Market Insights™

Week Beginning 12/06

No newsletter due to travel.

Week Beginning 12/13

To say that this market has been a nightmare for position traders these past five weeks would be an understatement. The S&P 500 has been oscillating in a narrow 2.8% range and has no fewer than six touches with the 1087 support line (view chart). The more times it tags this level the more likely the S&P will break out to the upside. I am long stocks with a daily close above 1110. The bearish case can be made by looking at this VIX chart. It suggests that stocks are in a topping process and that the formation in the first chart is a complex head & shoulders pattern. I am short with a close below 1087. Inside this narrow range the nimble can take a scalp here and there.

Gold finally took a breather and should, at minimum, pull back to the uptrend line in this gold chart. I suspect the trendline will be broken and gold will fall to support at $1025.

Week Beginning 12/27

My take on the stock market is unchanged from last week.

Week Beginning 12/20

This market with its persistent high level of bullish sentiment is reminiscent of the July 2007 stock market. Back then stocks had to sell off a little over ten percent to bring the bears out of hibernation. In this first chart, the number of bullish newsletter writers minus bearish newsletter writers is shown in the boxes leading up to the minor correction and we can see that it remained persistently high for a fairly long period. At the bottom the bulls minus bears fell sharply. Then the market rallied to a double top and another highly bullish reading, after which the serious selling began, taking stocks down twenty percent between October and March 2008.

In this second chart we can see persistently high bullish sentiment once again. Will we see a replay of this scenario? Not exactly. But I would not be at all surprised to see the market rally into January, then sell off into the March Bradley window. The real selling will not likely begin until after the rally from the March bottom is completed. Stay bullish as long as the S&P trades above the middle channel line, bearish below it.

Week Beginning 11/01

With the closing of the Bradley window, it is clear that a short-term to intermediate-term top is now in place. The Bradley turn date was October 22 and the Dow peaked intraday on October 21, falling nearly five percent in seven days. Monday is a Fibonnaci eight days of decline and I expect the market to put in a short-term bottom. That should be followed by a rally into the major Bradley turn date of November 9. My projection going forward looks like this.

In concert, gold and eurodollars are sinking so I have hedged those investments so that they are equivalent to a US dollar cash position.

Week Beginning 11/08

The market is rallying into the November 9 Bradley turn date as anticipated. I expect stocks to continue to generally follow the projection I laid out last week (updated here). In other words, look for a top early this coming week followed by a sell-off to the August lows. At that point, stocks should rally sharply based on sentiment readings from the AAII weekly survey of US retail investors. That survey shows a ratio of bulls to bears at the lowest point since February 19, just 2 1/2 weeks prior to the beginning of the explosive March rally.

Week Beginning 11/22

The Dow made a nominal new high after the Bradley window shut tight so I am at a loss to determine whether the November 9 major Bradley will play out as an important top or bottom. Going back ten years all Bradley turn dates fell within four trading days of a significant turn in the Dow Industrials. Not this time, though. A bottom formed on the chart on November 2, five trading days before November 9. Then a top formed on November 17, six trading days after the 9th.

My gold timing model has now moved back to buy this month so I am once again net long in gold and Euros. There may be an opportunity to add longs since gold is bumping up against channel resistance on the weekly chart.

Week Beginning 11/15

The Dow Industrials made a cycle high of 10306 on Wednesday within the November 9 Bradley turn window that opened on November 3 and closed on Friday the 13th. We should now see some sort of tradeable decline in the stock market. Switching gears to the S&P 500 which may be putting in a double top reversal, I am maintaining my target low of 980, in spite of this average exceeding my target high for last week.

It is interesting to note that the double top (thus far) is being made precisely at the point where the S&P 500 gapped lower last October en route to the worst week of the bear market decline that began in October 2007. That was the week that the S&P and Dow Industrials collapsed 23.5 percent and 24.7 percent, respectively. The gap formed at the 1098.14 close of the prior week and has posed formidable resistance for over a month (view chart).

My houry indicators were green at the close on Friday so I would expect another pop above 1100 on Monday. My game plan is to short any price between 1100 and 1105 and to cover with a daily close above 1101.4; I am long with a close above 1105.4 on the daily chart.

Week Beginning 11/29

Not much has changed from last week (as I write this on Thursday night). The only new observation I have is that gold looks as though it wants to go parabolic to the upside. Buy on the dips would be my recommendation.

Next week I will be traveling so no newsletter. It is likely I will be traveling through December 15 so you are not likely to hear from me until thereafter. Traditionally, the weeks from Thanksgiving to New Years Eve are good for the stock market but this year has been anything but traditional. With the VIX now under 21 I am looking to go short.

Week Beginning 10/04

No newsletter due to traveling.

Week Beginning 10/11

I remain 60% long in my trading account but that may change very soon. The number of Dow stocks above their 50-day MA ([$DOWA50R] ) has been falling for some time, something that often precedes a sell-off (as it did back in June). In addition, negative divergences abound with stocks pushing higher but the RSI and money flow lagging (view chart). Notice also in that chart that the mid-September Bradley resulted in a minor pullback. Another Bradley turn window opens up this coming Friday October 16 and closes October 29 and I expect the sell-off to be more significant this time around. I will be looking for the ultimate top or a secondary top during those trading days, one that should take stocks down at least 15 percent.

Week Beginning 10/25

The stock market is in a distribution topping process as we pass through the Bradley turn window of October 16 to October 28. That window shuts on Wednesday and should coincide with a top in the market which probably was the 10119 peak in the Dow Industrials last Wednesday. It's always possible, of course, that the market could rally into Wednesday this coming week and make a nominal new high.

My Elliott wave count off the March low shows a distinctive A-B-C corrective pattern which suggests that last week was the end of the bear market rally for now (view chart). Going forward, I anticipate a minimum sell off of 15 percent, and expect the bottom to come in March 2010 followed by a final leg up into August before all hell breaks loose.

My trading in the near term will generally be guided by the zones outlined in this chart. My hourly indicators are solidly red while my daily indicators are mixed. My daily and monthly stock market models are on sell and my weekly remains on buy. Together with the Bradley turn date, the Composite Cyclical Indicator has now gone to SELL (I finally got around to updating this indicator after several months of neglect).

Week Beginning 10/18

No newsletter due to traveling.

Week Beginning 09/06

It looked as though the bears were taking control of the stock market early last week but by Friday the bulls were able to close the NASDAQ 100 above the critical 1633 level and once again appear to be dominant. The question is for how long with many of the major averages facing important long-term resistance, including the NASDAQ Composite, S&P 500, and the financials, to name just three. A minor Bradley window opens up on Wednesday and runs to Thursday of the following week so I would look for either a double top or a run to nominal new highs in the major averages over the next few days before stocks decide to sell off.

Whether the NASDAQ 100 moves to new highs or not becomes very critical from an Elliott wave standpoint. The wave count that I was carrying through the month of May this year is shown in this chart in purple. When the NDX rallied to a new high in June, I began to have serious doubts about that count because wave 4 rallies rarely retrace more than 38 percent of an extended wave 3 and in June the NDX was closing in on 50 percent. The new highs in July, however, made the green count the preferred one as the NDX exceeded 50 percent and reached 62 percent in both price and time in August. If the NDX closes above 1669 (it hit 1668 last week) then the purple count would be eliminated by Elliott wave rules regarding overlap of wave 1 by wave 4. That would open the door to a very extended move that could take us into August 2010 in an A-B-C countertrend rally. That would probably mean that a down B wave is imminent that could see the NDX fall as low as 1265ish before moving higher in a final wave C. We shall see.

Week Beginning 09/13

Now that the NASDAQ 100 has closed above 1669, the debate over the Elliott wave count I discussed last week has been settled in favor of the bulls and the green count in last week's chart has emerged the victor. What this implies about the future is that a 62% retracement (to NDX of 1775) of the five bear waves that began in October 2007 and completed in March 2009 is very likely, although it could take some time to get there. With the immediately more bearish wave count out of the way, the door is open for the stock market to continue to mimic the 1930s bear market, as displayed in this chart. If so, the market is close to a top that should take it lower into March 2010, followed by a rally to a double top or marginal new highs in August 2010.

In the near term, my hourly indicators have turned red so I closed out of my longs and will look for shorting opportunities in the coming week. The down side at this time appears limited as my daily indicators remain largely in the green.

On a weekly basis, gold made a record high this week finishing Friday at $1007.70. It is only the second weekly close above $1000 in history, the last one occurring in February at $1002.20. Interestingly, this is happening at the same time my gold timing model has moved into negative territory. This model is not very precise in its timing so as long as the charts remain bullish I will keep the gold indicator to the right on "Positive". By the way, my gold model went positive in September 2001 and stayed that way since except for a one-year negative reading beginning in mid 2006. In the current deflationary environment it should not be surprising to see gold retrench somewhat but the fact that it appears bent on breaking out above the $1000 level may have more to say about the falling U.S. dollar and the potential for a currency crisis.

Week Beginning 09/27

Last week we took a look at the CBOE put/call ratio [CPC] and how it is suggesting that the market is close to but not quite at a significant top. This week the equity only (index options not included) put/call ratio [CPCE] is suggesting something similar (view chart). Notice first how the 20-day MA has reached a level not seen over the last three years. Low numbers mean fewer put options are being purchased relative to call options and since this is a contrary indicator then lots of bullish investors are telling us to be on alert for a market top. Notice also that the 20-day MA is equal to the 50-day MA. In the past, after the 20-day MA falls to a low level and then moves high enough to cross well above the 50-day MA, the bottom in the 20-day MA typically marked a significant sell signal (pink S) for stocks.

Going forward, I am trading the market based on the Bullish, Bearish, and Neutral zones depicted in (this chart) . My indicators are almost a mirror image of last week's with the longer term ones nearly uniformly red and the hourly ones flashing green. So this suggests a short-term move higher and then a reasonably strong (~15 percent) correction may be in the offing. Next week I am traveling so it is doubtful I will find time to post a new letter. Best of luck trading.

Week Beginning 09/20

On Monday my hourly indicators moved to green after just the slightest of pullbacks, prompting me to go long in my trading account. As of the close on Friday these indicators were mixed while the daily indicators remain bullish. Based on this I continue to look for a tradeable short-term decline but as long as the daily indicators remain green I would expect the selloff to be shallow. I suspect a significant top will not appear until the VIX moves down about another five points (currently at 24). The red circles represent important tops in the S&P 500 while the green circles were good opportunities to buy (view chart). Notice how the green circles are now forming in the 30 area as they were back in late 2007 through mid 2008 which suggests that a significant top will not form until the VIX falls to the 19 level. That could be at least two weeks away.

Week Beginning 08/02

The NASDAQ 100 hit my expected target of 1633 before retreating to 1603 while the S&P slightly exceeded my 993 target by four points and then closed the week at 987. Unfortunately for the bears, the monthly chart left a bullish candlestick on all the major averages like the one shown on the S&P 500 chart (view chart). As you can see, five others were printed over the last twelve years and in every case prices rallied higher the following month. About the only hope the bears have is that a nominal new high is made next week followed by a steep selloff, kind of like the one in 2001. Remember, though, that the NDX cannot exceed 1668 without obliterating the wave count I gave last week and opening the door to very bullish possibilities.

One thing that occurred this week that I believe has the potential for sending share prices lower is that the US dollar broke critical support on the daily chart (just barely) and could lead to what I have been anticipating would be the other shoe to drop -- a dollar crisis that leads to substantially higher interest rates in order to attract continued foreign purchases of US treasuries. The April 20 candle that I circled in the chart marks the financial turn date predicted by Martin Armstrong's Economic Confidence Model that I discussed back in May. Looking at the monthly chart we can see that major support was violated in May followed in July by a take-down of the 1992 pivot low.

Week Beginning 08/09

I read a fascinating article this week written by Precision Capital Management entitled A Grand Unified Theory of Market Manipulation. To summarize, the authors explain that the Federal Reserve Bank of New York (FRNY) began conducting permanent open market operations (POMO) on March 25, 2009 wherein the FRNY issues in a single day $1.5-7.5 billion to banks and other large players who turn around and pump this money into the securities markets. They found that the stock market behavior on the 42 days where POMO was conducted were almost mirror images of the 32 days where there was no intervention (view chart). As you can see in the chart, the POMO days were characterized by those all too familiar last hour ramp jobs in equity prices.

They find it to be no coincidence that the June correction in the stock market was accompanied by a rally in both the bond market and the US dollar and a sell-off in gold because they believe the Fed desires to see higher stock prices, low interest rates, and a strong dollar but lacks the resources to attack all markets at once. After they pump the stock market above important resistance levels, investors take over and carry prices higher. Then the Fed commits resources to strengthening the dollar by selling Yen and Euros and gold, and to lowering interest rates by buying treasuries (the authors point out that the FRNY has large holdings of gold and exactly two currencies, the Euro and the Yen).

So what does Precision Capital see going forward? First of all "the juggling act required to ramp both equities and Treasuries is unprecedented in both consequence and complication. In the end, we have low expectations of success." In addition, they mention in the article and explain more thoroughly on their web site that the Fed is whipsawing M2 money supply in a fashion that increases the "likelihood of a large stock market correction or crash into the third week of October...that even record POMO operations and other innovative FRNY machinations may not be able to avert." We shall see.

As for my market models, the daily has just given a sell signal and the the weekly is just a whisker away from doing the same. The monthly went negative in June but the July POMO rally wiped that out. I fully expect to see a long overdue pullback of significance begin in the coming week. The large cap indices posted new highs this past week but the NASDAQ 100 was unable to push above 1633. Nasdaq is the market leader so this relative weakness is what we would expect to see at a market turn. The US dollar appears to be trying to put in a bottom as $USD closed above the 78.39 resistance and should test 79.12 in the coming week -- a significant bottom will be in place if it can clear 80.80. Until a full-fledge dollar crisis develops, the usual pattern of the past year is for stocks and the dollar to move in opposite directions.

How low the market goes in its next sell-off depends on whether the current rally is a cyclical bull market or a counter-trend bear market rally (I lean toward the latter). To my knowledge, there has only been one market rally of the magnitude of the one we are experiencing right now that turned out to be a bear market rally. That one took place nearly eighty years ago and the similarities between the two are remarkable. The 1633 level on NDX looks key so I plan to go all in long if that level is breached and all in short if 940 on the S&P 500 is broken to the downside. Meanwhile, I will be swing trading should the opportunities arise with the remainder parked mostly in cash and some gold/euros.

Week Beginning 08/23

The bulls pushed the Nasdaq 100 above my line in the sand at 1633 so I am now net long 60% and will swing the other 40% between cash and stocks (trading portfolio) as long as 1633 holds. The picture continues to be quite murky so I will rely on my lines in the sand for trading purposes -- above 1633 net long, below 1633 largely in cash, below 1565 net short.

A bearish argument can be made based on the FXI leading indicator I discussed last week to which I have added trendlines (view first chart ). At the beginning of the March rally the FXI made a bullish divergence from the S&P 500 and it broke up through the bearish trendline eight trading days earlier than did the SPX. Now the FXI is making a bearish divergence and it busted its bullish trendline five trading days ago. Another thing that looks bearish is the behavior of the CBOE equity put/call ratio in the second chart. On Friday as new highs were being made this contrarian indicator fell to .39, its lowest level of the year and may be signaling that an important top is forming.

The coming week will be extremely critical for determining if the last five months was simply a bear market rally or a new cyclical bull market (within a secular bear). If the bears cannot push the SPX below 992 by Monday August 31 this index will close above its 13-month MA for the first time since December 2008, signaling a new cyclical bull market as illustrated in the third chart. Notice that I have a new more bullish (for now) Elliott wave count in that chart presuming that we are currently in a cyclical bull market. If that is the case, my upside target for this leg of the rally would be 1180 based on the projection in the fourth chart. I suspect that if this is a cyclical bull, we could very well be looking at a 17 month up market to match the 17 month down market from October 2007 to March 2009 and a 62% retracement that would carry the S&P to the 1260 area.

Speaking of secular bear markets, they have averaged 13.6 years since 1800 while bull markets have averaged 18.2 years. The last secular bull from July 1982 (the inflation-adjusted low based on monthly averaged S&P 500) to August 2000 (the inflation-adjusted top based on monthly averaged S&P 500) lasted 18.1 years -- very nearly on the average. If the secular bear lasts the average 13.6 years the final bottom would be in March 2014, just in time for a four-year cycle low (the next one is due in 2010).

In the Great Depression secular bear which lasted 12.7 years, the first leg down took 33 months followed by a cyclical bull of 56 months which led to a 63 month grind to the bottom in 1942. That last leg subdivided into 14 months down, 18 months up, then 31 months down. In the current secular bear, the first leg down took 30 months followed by a cyclical bull of 56 months which should be followed by roughly 77 months of grind into 2014. It could be that this third leg will subdivide into 17 months down, ~17 months up, then ~43 months down to the final bottom. The big difference between then and now is that the low for the GD bear came with the first leg down while in the current one a lower low has already been posted in this third leg and I believe the bears are not done yet.

Week Beginning 08/16

My daily model remains on sell and my weekly remains on buy. I am still net short but getting nervous. If the market doesn't want to move lower after a sell signal, then it normally wants to go higher. That's the bullish take. The bearish take is based on the behavior of two leading indicators I monitor. One is the iShares FTSE/Xinhua China 25 (FXI) which diverged positively with the S&P 500 index at the beginning of the March rally and currently displays a negative divergence (view chart). The second leader in that chart is the Baltic Dry Index (tracks worldwide international shipping prices) 50-day MA which began rolling over two weeks ago. This indicator can be a few weeks early or late in its signal so it's possible that a pullback in stocks could begin from a higher leveI. I will begin scaling out of shorts with a move above 1009 on the S&P 500. A close below 991 and I will add to shorts. Below 940 I am 100% short while a close above NDX 1633 and I am 100% long.

Week Beginning 08/30

Stocks are overdue for a pullback according to this FXI leading indicator chart. Since the bear market began in October 2007, FXI has led on the way down and the way up. There were three times in 2008 that FXI diverged bearishly from the S&P 500 index and each time after roughly three weeks the S&P followed suit. Then in June 2009 as the S&P was in a ~10 percent correction, FXI formed a bullish divergence and by early July the S&P rallied hard. The average divergence lasted 14 trading days. Since August 3, the FXI has sold off ~11 percent and has set up a bearish divergence with an uptrending SPX for 19 trading days now, four days longer than the average.

Combining this with the fact that the SPX daily chart is bumping against overhead resistance, and perhaps more importantly, the NDX monthly chart is facing resistance from two long-term trend lines and I think we should see a very tradable selloff of ~10 percent in September, a month notorious for its brutishness against the stock market. The game plan remains the same -- above NDX 1633 net long, below 1633 largely in cash, below 1565 net short.

Week Beginning 07/05

I continue to place great emphasis on the imminent Bradley turn date of July 15, now eight trading days away. As I have been saying, if the market rallies into that date then a very important top and resumption of the bear market should commence. If the market is declining into mid-July then a second leg up in the bear market rally would likely follow. I lean heavily toward the former scenario which would likely result in the formation of a bearish head-and-shoulders topping pattern.

As I peruse the investment blogs I see that this pattern has escaped no one which makes it unlikely that it will materialize the way everyone expects. The consensus seems to be that the neckline should be drawn where I show the blue line so the likelihood of the S&P holding there is extremely remote (view chart). If a head-and-shoulders does form, look for the neckline to be at the pink 880 level. Also, almost no one expects the market to break down from here so keep on your toes for that possibility as well.

Week Beginning 07/12

It appears to me that the S&P 500 is indeed tracing out a head-and-shoulders reversal top (along with the Dow Industrials and NYSE Composite). If that is the case, the neckline is forming at neither the blue nor the pink lines I drew on last week's chart, which were upward sloping and horizontal lines, respectively. The way it looks to me this week is that a downward sloping neckline is in the works (view chart). Thus far a double left shoulder and a large head have formed. A head-and-shoulders pattern requires the formation of at least one right shoulder and with the Bradley turn window opening this week, a trip up to tag the target at 913 in the above chart would be poetic. If the S&P violates the neckline to the down side, however, I will swap my longs for shorts.

Week Beginning 07/26

Since the bottom associated with the July 14-15 Bradley turn date the Dow Industrials have rallied over 1000 points. Before I give you my reasons for believing that a top will appear by Tuesday, let me first take care of a couple of housekeeping issues. Back in February this year I stated that Bradley windows are +/- four trading days but then in May I started writing that they are +/- three trading days. Frankly, my middle-aged memory couldn't recall which was correct so I researched all thirty major Bradley turns since 2000 and this is what I learned. Only 73 percent of those turn dates fell within +/- three trading days of a stock market reversal while 100 percent were within four trading days.

The second thing I want to clear up is that I stated that if the July 14-15 Bradley turns out to be a low (it was) then the market would rally into the next major Bradley date in November -- the underlying assumption being that major turns in the stock market usually occur during major Bradley turn windows. Turns out that's a pretty lousy assumption. When I look at a chart of the Dow Industrials over the last nine years I see twelve of what I would consider to be major turns in the market. I won't bore you with a list of all twelve but the last four were May 2008, November 2008, January 2009, March 2009. Of the twelve only six, or 50 percent, were associated with major Bradley dates, two more fell near minor dates. Worse still, this means that only six of thirty dates fell near an important stock market reversal, so the odds of the November Bradley being a major top (or bottom for that matter) is a fairly low 20 percent.

That said, I still think Bradley turn dates are worth paying attention to since the average potential gain trading off those thirty turns was 15 percent. Just about right on that average, this latest rally off of the Bradley low began four trading days before July 14 and has taken the Dow and the S&P up nearly 13 percent and the NDX 15 percent in just twelve days. Since thirteen is a Fibonacci number Monday would be a good day for a short-term top to, if nothing else, let the bulls catch their breath.

To understand where the market may go from here I stepped back and looked at the larger picture with the aid of Elliott wave analysis. The first chart this week shows the NASDAQ Composite going back to 1996. There are six pink circles highlighting the last three four year cycle lows in August 1998, September 2002, and July 2006. Twenty-two of the last twenty-five four year bottoms have fallen within six months of July so the odds are good that the next one will fall between January 2010 and January 2011.

Based on the Elliott wave count I show in that chart, the next four year bottom could be the end of the cyclical bear market that began October 2007. The NAS thus far appears to be tracing out a large A-B-C decline that began in 2000 when the secular bear market began and falls into the zig-zag category, meaning five waves down followed by three waves up and then five more waves down. It is currently in wave 4 to be followed by a final wave 5 decline that could easily stretch into 2010. As far as when wave 5 might start, wave 2 took ten weeks to unfold and typically wave 4 lasts 1.618 to 2.0 times longer than wave 2 which means 16-20 weeks. Since last week was the twentieth week of the rally there's a reasonably good chance that wave 4 is about cooked.

The second chart is a closer look at the last five wave affair for the NASDAQ 100. The bottom of wave 1 was 1668 and Elliott wave rules adamantly state that the termination of wave 4 must come below wave 1. So IF my wave count is correct, the NDX has at most 4.3% left to this rally. Notice, however, that 1633 represents major overhead resistance so that is where I think we are headed by Tuesday of next week. If so, that should finish up wave 4 and begin the wave 5 decline. The 1633 target finds Fibonacci confirmation in the third chart where we can see the last leg up breaks down into five waves. The third wave covered 142 points and wave 1 was .236 (.618 x. 618 x. 618) of wave 3. If wave 5 travels .786 (square root of .618) of wave 3, or 112 points, it will terminate at precisely 1633. That price corresponds to a target of 993 in the S&P, darn close to 999 which would be a fitting end to a rally that began at 666.

That said, I have seen Elliott wave counts that show the March 2009 low as the end of wave 5 rather than the end of wave 3 as I show it, which implies there is no upper limit to this market. The way I intend to play this is to go all in on a breach of 1668, and to heavily short a close below the 1495 support line (940 on SPX). With the kind of earnings we're seeing on the S&P 500, it's seems a long shot that a cyclical bull market is underway.

Week Beginning 07/19

I was looking for a 4-5 percent rally this past week and what we got was a very strong 7 percent advance. Strong enough, in fact, to take the NASDAQ to new cycle highs and push the Dow Industrials and S&P 500 close to the limits of their respective head-and shoulders channels. Technically speaking they both remain in this topping pattern but the right shoulder is nearly as large as the head (view chart) -- an abnormal development for certain but, assuming that the market moves into a decline from these levels, not something we haven't seen before. If instead the market rallies to the previous high of 956 for the S&P and 8878 for the Dow and then turns lower, these averages could simply be making double tops and the H&S patterns would then become incidental.

The fact that the stock market rallied into the Bradley July 14-15 turn window would seem to suggest that the market is topping out here and should decline into the November Bradley, perhaps aggressively achieving my long-term targets. Were it that easy. In the above chart I drew the Bradley +/- three trading day turn window (which closes on Monday). Unfortunately, that window includes the closing low of last week where the powerful rally began and, therefore, we cannot rule out the possibility that last week's major Bradley turn date represents the beginning of a rally that could take us into November. We should know soon enough. A significant close above the June highs would tell us the bulls are in charge and that the July Bradley was indeed a low. A close beneath the H&S neckline, on the other hand, would spell victory for the bears. Right now it looks like a toss-up to me as my short-term indicators are green while my intermediate and long-term ones are red.

In other developments, my economic indicator flipped from negative to positive, signaling the end of the recession. Unless the economy makes a double dive (something that seems highly likely to me as long as the housing market remains depressed) this bolsters the bullish case for the stock market. Also, my gold indicator is very close to changing from positive to negative which would benefit equities as well.

Week Beginning 06/07

Stocks pushed to nominal new highs this past week with the S&P 500 challenging the January high and the Dow Industrials not. The S&P pushed slightly higher than the 2009 top of 944, touching 951 before backing off and finishing the week at 940. The weekly high for the Dow came in at 8839, substantially lower than the 9088 resistance level established earlier in the year. Both averages are testing their 200-day MA and both, along with the NASDAQ, are displaying divergences with their RSI and MACD oscillators and have been trending slightly higher over the last four weeks while volume has tapered off significantly. With this weakness as a backdrop, the Dow is testing very important trend channel resistance (view chart), a channel that contains the entire bear market going back to October 2007.

We can add to the weakness in the averages the fact that there is a new development with the Composite Cyclical Indicator (CCI). For new readers, the CCI takes the three stock market timing models I have developed (monthly, daily, and weekly) and combines them with the Bradley Model. A composite buy signal requires three of these to move to buy within a four week span while a composite sell requires three to move to sell within a four week span.

The only signal the CCI gave in the first five months of the year was a sell which has been in effect throughout the entire bear market rally that began in early March. That sell signal was neutralized in early April for the NASDAQ when it exceeded its January highs. This last week the Russell 2000 and the NYSE Composite averages followed suit after climbing above their respective January highs and the S&P is threatening to do the same. That leaves the Dow the only major index that remains solidly on sell. But bears were given a reprieve this week when the CCI again registered a sell signal (click on the CCI link to the right). With significant overhead resistance, diverging oscillators, diminishing volume, and a CCI sell signal it would appear the bears are finally poised to take this market back.

Week Beginning 06/14

Thus far, closing highs were posted on June 2 and June 4 for the NYSE Composite and the Russell 2000 averages, respectively -- one day on either side of the Bradley turn date. But Bradley designed his model around the Dow Jones Industrials and that average posted its highest close on Friday June 12 which falls outside the June 3 +/- three trading day turn window. So what gives? Well, I have seen in the past that when two Bradley turn dates are close together that the market can turn at the midpoint of the two dates. My experience says to consider "close dates" to be under three calendar weeks (< twenty days). We are currently in between two Bradley dates that are separated by twenty-three calendar days (June 3 and June 26) with a midpoint of June 15, which is the coming Monday. That's a little longer than three weeks but still worth giving it some consideration, I believe.

Looking at the short-term Elliott wave pattern, it appears to me that the last three weeks of trading have traced out four completed waves (up-down-up-down) with a fifth and final wave in the works. The entire five wave advance could easily be complete by Tuesday (view chart), just one day after the Bradley midpoint. Upside target would be 962 based on adding wave 1's thirty-four point advance to the 928 termination point of wave 4. An alternative projection is obtained by adding sixty-two percent of wave 3's sixty-two points (= thirty-eight points) to 928 which results in a 966 target.

As a sidebar of interest I present a chart this week that shows the recent three month rally to be a fractal of the bull market advance that lasted from March 2003 until October 2007 (55 months). According to the father of fractals Benoit Mandelbrot, a fractal is "a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole," -- a property he called self-similarity. In other words, when you zoom in on short-term patterns they can bare uncanny resemblance to patterns observed over much longer time periods. In this chart the NYSE Composite is displayed on the left side and the S&P 500 on the right. The current rally is shown in the two charts at the top while the 2003-2007 bull market is presented at the bottom.

Week Beginning 06/28

I have updated the Composite Cyclical Indicator (CCI) which can be viewed by clicking on the link above. By mid-May a sell signal was generated when the weekly, daily and monthly timing models all went negative within two weeks. By the end of the month, that sell signal was invalidated when the Dow broke to a nominal new high. Since then, however, another sell signal has developed and this time all four components -- including the Bradley model -- are participating. This past week another minor Bradley appears to have reversed the market to the upside in the short term. The critical Bradley turn date, though, is still twelve trading days away (+/- three trading days). If we rally into that date, then we should anticipate a major reversal that should take stocks lower into November. On the other hand, if stocks sell off into mid-July then the bulls can look forward to a continuation of the rally.

Looking at the small picture, my Elliott wave counts suggest that the S&P 500 and the Dow Industrials may have already begun their respective downtrends while the NASDAQ is still in a corrective formation that suggests a retest of the June highs is in order (view chart). It is interesting to note that a convergence of Fibonacci counts are pointing to the July 15 Bradley as a likely top in the NASDAQ. Starting with the rally that began in early March, July 15 is the 89th trading day and fifth trading month -- 5 and 89 both being primary Fibonacci numbers. July 15 also represents the eighth month and 34th week from the November low -- both 8 and 34 also primary Fib numbers. And finally, counting from the beginning of the current bear market that began in October 2007, July 15 represents the 89th week and 21st month -- 21 and 89 being primary Fib numbers. If July 15 plays out as a final top in the NAS, it will lead the way down to the final bear market bottom.

Week Beginning 06/21

There will be no newsletter this week as I will be traveling.

Week Beginning 05/03

Once again, all the major averages posted new highs this week. Unlike the NASDAQ which blasted through the February high four weeks ago, the Dow Industrials and the S&P 500 are struggling at their respective January-February double tops. The Dow pushed up to 8308 on Thursday, four points shy of the February top. The S&P managed an intraday rally to 888.7 but then closed the week at 877.5, 0.4 points below the January peak. Will they be able to break out this week and join in the NASDAQ fun?

I suspect not. This week's chart I find to be particularly interesting and informative (view chart). It shows XLF, the financial ETF, divided by SPY, the S&P 500 ETF. This ratio peaked out on April 14 and since has made several lower highs and sliced through trendline support. It also fell below the 20-day MA for the first time since March 11 and the MACD displays a solid bearish crossover. At previous important tops in the market back in October 2007, May 2008, August 2008, and January 2009, the XLF/SPY ratio peaked an average of twelve trading days before the S&P 500 did (ranging from five to seventeen days) and there have now been fourteen trading days (as of Monday) since April 14. My guess is that the market is toast by Wednesday.

Week Beginning 05/10

The divergence between the NASDAQ break-out and the large cap averages being contained was rectified on Monday this week as the bulls stampeded both the Dow Industrials and the S&P 500 to new highs. That was followed on Wednesday by a bullish break-out of the XLF/SPX ratio I showed you last week. Just as I was resigning myself to buy any pullbacks, I noticed that the NASDAQ 100 posted a bearish hanging man candle on that very same day. That was followed on Thursday by a long red candle on rising volume which not only confirmed the bearish reversal breakdown but also sliced through the bullish uptrend line that provided support all the way back to the March 9 low. So now we have a divergence once again, this time the NASDAQ playing the bearish role. Is this a tough business or what?

What muddies the picture further is the fact that since the bear market began back in October 2007 there have been times when the NASDAQ has provided leadership and other times when the financial stocks were in command. The financials led from October 2007 to August 2008 and then again from December 2008 up until recently. In between the technology rich NASDAQ was leader from August until December 2008, when the stock market was truly decimated. This week the financials were unusually strong while technology stocks tanked. Will the S&P chase the financials or follow technology lower? To answer that question I looked at the ratio between XLF and QQQQ and found something quite interesting. Notice in that chart how closely the CCI behavior since January mimics the behavior between May and September 2008. Shortly after the CCI went overbought the market peaked in May a year ago. As the CCI moved back below 80 in July, the market formed a bottom. Then when readings fell to oversold, the market crashed. More recently the CCI moved into overbought territory late in December and the stock market peaked in early January 2009. When the CCI fell below 80, the market bottomed and began its rally in March. Now we see that the CCI has moved to oversold. Will history repeat?

The main chart this week will focus on the unusual symmetry between the January-March decline and the March-May rally (view chart). On the chart I have drawn a giant "V" with the two lines intersecting at the March 9 low. The market declined for 42 days and has since been rising for 43 days. During the decline, prices crossed into the interior of the "V" at the 844 level and then crossed back out of the "V" during the advance, once again at the 844 level. Total number of days inside the "V" was 56 with 28 coming into March 9 and 28 thereafter. Amazing. My takeaway from this chart is that the 944 level, which is where the January decline began, is the ending point for this leg of the rally. Notice in the lower left hand corner I placed an insert chart that displays thirteen candles within a rising channel that says the S&P could hit 944 as early as Monday. What the market does after that will be key. If the NDX remains below 1436 and the S&P cracks below 876, the bears will have their way. If the NDX makes it back above 1436 with the S&P trading north of 876, the bulls will be in command. Otherwise, cash is king.

Week Beginning 05/24

This week I want to discuss a cyclical financial model known as the Economic Confidence Model that was created by Martin Armstrong in the 1970s. Armstrong is an interesting character and if it were not for the uncanny accuracy of his forecasts, he'd be a hard sell. His model forecasts a major turning point in the financial markets every 51.6 years, smaller turns every 8.6 years, and so on. Armstrong claims to have developed a 32,000-variable super-computer based on the model, with "perhaps the largest economic database in the world". Whatever. The point is that he has established a set of dates where key turns occur in one of the major financial markets (usually either the U.S. stock market, treasury market, dollar, or the gold market). Following are the turns his model has called since 2000 : the U.S. stock market peak in 09/2000, the bottom in 10/2002; a U.S. dollar bottom in 01/2005, a top in 01/2006; a top in U.S. financial stocks (ticker XLF) in 02/2007; a dollar bottom in 03/2008.

The most recent turn date was April 20, 2009 and enough time has passed that we can take a stab at which financial market(s) was(were) affected. You may recall back in February I opted to move some money out of dollar-denominated assets and into gold and euros, primarily due to Leap/E2020's assessment that "the breakdown of the global monetary system we anticipated for summer 2009 will indeed entail the collapse of the US dollar (and all USD-denominated assets)." At the time there were rumors flying that China was unwinding its dollar-debt position which pointed to a potential spike in long-term interest rates due to either a debt squeeze or hyper-inflation. By April it was becoming clear that China indeed was reducing its exposure to U.S. debt. When April 20 arrived, the financial markets that showed signs of an important turn were those related to a weakening dollar: the dollar itself falling while gold, euros, and interest rates broke higher. To me this is shaping up as a catalyst for the next major leg down in the equity markets.

With that in mind and with my intra-day indicators pointing higher, I am of the opinion at this point that the S&P will likely bounce off of 880 support once again and spike higher into the Bradley June 3 turn window where it is likely to kiss the 200-day MA and make a double top at the 930 level. If that occurs, I think that will mark the beginning of the final leg down which very well could unfold as I have laid it out in this week's chart (view chart). If stocks rally this week then next week I will lay out my target for the November low. If instead stocks head lower this week, well then, never mind.

Week Beginning 05/17

The 43rd day of the rally was Friday May 8 and that turned out to be the end of the advance for the S&P 500 which was unable to tag the January 944 high but instead topped out at the 930 level. On the daily chart a bearish reversal came on Wednesday and by week's end the S&P had fallen about five percent -- more than the Dow Industrials and the NASDAQ but less than the NY Composite and the Russell 2000. More importantly in my view, the NASDAQ Composite formed a bearish "abandoned baby" candlestick pattern on the weekly chart -- a rare but highly reliable reversal pattern (view chart). As reliable as it is, the pattern is not confirmed until the NASDAQ closes below the lowest close in the pattern (1672) on a weekly basis.

From a longer term view, there are two ways this reversal could play out over the remainder of the year. There are two major Bradley turns left in 2009, one on July 14-15 and one on November 9. If the S&P sells off for two months and forms a more or less double bottom in mid-July, then I would expect a rally into November followed by a severe sell-off down to my ultimate target below 500 sometime in the summer of 2010. That would correspond with this first Elliott wave count. Notice in the chart that the monthly S&P confirms this count which makes it my favorite at this point. What I don't like about it is that wave V of 3 should have broken down into five sub-waves but appears to have only three. Also, wave a of 4 should have either three, seven, or eleven sub-waves but instead looks to have five.

That brings us to the alternative count which would be valid if the S&P declines for a month or so and then rallies higher into mid-July and forms a more or less double top. That would, I would surmise, lead to a very serious decline into November and correspond with this second Elliott wave count. This count shows that wave 4 is complete and that it broke down into a typical (for wave 4s) three-three-five a-b-c pattern. As the current decline unfolds, a different picture could emerge, of course, but these two are the most likely scenarios as I see things right now.

Week Beginning 05/31

Thus far the stock market is following the scenario I outlined in last week's newsletter. The S&P 500 closed this week at 919 and appears on its way to the 930 high posted the first week in May. With this index approaching overhead resistance, the 200-day MA now at 929, and the oscillators all displaying bearish divergences at the same time that a minor Bradley window has opened (June 3 +/- three trading days), it seems quite likely that a sizable sell off is at hand (view chart). With the even larger major Bradley window approaching in mid-July, I would like to focus on two possible scenarios going forward.

In this chart posted at dshort.com, we can see that the current bear market which began in October 2007 started off tracking the 1973-74 bear market fairly closely. Then in September of last year the bears took control and drove the S&P down to the more ferocious 1929-32 bear market track and now resides in an area where it is poised to follow either of these past bear markets (a third option that would have us believe that the current bear market is over is not on my table). If the major Bradley in July turns out to be a market low then the 1973-74 bear tells us to anticipate some sort of double bottom, one like we saw at the end of the last cyclical bear market in October 2002 - March 2003.

However, if the July Bradley is a market top (as I outlined in last week's chart) then the S&P is likely to align with the 1929-32 bear the rest of this year. In that even, I would look for the major Bradley low in November (month 25 of the decline) to be the end of the bear market with the S&P 500 bottoming in the mid 400s which is in line with my long standing target low of 460.

Week Beginning 04/05

The target I set for 860 in the S&P 500 remains, although it is taking longer to get there than I had expected -- about a week longer is my guess. In other words, I believe we are just a couple of days away from ending this party in the stock markets. If the lower count in the Elliott Wave chart I presented last week is correct, then both wave a of November-December 2008 and wave b of January-February 2009 should each be internally composed of three waves (they are). Wave c which is still unfolding must be internally composed of five waves, however, and that also appears to be the case (view chart).

You may have noticed that I eased off a tad on my non-dollar denominated assets by reducing gold & euros from 33 percent to 25 percent in my retirement portfolio. The reason for moving into these assets was not to for capital appreciation as much as it was a flight to safety in the event of a U.S. dollar crisis. That a crisis is a distinct possibility is evident in this chart of the monetary base (the monetary base is currency in circulation and in commercial bank vaults, plus reserves which commercial banks hold in their accounts with the central bank). A 100 percent annual increase in the monetary base is unprecedented, to say the least. I think the only reason the dollar hasn't collapsed is because the commercial banks are adding this money to their bank reserves out of fear that a run on the banks is imminent.

But just because my main interest in euros and gold is safety doesn't mean that I am not monitoring the charts. When I see a setup like the one unfolding in gold, I pay attention. Last week gold violated its short-term uptrend line and also formed a bearish head-and-shoulders pattern; on Friday the neckline was violated ever so slightly. I haven't actually made any changes yet but if there is follow-through on Monday, the target for gold would be $790 per ounce with the possibility of it visiting the long-term uptrend line around $700 and I will reduce my exposure to gold by half (from 16 to 8 percent) and hold onto my 17 percent in euros. If it bounces off the neckline I will sit tight for now. I am still bullish on gold so a pullback would present an excellent buying opportunity.

Week Beginning 04/12

It took two weeks longer than I had expected but the bulls finally managed to push up to the 860 level in the S&P 500.This index is now testing the upper resistance of the channel that includes all of the wave 4 correction going back to last November (see first chart of last week's letter). Now that we are here, I'm feeling a bit anxious over the fact that just about anyone who is looking at the charts is well aware of this fact and is ready to pounce on this set up with short money. And that makes it less likely that this is where the rally is going to end -- particularly in light of the freight train that took the S&P to 857 on Thursday and closed at the high. So I went looking for more confirmation that the bulls are running out of steam.

If my current Elliott wave count is correct, the third leg of the correction that began a month ago must unfold in five internal waves. Last week I presented one scenario that meets this criteria but that count was iced this week. When the rally hit new highs on Thursday, a new count revealed itself that not only suggests the rally is just about over but also explains why it took two weeks to fill out the last 30 points on the S&P (3 points per day vs. 14 points per day over the prior three weeks). In this week's chart I present a five wave rally that ends in what is known in technical circles as a rising wedge or a bearish diagonal triangle (view chart). Similar triangles can be observed in the NASDAQ, Dow Industrials, and NYSE Composite averages. The target low for the S&P -- should price fall below the lower support line -- is 775. I would not consider shorting before support is violated. If instead price blows up through the upper resistance line of the triangle, my upside target of 1010 comes into play.

Week Beginning 04/26

On Monday, the bears took the large cap indices down out of the bearish rising wedge I showed in last week's letter. Because the pattern was so easily identifiable it meant there were too many bears ready to pounce on it and from Tuesday on the bulls were in control as the bears scurried to cover their short positions. By week's end most of the major averages were retesting the highs set a week earlier. One index, the NASDAQ, even posted a new high. So now we have a divergence among the major averages that will be resolved by taking the NAS 100 back below 1361 if the bears take control or by launching the other averages to new highs if the bulls have their way. The former means that stocks will decline into July, the latter that they will rally into that timeframe.

I believe that the bears will carry the day and that most of the averages will end the week lower. This is supported by a number of my indicators flashing red, by poor volume during the advance, and by my Elliott Wave count and miserable money flow as shown in this week's chart (view chart). In particular the Dow and S&P look like they are ready to roll over this coming week. The NASDAQ has a slightly different wave count and has been stronger recently so it's possible that it could buck the trend and move higher (assuming the other averages decline) much as it did in October 2007.

A quick note on gold. Looks like the metal has shaken off that bearish head-and-shoulders set up and is now poised to head higher (view gold chart).

Week Beginning 04/19

Turns out my caution last week was well warranted. This week saw 860 in the S&P turn into 875 by Friday. As the days and weeks pass, though, the picture becomes sharper and clearer. Last week's chart has been revised and from a technician's standpoint the rising wedge looks more proportional to the uptrend. Furthermore, the S&P is now up against two very critical resistance lines (view chart). One is the upper trend line of the rising wedge, of course, and the other is the January 28 and February 9 double top that led to a substantial sell-off into early March. Bottom line is that I am 95 percent confident the rally is over.

Supporting this view are some interesting Fibonacci numbers and ratios. First of all, the wave 4 retracement in the above chart that began in November 2008 has now completed 21 weeks. Twenty-one is a Fibonacci number (1, 3, 5, 8, 13, 21, 34, 55, etc.) and happens to be the same number of weeks that wave 1 took to unfold (from October 2007 to March 2008). Also, wave A of wave 4 in the chart went higher for 30 days and thus far in wave C the market has been trending non-stop for 29 days. Wave A climbed 203 points, wave C 208. When the market fell from February 9 to March 6, it covered the 208 point loss in 18 days -- 18 is 62 percent of 29 and 62 percent is the single most important Fibonacci ratio. So if the top is in, where do we go from here?

I am looking out to the major Bradley turn window that will arrive in July 14-15. That happens to be sixty trading days from now, twice the length of waves A and C. If the market heads lower into that window and declines at the same rate down that waves A and C went up, we are looking at a ~415 point sell-off down close to my ultimate target of 460. For the market to unravel like that would require a tipping point of the proportions LEAP/2020 erroneously predicted for March (their April letter makes no mention of their utterly horrendous call for a March meltdown that ended up being a March meltup so I am fading these guys for now).

Week Beginning 03/01

On Monday of last week, the S&P 500 tested the November 2008 low of 741 and that support held. From there it bounced to about 780 on Wednesday, then again on Thursday. As anticipated, on Friday the November low was again tested, this time failing as the S&P closed the week at 735. This down leg does not look complete to me. I see a low down around 700 by Wednesday followed by a short rally (5-8 trading days) back up to the 770-790 area. Here is my latest Elliott Wave count (view chart) .

Week Beginning 03/08

By Wednesday last week the S&P 500 had fallen just below 700 and was rallying. I thought the bottom was in place but learned on Thursday that such was not the case. A few bruises later and the price fell to 666 and change on Friday (how ominous is that?). Based on my latest Elliot Wave update, I believe the bottom has been reached (view chart). Combining this conclusion with seasonal tendencies and my expectation is for a very enthusiastic rally in the coming week that should see prices rise to the 750 neighborhood.

The seasonal tendencies I am referring to relate to the Presidential, or 4-year, cycle. We are currently in year one of this cycle and the record of the Dow over the last 80 years suggests that next week should be the strongest of the first quarter while the two weeks that follow should be the weakest (view chart). Support levels in the 560-580 are my target for early April.

There is a chance, however, that share prices could see a crash similar to what was experienced in September-October of last year when the S&P 500 index took an astounding 44% haircut. If these guys are anywhere near correct (and they have been on the money thus far in this financial meltdown), then my lower long-term support levels of 440-460 come into play. They predicted in December 2008 that there will be "in March 2009 a new tipping point of similar magnitude to the September 2008 one. According to our team, at that period of the year, the general public will become aware . . . that we are all trapped into a crisis worse than in the 1930s and that there is no possible way out in the short-term."

Week Beginning 03/22

On Monday the stock market rallied up more than two percent in the morning and by lunch time on the east coast the S&P 500 had closed in on 775. What I believe to be an Elliot wave 4 had retraced a smidgeon more than 50 percent of wave 3 that began on February 9 and ended March 6. This did not surprise me because fourth waves typically retrace 38 to 50 percent and because this wave 4 was an upwardly climbing zig-zag rather than the usual sideways correction, 50 to 62 percent should be anticipated. Then in the afternoon the markets collapsed and wiped out all of the morning gains and half of Friday's. That did not surprise, either, as I was looking for a long red reversal candle either Monday or Tuesday. What did surprise me was what the markets did the following day. I was looking for a gap-down follow-through opening, but what we got instead was a rally to new highs.

Wednesday was even worse and I was chewing my fingernails down to the nubs as the market creeped closer and closer to the wave 1 low of 805 set on January 20. It wasn't so much that I was net short that was bothering me most. In Elliott Wave theory, wave 4 cannot climb higher than the wave 1 low. If it does, it means its not a wave 4 after all and the rally takes on far more ominous (to bears) proportions. Anyway, the S&P 500 topped out at 803.24 and then slid lower, the beginning of what I believe to be a wave 5 decline. The downside target has been revised to 635 to accommodate the larger 62+ percent wave 4 correction. By the way, the 2009 Dow appears to be trailing the seasonal tendencies by three or four days so I lagged the presidential curve one week in this updated chart.

I haven't spoken about gold in a while. In spite of my model being bullish on gold, I have stayed away from that market ever since I saw oil, real estate, and platinum in free-fall last summer. It seemed to me a reasonable assumption that gold would fall to its long-term bullish uptrend line that goes back to early 2001 and is currently down around $700 an ounce. However, my thinking began to change when I read some Leap/2020 publications I alluded to last week and saw that their forecast of another economic tipping point coincided with my prediction of a wave 5 sell off. So, on Monday I moved 33 percent of my long-term portfolio into gold and euros to reduce my exposure to dollar denominated assets. My timing couldn't have been better as Bernanke & Co. announced on Wednesday another trillion or so of bailout money, this chunk aimed at reducing mortgage rates.

To paraphrase the late Senator Dirksen, a trillion here, a trillion there; pretty soon you're talking real money (when he purportedly spoke these words in the 1970s it was billion not trillion). In reaction to the announcement, the dollar tanked and gold -- which was breaking through short-term trendline support -- immediately recovered and rallied hard (view chart). You may recall last summer that the 2009 Federal deficit was projected to be $500 billion. That projection has been ratcheted up several times and now sits at $1.8 trillion! Keep your eye on the US dollar chart. If that short-term trendline it just bounced off of is violated to the downside, stocks should accelerate lower.

Week Beginning 03/15

All the major stock indices rallied on the order of ten percent this past week, completing what I believe to be a very quick Elliott Wave 4 correction (view chart). Typically a wave 4 correction is a long drawn out sideways affair while wave 2 corrections are short and steep. However, notice in the above chart that in the current decline, wave 2 was a long drawn out sideways affair which means that, due to the rule of alternation, wave 4 must be short and steep -- precisely what appears to be the case. Notice also in that same 60-minute chart how the MACD and RSI are about as overbought as they were on January 6 and slightly more overbought than they were on February 9 -- the starting points of wave 1 and wave 3.

So this means we should anticipate that the next leg down into wave 5 should begin post-haste, a view that is supported by the chart of seasonal tendencies (view chart). The five day rally ended on Friday with a "hanging man" candlestick formation. Hanging men are bearish reversal patterns but I caution you that they require confirmation in the form of either a break-away gap down opening or a long red candlestick that closes below Friday's low of 742.46 on heavier volume. Downside target remains 560-580 for the S&P.

Week Beginning 03/29

So much for seasonality. Over the past four weeks the Dow Industrials have soared around eleven percent. Since 1929, there have only been three times that the same four weeks of a presidential cycle first year saw gains exceed three percent and only once where they climbed higher than five percent. Could it be that this year has shifted more than a full week later than the average? Sure, anything is posssible. But the usefulness of this indicator has been greatly compromised so we'll have to rely on others.

So much for my Elliott Wave count, as well. But anyone familiar with Elliott's model is keenly aware that wave counts must be continually updated. No one successfully trades relying strictly on Elliott Wave. It is just one tool in a large toolbox. That said, when the S&P 500 closed above 805 on Monday, I was forced to step back and reassess the bigger picture. The wave count I was relying on up until this week was this one. I present two alternatives this week because we should find out relatively soon which of the two (if either) is correct.

In the wave count on the top I find the wave 4 of wave i to be a tad disproportional so I suspect that we will ultimately learn that this one is not correct. The first clue will be if the S&P exceeds 837 which is the 62% retracement of the suspected wave i. The only way this count is fully eliminated, however, is if the S&P breaks 944 to the upside or 666 to the downside. The lower is my favored count and shows that the market is still in a large wave 4 correction of that monster wave 3 from autumn of last year. This one is most likely to terminate at 860, which, if the count is correct, should happen by Tuesday next week. If prices push higher than that, a 38% retracement of wave 3 at 1010 becomes the next target.

The question you may be asking yourself is are there wave counts that are long-term bullish? The short answer is yes there are. But for reasons displayed in the following chart, it is not likely at all that the bear market has ended (view chart). Volume has been increasing as prices fall and decreasing as prices rise throughout what I believe is a wave 4 correction. This sort of market dynamic is known as distribution, meaning that smart money big players are participating in sell-offs but sitting out the rallies. In contrast, big players add during rallies and sit out retracements in bull markets. As for the Leap/2020 forecast of a March tipping point in the U.S. economy, I would give them another three weeks before pronouncing this one wrong.

Week Beginning 02/02

There has been no resolution of the Bradley quandary I discussed last week. As anticipated January 20-21 played out as a bottom -- a double bottom in fact with one low coming on January 20 and the second on January 21 -- right on schedule. The problem is that a top was put in on January 28, the day before the combined turning date of January 29. The February 8-9 turn is due a week from Monday so what happens going into and out of that window is crucial to where the market goes from here. My two cents worth is that we see a bounce on Monday followed by five days of decline (February 9) to the 785 area, taking out the January lows. From there the market should move sideways a bit and then continue down. When we look back at this (assuming my scenario plays out) the January 28 will be the more significant turn.

Week Beginning 02/09

My two cents from last week was worth much less than that. Stocks are rallying into the Bradley window of February 9 +/- four trading days with my short-term indicators quite overbought. All signs point to the market forming a top in the coming week. Based on my Elliott wave count, the next leg down is a major wave 3 of secondary wave 5 of primary wave 3. The last time we had a major down wave 3 was in September 2008 when the S&P 500 collapsed 33 percent from 1265 down to 845 in just twenty seven days. That wave 3, like the one just ahead, began with a Bradley turn (view chart).

That major wave 3 was inside a secondary wave 3 within the same primary wave 3 -- a "3 of 3 of 3" which is always formidable. A "3 of 5 of 3" like the approaching one is rarely as powerful. However, it will likely do some serious damage as stocks fall roughly 25 percent from the near-term high (which I expect to reach the 890-900 area).

Week Beginning 02/23

The S&P 500 hit a low of 754 on Friday, and finished nearly seven percent down for the week. I would look for a bounce up to the 790 area by Tuesday, and then a retest of the November 2008 bottom at 741 next Friday. I have revised my wave count and now believe that the 741 support will hold after which we will see a bounce into mid-March. After that the bearish fireworks should commence once again.

Week Beginning 02/16

The "3 of 5 of 3" wave I spoke about last week began right on schedule after the S&P 500 struggled and reversed at the 877 level. My downside target for this wave is 670, perhaps by mid-March. The S&P 500 just barely broke a three month channel (view chart), but the Dow Industrials -- which appears to have taken the lead to the downside -- made a more pronounced break of its channel. Please note that the Composite Cyclical Indicator has flipped back to bearish.

Week Beginning 01/04

The trading range was finally broken as the stock market advanced higher this past week. My target for this rally is now 1030 for the S&P 500. The longer view is beginning to take shape and I will lay out a preview (subject to change, of course) for the upcoming legs of the bear market.

I suspect that the rally will last another two weeks or so followed by a retest of the November low about eight weeks after that. That should take stocks to a low in mid to late March. Look for a significant rally from there up to around 1100 on the S&P in mid to late July after which stocks should decline to deep new lows for about two years.

Week Beginning 01/11

On Tuesday the S&P 500 rallied to 943 intraday with investor sentiment so optimistic that it triggered a sell signal in my daily stock market model. That's not enough to overturn the buy signal from the Composite Cyclical Indicator (CCI) at the November low, but it does suggest that a sell-off and possible retest of that low is looming. Add my Elliott wave count and the fact that the S&P tested and failed the upper resistance of its current trading channel (view chart) and it appears that the Wave 5 leg down has begun. I suspect we are looking at 3-4 weeks down and the formation of a double bottom at around 710.

Week Beginning 01/25

I based last week's opinion on the fact that a Wave 2 correction was likely to top in the Bradley window of January 20. As it looks now, it appears this window will play out as a bottom. If that is the case, the implications are quite bearish because that would imply that the February 9 turn would be a top after which the market would tank into the next major Bradley window of July 14-15. A high probability alternative is that the two near term turn dates of January 20 and February 9 will coalesce into a single turn on January 29 +/- four trading days. That would be equally bearish since there are no more turn dates until June. The only intermediate term bullish scenario remaining is for the market to trade lower into January 29 and then rally for six months. The latter fits best with my longer term scenario.

Week Beginning 01/18

The final leg down of the third primary wave within the bear market decline that began in October 2007 is now unfolding. For Elliott Wave followers, this appears to be a 5th secondary wave within a third primary wave down, all within a large corrective C wave. What this means is that the November bottom is likely to be retested in the next couple of weeks. After that, a primary wave 4 should carry stocks higher for about six months. Meanwhile, short-term traders should look for a test of the 50-day MA on the S&P 500 and the Dow Industrials by mid the coming week, followed by an energetic move down to the 710 area that could be shorted by those so inclined.

Those of you who have been following the real per capita M2 money supply indicator (RPCM2), my apologies. That indicator was developed using data since the 1960s, an inflationary period. We are currently on a deflationary trajectory and RPCM2 is flying off the charts. Quite frankly, I don't know how to interpret this trend so I thought it best I stop publishing the chart.