tripped (view year 2006 chart). Therefore, the model has not yet flashed an interest rate driven sell signal.

So now what? Well, we are currently in a Bradley turn window and my daily model is ever closer to giving us a sell signal. The NASDAQ has reached the 1726 target I laid out last week while the S&P is up against long-term resistance at 1366 as well as trend channel resistance (view chart). In addition, October 2006 is 49 months since the monthly closing low in September 2002, a Fibonacci 1.618 times the 30 months the S&P 500 took to hit that cycle bottom. If the NAS can muster a reversal on the weekly chart this week by closing under 1675, then I will be confident that the top is in place and a rather dramatic slide into late November will follow. Otherwise, the 1761 target is next and stocks are not likely to fall until short-term rates are above 5.50%.

Week Beginning 10/29

After a three month parabolic rise in the S&P 500 index, we may finally be seeing the first crack in prices. On Thursday October 26 my daily stock market model gave a second sell signal after share prices blasted through the October 16 sell. Then on Friday the S&P 500 reversed and closed below the parabolic trendline, providing sell confirmation on the daily chart (view chart). Is the top finally in? This would be a good spot, in my opinion. The S&P has now retraced a Fibonacci 79 percent of the total decline from 1553 to 769. Seventy-nine percent is 1388 and the index reached 1389 on the day of the sell signal.

Both the NASDAQ Composite and NASDAQ 100 are currently testing their earlier highs of 2362 and 1761, respectively. The Comp actually closed at a new high on Thursday before fading to 2351 to close the week. The 100 fell short of its previous high, reaching 1746 on Thursday and setting up a possible negative divergence. We see the same thing with the Dow Industrials that continues to post new highs while the Dow Transports languishes beneath its May highs. As long as the NASDAQ 100 remains below 1761 my weekly and monthly models remain on sell. For the daily model to officially move to sell, we now need to see the NASDAQ close below 1693 and the S&P fall below 1357.

The chart of the Dow Jones Home Construction Index is in a very critical situation at the moment (view Home Construction chart). Price is testing the steeply declining channel at the same time that the CCI has pushed above 100 and the RSI is testing the upper channel resistance line. The last time we saw this set-up was in January when this index began its sharp descent , and that's what I expect to see here once again. However, if price is able to break out of the channel, it would be a whole new ballgame as the MACD Histogram is posting a bullish divergence.

Week Beginning 09/03

Stocks pushed higher this week as the S&P 500 achieved the 1312 target I set last month. My daily model continues to signal that the top has not yet arrived but the chart indicates that the market is peaking (view chart). The RSI is as overbought as it has been in seven months at the same time that volume and the MACD histogram are making major divergences with price. Look for the S&P and the Dow to make a double top with their May highs and then collapse into November. The peak is most likely to coincide with the September 15 Bradley turn date (+/- 4 days).

Toll Brothers closed the bearish gap and has since been trading in a narrow sideways pattern. Usually, this price behavior resolves with a continuation of the prior short-term trend which is up in this case. A close on Friday above $26.55 would be a buy signal.

Week Beginning 09/10

Stocks meandered about, finishing the week slightly down from last week. Next week is the 13th week since the June 14 low in the S&P 500 and the 8th week since the Dow Industrials and NASDAQ 100 hit bottom on July 18. Those elapsed times are both Fibonacci numbers so we should be alert for a turn in the markets next week. Additionally, those Fib turn markers coincide with a Bradley turn date of September 15 (+/- 4 days) so I would look for the market to peak between September 11 and September 21. My target for the S&P 500 remains the May 8 high of 1327 which corresponds with a NASDAQ 100 top of 1627.

Toll Brothers continues to trade close to its 14-month downtrend line (view chart). Look for one final push up next week to that overhead resistance which is no higher than $26.80 on a closing basis, a better stop than the $26.55 number I quoted in last week's letter. A touch of the line would present an excellent opportunity for adding to short positions while a break above the line should be seen as bullish and would require closing out all short positions in this stock.

Week Beginning 09/24

All the major averages spent the week testing the resistance levels I laid out in last week's letter with none thus far able to penetrate those levels. My daily stock market timing model came within a whisker of forming a SELL signal on Wednesday when the S&P 500 set its cycle closing high. That closing high fell within the Bradley turn window of September 15 +/- four trading days so now we'll just have to wait patiently to see if that was the top.

Toll Brothers is in a 9-day consolidation that could possibly turn out to be a head-and-shoulders top. In order to qualify, share price would need to close below the neckline which is canted slightly to the right and currently sits at $26.90 (view chart). Until it breaks down, a consolidation pattern has to be viewed as a continuation of the prior short-term uptrend.

Week Beginning 09/17

All the major stock averages rallied into very important resistance levels last week. The S&P 500 moved to within two points of its May top of 1327 while the Dow Jones Industrials closed to within 60 points of its May peak of 11670. The NASDAQ 100, after falling down through its head-and-shoulders neckline at 1645, sold off a total of 18 percent from January to July. Since then this index has rallied almost all the way back to its neckline (view chart). If the S&P 500 closes above 1327, the Dow above 11670, and the NAS above 1645, the bulls will be in full control. But I think such a scenario developing is very, VERY unlikely. And here's why.

First, as the chart indicates, the market leading NASDAQ 100 is getting very overbought as measured by the RSI and both the MACD and CCI are diverging from price in a bearish manner. Second, as I pointed out last week, this past week was a Fibonacci 13th week of the rally for the S&P and 8th week for the Dow and NAS. Third, September 15 (+/- 4 trading days) is a Bradley turn date. Fourth, the 3-month treasury bill rate just surpassed the 20-year treasury bond rate for only the sixth time in 40 years. In all prior instances, this interest rate inversion led to a sell-off in equities that reduced share prices about 2 percent per month as long as the inversion lasted. The last time this occurred was August-December 2000 when the S&P 500 declined 10 percent. The only puzzle piece missing in this bearish picture is my daily stock model which remains positive but could easily turn negative in the coming week.

Toll Brothers soared to a high of $28.95 before trailing off to close the week at $28.09. This stock has now retraced a Fibonacci 38% of the January-July decline and 50% of its March-July sell-off. I believe that Toll Brothers, like the market in general, is ready to commence another long decline into November. On Friday, the chart formed a bearish shooting star. A close below $26.94 would be very bearish and a great opportunity to short. On the other hand, a close above $28.95 would tell us that the bulls are in complete control.

Week Beginning 08/06

The S&P 500 closed the week at its highest levels since May. While my daily model reached very overbought levels on Thursday, it still remains positive which means more upside is likely in the coming week. The NASDAQ 100, the market leader, meanwhile has shown to be weaker than its large cap cousin but is currently testing the 1510-1520 resistance zone. If it manages a break above those levels, it will also violate its 4-month bearish trendline (view chart). Should that occur, the bulls would be in control and all shorts should be covered or hedged. In retrospect, the July 23 Bradley turn window produced a bottom on July 18, four trading days earlier.

Toll Brothers broke out above both its 25-day and 50-day MAs and posted its strongest 2-week gain since the bear market decline began more than a year ago. Like the NASDAQ it is testing its downtrend line. A close above $28.50 would be very bullish. All shorts in this stock should now be covered or hedged.

Week Beginning 08/13

The Dow Industirals and the S&P 500 continue to trade above their 50-day moving averaqes while the NASDAQ 100 trades below its 50-day MA. This divergence has been going on for three weeks now and I see no reason why it won't continue for another two or three weeks. Just remember that the NASDAQ is the market leader so as long as it remains weak this divergence will ultimately resolve with a continuation of the four-year cycle decline. I believe that the bottom of this sell-off will not end before November.

Toll Brothers formed bearish outside reversals on both its weekly and daily charts (view chart) and closed below its 50-day and 25-day MAs on Friday. The daily chart also formed a bearish gap on Wednesday that often marks the beginning of a new leg down within a larger bear market. Volume behavior on both charts is telling us that the July 18 low of $22.22 will eventually be retested. More than likely, the low will not hold and lower lows are in store. In the short-term, volume in the daily chart indicates a loss of downside momentum so a rally is likely to begin in the next three days. I would treat all bounces at this point as selling and shorting opportunities.

Week Beginning 08/27

Stocks traded in a tight range as prices consolidated in preparation for what likely willl be a final push upward in the coming week. The NASDAQ 100 had an "inside week" where the weekly high was lower and the weekly low was higher than a week earlier. This is normally a continuation pattern and, since the short-term trend is up, it indicates more upside to follow. Next week is a Fibonacci turn week for the NASDAQ because a prior important turn occured at Fibonacci intervals over the past year or so. Those turns came 55, 34, 21, 13, 8, and 5 weeks before the coming week (all +/- one week) so I would anticipate an important top next week. That should not be surprising since major tops usually occur in either winter or summer months.

I am still waiting for Toll Brothers to close the gap at $26.47 or breach $23.82 to the down side before taking a short position. Next week I will be traveling so the newsletter will be posted late on Tuesday September 5.

Week Beginning 08/20

Stocks rallied spectacularly this week, driving the NASDAQ 100 above its 50-day moving average. What we are seeing here is a countertrend rally within a larger four-year cycle decline. For the NAS, the first leg down began in April and lasted 15 weeks. The countertrend rally will likely end next week in its fifth week, followed by a second leg down that should last 12-15 weeks, taking it into November. The chart of the S&P 500 index indicates that the countertrend rally is a 3-3-5 Elliott Wave correction with Waves A and B unfolding in three waves each while Wave C is a five wave affair (view chart). My target for the termination of Wave C is 1312.

Toll Brothers rallied beginning on Tuesday and nearly closed the bearish gap it left on the chart last week. The high this past week was $26.35, twelve cents shy of the top of the gap. Look for that gap to close in the coming week at $26.47 followed by a bearish reversal. That would provide us with an excellent opportunity to open a short position. If the gap is not closed, short only after the recent pivot low of $23.82 is breached to the down side.

Week Beginning 07/02

Stocks bottomed on Wednesday and then rallied hard on Thursday reaching very overbought levels. The NASDAQ 100 is now trading about 2 percent below its 50-day MA. A close above that level would shift the momentum to the side of the bulls. In that event, I would expect the NASDAQ to retrace back up to its head-and-shoulders neckline at 1645. Meanwhile, I remain short both the S&P 500 and the homebuilding stock, Toll Brothers, which continues to slide beneath its 25-day MA.

Week Beginning 07/09

After spending the week testing their 50-day moving averages, both the Dow Industrials and the S&P 500 indices sold off sharply on Friday and capped the week off with bearish chart reversals. The NASDAQ 100, on the other hand, stalled before reaching its 50-day MA and now rests on a short-term uptrend line (view chart). When the market leader is showing weakness then stocks are weaker than they appear. If the NAS breaks down through that trendline then the Elliott Wave analysis that appears in the chart projects the fifth and final wave of this pattern down to the 1366-1479 range, with 1450 the most likely target.

Toll Brothers once again failed to penatrate its 25-day MA and will likely resume its decline in the coming week.

Week Beginning 07/23

Stocks continued their decline this week, though not with the intensity of the prior week. The target I laid out for the NASDAQ 100 in last week's newsletter (1372-1405) remains intact and should be achieved by Thursday in the coming week.

I also expect Toll Brothers to put in a short-term bottom in the coming week. A drop into the $18-21 support zone would take it down to the channel support line in the weekly chart (view chart). If you are short this stock, take profits on most of your position if $20.40 is reached in the coming week.

Week Beginning 07/16

The NASDAQ 100 wasted little time piercing the short-term uptrend line and after closing the week at 1462 is nearing the 1450 'most likely target' I laid out in last week's newsletter. The intensity of the selling this week, however, suggests a lower target than that and with weekly chart support at 1372 and 1405, I would anticipate the NASDAQ will bottom in that range sometime in the coming week or two, coinciding with the July 18 - 27 Bradley turn date window.

In this week's chart we can see that the RSI is nearing weekly oversold conditions but that the CCI shows considerable room to the down side and the MACD histogram has yet to show a bullish divergence (view chart). This would indicate that the coming bottom will be exceeded by another nominally lower low several weeks from now, after which a counter-trend rally will take place.

Toll Brothers dropped to $23.70 per share this week, a more than eight percent decline from last week's close. This stock should face little resistance until it gets to the $18-21 range.

Week Beginning 07/30

The bulls had a good week with the NASDAQ 100 posting a solid 58 point gain (+4.0%) and the S&P 500 up 38 points (+3.1%). My daily model has now moved back to positive for the first time since mid-May. If the bulls can muster a NAS 100 weekly close above 1520 then the trend will be positive and bears will have to take heed. Volume has been tepid on this recent advance so I suspect the bears will retain control.

Toll Brothers closed above its 25-day moving average on Friday for the first time since mid-April. Normally, I would recommend taking profits here but there are two reasons why I am going to use the 50-day moving average as a stop-loss rather than the 25-day MA. First, senior editor at Schaeffer's Investment Research Jocelynn Drake reported on Friday that the ratio of put/call open interest is near an annual low. This is considered by contrarians as a sign of underlying weakness in the stock.

Second, the recent four month decline (left side of chart) looks remarkably similar to the decline from the all-time high in July 2005 to the November 2005 low (right side of chart). What happened in that prior period was the first close above the 25-day MA turned out to be a head fake followed by a collapse. However, in retropsect the initial break above the MA did indicate that the bears were getting tired because the share price traded in the November price range for three more months before the second leg of the decline began in late March 2006.

Week Beginning 06/04

Last week saw all the major averages continue with their short-term rallies. The upside targets of 1295 for the S&P 500 and 1645 for the NASDAQ 100 indices still appear to be reasonable. That would take the S&P up to its 50-day MA and the NAS back up to its head-and-shoulders neckline resistance where the 25-day MA currently sits (view chart). Also shown in the above chart is the Dow Industrials which appears to be tracing out a head-and-shoulders formation of its own. The left shoulder and head are fully formed and the right shoulder is in the making. The downside target for this pattern once the 10100 neckline is broken would be 10530. That target is consistent with Elliott Wave analysis with the decline from the head representing Wave 1 and the rally back to as high as 10450 forming a Wave 2 right shoulder. From there a normal Wave 3 decline would have as target the same 10530.

Toll Brothers moved up in a test of its 25-day MA. The decline should resume in the coming week.

Week Beginning 06/11

On Thursday the NASDAQ 100 sold off down to 1525 and change on high volume before closing the day just north of 1560. That completes the move down to the 1525 target level based on the head-and shoulders top (view chart). From here we can expect a retest of 1525 on lower volume with positive divergences in the oscillators (see chart). If this support holds then it will most certainly be followed by a rally back to the neckline resistance at 1645. Once that is completed, the markets should move lower toward the ultimate 4-year cycle low, probably in November.

Toll Brothers continued to decline this week but ended the week rallying toward its 25-day moving average. As long as it trades below that MA, this continues to be a good short candidate.

Week Beginning 06/25

My weekly model is very near signalling a buy so I would watch the 50-day MA of the NASDAQ 100 index very carefully. Any significant close above that and I would cover all short postions in large cap and technology shares. While I believe that the 4-year cycle top is firmly in place and that my target lows from last week are still very likely to be reached this year, it would not be wise to ignore a crossing of the 50-day with the weekly model this close to a buy. Better to let it turn back down and re-enter short postitions later. Meanwhile, as long as the NASDAQ is trading below its 50-day MA I remain short the S&P 500. I am also short Toll Brothers as long as it remains below its 25-day MA.

The Trendright Model has been revised and the new results are reflected in this week's chart above.

Week Beginning 06/18

After falling to 1511 (14 points below my target), the NASDAQ 100 bounced strongly on Thursday to close the week at 1563. It has now, I believe, completed 1/2 of its total 4-year cycle selloff meaning that my new downside target for the entire decline is now 1260 for this index (very near my original May 21 target of 1270) . Both the Dow Industrials and the S&P 500 also bounced strongly. The latter two averages are likely headed up to their 50-day MAs at around 11200 for the Dow and 1280 for the S&P. The first upside target for the NASDAQ is at 1615. When these averages arrive there, we will have to assess the situation at that time to determine if there is more upside potential or if another leg down is more likely.

Toll Brothers is back to testing its 25-day MA so this is another opportunity to enter a short position on this stock. I would cover with any close more than 25 cents above the moving average.

Week Beginning 05/07

This week saw both the Dow Industrials and the S&P 500 break up through the overhead resistance line of their ostensible rising wedge formations (view S&P chart). What this means, of course, is that these rising wedges were not rising wedges after all. We got our first clue of this in last week's newsletter when I warned that the high volume we were seeing at this stage of the formation was not typical of bearish rising wedges.

So what we have here is a stock market that is still firmly in the hands of the bulls. There is nothing I can see to prevent the Dow from testing its all-time high of 11700 in the coming week or two. My short-term daily model is the only one of my stock market indicators that remains on a buy signal, but that is all this freight train seems to need for now. The only hope for the bears at this point is that the NASDAQ 100 top set in January is not violated so that when the Dow races upward with the S&P 500 in tow to the 1340 area, an important bearish divergence will remain intact. Hopefully, the bears will be treated to a sell signal in my daily model at the same time the Dow is testing 11700. It would also be comforting to see this all occur within five trading days of the next Bradley turn date of May 20, listed as an 'important' one on the Amanita web site.

Meanwhile Toll Brothers is testing the low of 28 and change that it set back in February. If I'm reading this correctly, new lows are just days away.

Week Beginning 05/14

CRAACK!

That's the sound the four year cycle makes when a top is confirmed. Stocks started the week testing the highs of the prior week with the Dow Industrials posting marginally higher highs on Monday and Tuesday, bringing that average within one percent of its all-time closing high of 11727 in January 2000. It peaked on Wednesday at 11670 before selling off 290 points (a 2.5% drop) into Friday. The S&P 500 was unable to break through resistance at 1327 and, like the Dow, sold off into Friday for a loss of 37 points (a 2.8% fall).

The market leading NASDAQ 100 was ominously the weakest of all, collapsing 86 points after posting a nominally higher close on Monday. The subsequent slide took this average down a full five percent by week's end. The NASDAQ has now traced out a clear head-and-shoulders pattern with neckline support at 1645. The close on Friday at 1636 penetrated that neckline (view chart) but requires follow-through Monday to make it a clean break. Also in that chart, notice how the S&P broke briefly above wedge resistance in what can only be described as a 'head fake' and then proceeded to break below resistance of this bearish formation. It too requires follow-through on Monday.

No doubt the stock market is uncomfortable with gold above $700 for the first time since 1980, and with oil above $70 per barrel. It is probably getting nervous that Bush's disapproval rating could soon be the highest in history as he closes in on Tricky Dicky's record 66 percent. If the Dems retake the Congress in the fall, they will have the subpoena power necessary to investigate the most criminal and corrupt regime in U.S. history. And stock markets just don't like that kind of political instability.

Week Beginning 05/28

The S&P 500 dropped to a low of 1245 on Wednesday before rallying to close the week at 1280. If the four year cycle top at long last has been made, as I believe it has, then the S&P will not be able to close above its 50-day moving average which currently is in the 1295 area. What I expect to see from here is a test of the 50-day MA within six trading days followed by a failure. In that event, the S&P would have completed an 82 point Wave 1 decline, followed by a 62% Wave 2 retracement. The Wave 3 decline to follow would typically take this average down 133 points to the 1165 area, my Wave 3 target. At the same time, the NASDAQ 100 should climb from its low of 1555 on Wednesday back up to neckline resistance at 1645, and then on down to 1375 as I see it at this time.

Toll Brothers fell to $26.46 and then rebounded to close the week at $29.08. My expectation is that the 25-day MA will limit upside price moves in this stock as the second leg of decline unfolds, much like it did during the first leg of decline. The 25-day MA currently stands in the the upper $29 range, and is falling.

Week Beginning 05/21

From its cycle high of 1750 in April, the NASDAQ 100 has fallen 10 percent, breaking down through its head-and-shoulders neckline at 1645. The target low from this formation is 1520-1540 and on Friday it was already down to 1576 before a small bounce set in. I suspect that we could see prices push higher in a retest of the neckline before the ultimate target of this first wave down is achieved. The high CBOE put/call ratio is suggesting that there are too many traders gaming this on the short side -- probably because of the obvious head-and-shoulders pattern -- and that these short sellers have to feel enough pain to abandon their positions before prices can head lower.

The bearish rising wedge formation that the S&P 500 index traced out these last five months has been decisively violated as the S&P sold off more than five percent in just eight trading days. This formation establishes a target low of 1175, which corresponds with a NASDAQ bottom of 1435. The second leg of the decline should achieve these and more, with targets of 1105 and 1380 more likely at this point. The third and final leg will probably take the S&P to the 1060 level and the NASDAQ 100 to 1270 by Thanksgiving.

Week Beginning 04/02

While the NASDAQ 100 continues to build its head-and-shoulders pattern and Toll Brothers may be on the brink of a Wave 3 decline, stocks thus far refuse to crack to any significant degree. With April 3 and April 11 the next two Bradley turn dates, it may well be that one of them triggers a momentous correction in stocks.

April is traditionally a month where valuations recede rather precipitously over a single week's time -- in 2003 and 2005 the NASDAQ 100 slid 7 percent in the 2nd week of the month while 2004 saw a 7 percent decline in the 4th week. A 7 percent fall from Friday's level of 1704 would carry the NAS to 1585, well below the neckline support at 1645, after which we would expect a bounce back up to the neckline before price falls to the head-and-shoulders target of 1525.

My weekly and monthly stock models have rattled off a string of sell signals these last few months that have been more or less ignored by the stock averages. Notice in this weekly chart of the NASDAQ 100, however, that a cluster of sell signals surrounds the recent head-and-shoulders formation (view chart). Out of curiosity I went back to see how the market reacted to prior occasions when both weekly and monthly sell signals arose in the same month. The short answer is badly. The last three such occasions fell in March 2000, January 2001, and January 2002. Each in order triggered a NASDAQ sell-off of 34% in one month, 44% in three months, and 50% over nine months.

Editorial note: the final monthly sell signal in the above chart is erroneous -- never happened.

Week Beginning 04/09

The uptrend in stocks remains intact. There are cracks, though -- as long as the NASDAQ 100 remains below 1761 it continues to trace out a bearish head-and-shoulders formation, and the Dow Industrials index may have just violated its recent short-term uptrend (view chart). Furthermore, as noted in last week's newsletter, April is notorious for one-week downdrafts. But for the time being the bulls remain precariously in control.

Meanwhile, the great bull market killer -- inflation -- is rearing its ugly head. The CPI inflation rate has been hovering in the 3.00 to 4.00% area where stocks often respond with a significant sell-off. And if gold and treasury bonds are to be believed, inflation will continue to rise.

Cash gold is pushing $600 per ounce -- prices that haven't been seen since 1980 when gold reached its blow-off top of $875 per ounce. In response T-bonds are threatening to break out above 5.00%. But even more telltale, the inflation adjusted long bond is threatening to drop into negative territory -- a sure sign that inflation is overheating and something that has not been on the radar screen since the turbulent 1970s.

Week Beginning 04/23

As anticipated, Toll Brothers bounced off of its 50-day moving average and closed on Friday right at the 20-day MA (view chart). After falling out of the bearish rising wedge formation, TOL dropped to $31.57 early this week and then worked its way back up to $34.37 on Friday. That completed a 62.5% retracement of the decline from the March peak of $36.05 -- very close to a perfect Fibonacci 61.8%. I am confident that a new leg down to the $30.60 target is imminent.

The S&P 500 reached 1310 this week. Next week I will present a chart that shows how this stock average has now completed a five-wave bearish rising wedge of its own. A close below 1290 will most certainly mean that the elusive 4-year cycle top has finally been completed. Meanwhile the market leading NASDAQ 100 appears to have made its cycle top in January and continues to trace out a bearish head-and-shoulders pattern. On Friday that stock average made a very bearish key reversal and is very likely to reach the 1645 neckline support sometime next week. Once that support is violated, the next target is 1530.

Week Beginning 04/16

This week I will focus entirely on the homebuilding stock, Toll Brothers. Regular readers of this newsletter are aware that I believe the housing bubble burst in July 2005. The homebuilding stocks as a group came under manic buying pressure in March 2000 just as air was being let out of the NASDAQ technology bubble. By the time it peaked, the housing stock bubble had reached valuations that exceeded the maniacal levels achieved by the NASDAQ averages.

The panic selling in the homebuilding stocks should unfold in three waves -- one down, one up, and another one down. In Elliott Wave, these are labeled as primary A-B-C waves. The first down wave (A), I believe, completed in November after four months of decline. Six months later it appears to me that Wave B has now completed. As I indicated in the chart from (March 26), Toll Brothers looks to be tracing out a running Wave B correction that itself breaks down into minor a-b-c waves. In a running correction, Wave c would terminate at a lower price than Wave a.

In the daily chart, we can see that Toll Brothers has just wrapped up a five subwave Wave c sequence that terminated in a 5-wave bearish diagonal triangle which broke down this week (view chart). From here price is likely to bounce off the 50-day MA and retrace to the 20-day MA before collapsing to the $30.60 support target. After that, look for 6-10 months of decline down to the $10 level.

Week Beginning 04/30

Last week I jumped the gun when I said that the S&P 500 index completed a five-wave bearish rising wedge. Upon further review, it is still in the process of tracing out that five wave pattern as this chart makes clear (view chart). Per my Fibonacci analysis, the 5th and final wave could very well terminate at the end of the coming week with the S&P 500 topping out right around the 1325 area. That would make this index overbought enough to trigger a short-term sell signal in my daily stock model.

Likewise for the Dow Industrials, which could terminate a similar bearish wedge at the end of the week somewhere between 11500 and 11600. That puts it close enough to the all-time high of 11700 set way back in January of 2000 to form a long-term double top. Interestingly, if we take March 2003 as the starting point of the current cyclical bull market it will have been 38 months from top to bottom (January 2000 to March 2003) and 38 months again from bottom to top (March 2003 to May 2006).

One word of caution. The volume spike in the S&P 500 at the end of last week, even more pronounced in the Dow Industrials, is not typical of a rising wedge. Normally the orthodox top (point 'a' on the chart) is where volume is highest, tapering off as the pattern develops. This surge in volume may indicate that a blow-off top is in the making. It is probably safest to short the large cap indices only after the wedge support line is violated.

Week Beginning 03/05

In spite of solid evidence that the economy -- led by a stagnating real estate market -- is forming a peak here, the stock market continues to climb ever higher. But, I suspect, not for long. March 8, next Wednesday, is the next Bradley turn date on the horizon and with markets trending higher is most certainly going to be a top. The NASDAQ appears to be signalling just that in its chart which is building a clear head-and-shoulders pattern (view chart). Be forewarned that when a pattern develops as clearly as this one has thus far, too many investors take note and the formation invariably disintegrates. Nevertheless, keep an eye on this one because it suggests that the NASDAQ will soon fall to the 1520 level -- a 10% drop from the current price.

Notice also in the lower portion of that chart above a Fibonacci count that shows next week to be a likely top. The way this works is that a Fibonacci turning point is a Fib number (3, 5, 8, 13, 21, 34, 55, etc.) away from prior market turns. In this case, next week is clearly separated from prior market turns by the first six Fib numbers (3 through 34).

Toll Brothers is still in a counter-trend rally and based on what I am seeing in the NASDAQ, is likely to top out between 34 and 36 dollars per share.

Week Beginning 03/12

The Dow Industrials sold off into the March 8 Bradley turn date and after forming a short-term bottom appear to be ready to test their recent highs. The NASDAQ 100 sold off as well, closing right at the head-and-shoulders neckline on Thursday followed by the beginning of a bounce on Friday (view chart). How far this bounce will take the NASDAQ only time will tell. My suspicion is that it will move at least up to resistance at the 1675 level, but fail to break above the 50-day moving average. When it turns south again, I would expect prices to crash through the neckline and make their way down to the 1520 level.

The force that is likely to drive stocks lower is rising long-term interest rates. Looking at the weekly charts of the 10-year yield (TNX) and the 30-year yield (TYX), it appears to me that both left breakaway gaps this week, suggesting that much higher yields are on the way. The 10-year yield in particular looks strong (price looks weak), as it managed to break out above the key resistance level of 4.69%.

Week Beginning 03/26

The NASDAQ 100 continues to trace out a head-and-shoulders pattern with a single left shoulder and a double right shoulder. Until the neckline at 1645 is breeched, stocks must be considered in an uptrend and still bullish. My daily model of the S&P 500 is suggesting that another run at the recent highs is in the cards.

Meanwhile, Toll Brothers appears to be working on what is referred to as a running correction in Elliott Wave vernacular. This is a 3-3-5 flat correction where Wave C completes at a lower level than Wave A, which is the way I have labeled this week's chart (view chart). More than likely, the white candle from two weeks ago terminated Wave C of the Wave 2 correction because it was the 34th week since the July 2005 top where the Wave 1 decline began. 34 is a Fibonacci number and a market turn should be expected there. It is also interesting to note that Wave 1 and Wave 2 as I have defined them each took 17 weeks to unfold. If that wave count is correct, this week should see a hard move down as Wave 3 unleashes its destructive energy.

Week Beginning 03/19

So far the NASDAQ 100 has been tracing out a double right shoulder, much as I had anticipated in the March 5 newsletter (view current chart). Seasonally, lows are typically formed in the first two weeks of April so with Bradley turn dates of April 3 and April 11, I would anticipate that the neckline in the above chart will be violated with at least a short-term buying opportunity between those two dates.

From a longer term perspective, the monthly chart shows important resistance/support at 11000 for the Dow Industrials and 1280 for the S&P 500 index. Currently both averages are trading above those levels so it is critically important to the bears that they not close the month of March above support. Otherwise, we are likely to see the S&P trade up to the 1370 resistance area while the Dow is testing its all-time highs from January 2000.

The 10-year note formed a bearish reversal on the yield chart while the 30-year bond did not. The 10-year closed the week at 4.67% -- right in the 4.66-4.69% support level. We will have to watch and see which of these two yields will take the lead here. I suspect it will be the 30-year bond which means that long-term rates are headed higher and stocks lower over the next few weeks.

Week Beginning 02/05

The bears took back control this week, particularly regarding the market leading NASDAQ 100 index. That stock average not only closed once again below its 50-day MA, but it also gapped lower on Friday -- which is bearish all by itself -- and crashed through its four month long bullish uptrend line (view chart). If the four year cycle top is finally in place, we should now anticipate a decline that takes us into the first week of April.

Toll Brothers also experienced a very negative week. It closed below support at 33.75 after unsuccessfully testing its 50-day MA from below. What was suport is now reisistance and if the second leg of the big decline has begun, this stock will be unable to penetrate that resistance level and will not see north of the 50-day MA until the second leg down completes. That should take this stock down into the $10-$12 range, highlighting the bursting of Bubble II (Bubble I was the high tech mania led by NASDAQ, Bubble II is the housing bubble).

Week Beginning 02/12

Stocks remained in the control of the bears this week as both the NASDAQ 100 and the S&P 500 averages continued to trade beneath their 50-day moving averages. If you're short Toll Brothers, consider covering should this stock fall to the $27 level over the next week or so. My Elliott Wave count shows TOL to be in the 4th wave of a larger Wave 1 with one more wave down left (view chart). The target for the termination of the larger Wave 1 is $26 and change. After that is completed, look for a Wave 2 bounce back up toward the 50-day MA, currently around $35 per share. The completion of a Wave 2 will present a very profitable entry point for another short position.

Week Beginning 02/26

The bulls are determined to put off the 4-year cycle top as long as they possibly can. This past week saw the Dow Industrials set yet another cycle high while the S&P 500 is testing the 4-year cycle peak it set in January at 1295. The year 2006 is supposed to be the 4-year cycle low, the last one set in October 2002. This cycle is shaping up to look more like the 1998 top that came in July and sold off into October for a quick and violent 22% correction.

While the large cap indices are pushing toward new cycle highs, the NASDAQ 100 is struggling below its 50-day moving average. As long as it remains below that MA, the bears are in control because the NASDAQ is the market leader and new highs in the large caps represent a bearish divergence. Looking at the chart, it appears that the NAS is already in its 4-year correction. The first wave down took it to 1635 and a 50% retracement would carry it back to 1700, slightly above the 50-day MA. A close above 1700 would tip the balance in favor of the bulls.

Toll Brothers stopped short of my $27 target, bottoming at $28.70 per share. It then rallied back to its 50-day MA on high volume, thanks in large part to a buy recommendation from Barron's last week. After posting its strongest week since June of last year, Toll Brothers looks as though it may close above its 50-day MA at $34.50 and test its 200-day MA which is in the $40-45 range.

Week Beginning 02/19

The Dow Industrials broke out to new cycle highs this past week while the S&P 500 is within one day's rally of doing the same. Amazingly, the Dow is a mere 5% away from the all-time record high of 11750 it set back in January 2000. The S&P 500 is, of course, a more bearish 17% below its March 2000 record of 1553. More importantly, while the Dow is setting new cycle highs and approaching its all-time record, the market leading NASDAQ 100 languishes a full 65% below its record high, and is still 5% below its January 2006 cycle high. Currently the NASDAQ is struggling to scale its 50-day moving average, setting up a bearish divergence. As long as the NASDAQ remains below its 50-day MA, the bears are in control.

Toll Brothers is following the projection I laid out last week. On Friday this stock completed a bearish reversal on the daily chart (view chart) so my expectation going forward is that Toll Brothers will fall to the 26-27 level over the next week and then form a bottom that will be followed by a run up to the 50-day MA and provide another exellent shorting opportunity.

Week Beginning 01/01

All year long I have been looking for a 4-year cycle top to form in the stock market. After a couple of false starts late in the year, it now looks as though the December 14 peak is all she wrote for the bulls. That top coincides with a major turn in the Bradley Model on December 16 (+/- 4 days) and with a solid negative alignment by all five of my market timing models. The last one to fall into place was the daily model which went negative precisely at the December 14 peak two weeks ago.

The S&P 500 index has now broken down out of a bearish rising wedge formation (view chart) and should rather quickly fall to the 1225 support shown on that chart. From there we should see a bounce back up to the 50-day moving average. If the 4-year cycle top is in, the S&P 500 should fail to break above the 50-day MA on that test and then fall toward the 1000 level, the first target for the 4-year cycle bottom that is due sometime in 2006. The most likely spot for that low would be October 2006, though it is quite possiible due to the late start of the decline (more than three years after the October 2002 bottom) that the 4-year bottom will not arrive until 2007.

Toll Brothers tested its 50-day MA from below this week and was unable to penetrate it. It is now selling off and I believe that a Wave 3 (or a Wave C) decline has begun. Statistically speaking, this leg down tends to be the most powerful of the overall decline.

Week Beginning 01/08

It's weeks like this past one that remind us that the stock market can do anything at any time. In the face of a plethora of negative technicals, fundamentals, and sentiment indicators share prices pushed to still new cycle highs in both the NASDAQ and the S&P 500 while the Dow Industrials are testing resistance at the March 2005 high (view chart).

The four year cycle is now in its 39th month and long overdue for a top. Since 1915, fully 1/2 of all four year tops have occurred in the winter months of December, January and February. This month is what is known as a Fibonacci turn month because within +/- one month it is three months from the October 2005 low, five months from the August high, eight months from the April low, 13 months from the December 2004 high, 21 months from the March high, 34 months from the important March 2003 low, and 55 months from the May 2002 high.

Week Beginning 01/22

Those bearish candlestick patterns on the weekly charts that I discussed last week were all confirmed this week as stocks sold off sharply on Friday. Two of those charts have been updated this week, the NASDAQ 100 and the Dow Industrials (view chart). The NASDAQ chart shows a perfect evening star bearish reversal pattern where prices gap higher following a large white candle and form a spinning top, then gap lower and reverse to the down side. A similar pattern was formed on the S&P 500 chart (not shown).

For the Dow, its large white candle from three weeks ago was followed by a doji two weeks ago that failed to penetrate the 10980 resistance line established by the March 2005 top. This past week the Dow demonstrated extreme weakness by closing 33 points below the 10700 support. Both the NASDAQ and the Dow formed bearish divergences between price and the CCI oscillator and should now sell off until the CCI, currently in positive territory, reaches oversold levels around -200 as it did last April. For the Dow, that suggests a retest of last year's low at 10,000, a correction of nearly 10 percent. At the same time, the S&P 500 should test support at 1175 and the NASDAQ 100 should decline to the 1520 level.

Toll Brothers completed a bearish shooting star reversal pattern and is trading once again below the 50-day moving average. Price should now decline to support at 21 1/2.

Week Beginning 01/15

At the risk of sounding like a broken record, both the weekly and daily models gave a sell signal this week. Once again all of my stock market models are negative -- this time aligning with another Bradley turn date due January 16 +/- 4 days. The daily model gave a sell on Wednesday which falls within that Bradley turn window.

From a purely technical charting point of view, the weekly charts may be telling us that at least a temporary top is in place as all the major averages formed either a doji or a spinning top candlestick formation while Toll Brothers ended the week with a shooting star formation (view chart). Looking at the chart we can see that both the market leading NASDAQ 100 and the S&P 500 averages left behind spinning tops this week. These charts would become bearish if the markets gap lower on Monday and continue lower for the week, establishing what is known in candlestick circles as a bearish Evening Star formation. As for the Dow Industrials average, it formed a doji which indicates great uncertainty among investors and often indicates a turning point. The Dow gave all it could to penetrate overhead resistance at 10980 but fell back and ended the week 20 points below that level.

Meanwhile Toll Brothers, the large home construction stock, formed a shooting star this week. If this is followed by a selloff next week, that could mark an important turn in prices much like the shooting star formation that formed at the market top back in July 2005.

Week Beginning 01/29

The bulls fought back this week, pushing both the Dow and S&P 500 averages near recent cycle highs, while the market leading NASDAQ 100 was able to gap above the 50-day MA on Friday. The fact that the NASDAQ looks the weakest of the three averages should be encouraging to the bears who, as a general rule, should short this market when and only when the NASDAQ is trading below its 50-day MA.

Because the market is moving higher into a Bradley turn date, we can anticipate that stocks will move into at least a short-term decline beginning some time in the coming week. As long as the NASDAQ continues to trade within its 10-month long bullish channel the downside potential will be quite limited (view chart). But since the NASDAQ is forming a negative MACD histogram divergence at the same time that an evening star candlestick reversal pattern appears on the chart, it is more likely that an intermediate term correction is underway and that the elusive 4-year cycle top is in place -- at least in the NASDAQ. That proposition would be confirmed only if the index breaks down out of that up channel.

Meanwhile, Toll Brothers continues to trade below its 50-day MA and is in an intermediate term decline, making it one stock that is bucking the overall trend and a notable exception to the trading rule I posted above.