LET’S TAKE A LOOK AT THE S&P 500 DAILY CHART

Last report on the 6^th there was a possibility of a lower high if the index couldn’t advance past 4 days but by the 4^th day it was already testing the high.  The index moved into the next series of cycle for top on Monday/Tuesday.  The next series are between the 2^nd and 5^th of December.  Last report our forecast called for this selloff to retrace either ¼ or 1/3 to 3/8 of the advance at 1000 or 945 to 964.  So we don’t expect a great fall and do expect a new high in 2010 and top. 

The timing for a low will fall into the time windows of 22, 30, 45 or 60 calendar days from the November 16^th high.   The pattern of trend and volume will tell which time window will be the low.

This is a struggling trend up since the August low and struggling trends are always followed by fast moves.  But they don’t have to be down.  A struggling trend can resolve the struggle with a vertical exhaustion upward.  You can see the struggling trend and three clear runs to new highs that could not extend the advance.  The three thrusts are a recognized distribution pattern for this style of trend.

NOW LET’S TAKE A QUICK LOOK AT THE NASDAQ

I said there were two types of distribution patterns that can show up in this style of trend.  One is the three thrust pattern as in the previous chart.  The second is a “broadening pattern.”  Tops tend to have volatility and the “Broadening Pattern” is an illustration of that volatility.  There is first a high and a low, followed by a higher high and lower low.  The last low brings about a rally that goes to a new high to complete the pattern.  So there are two probable distribution patterns in place all the index has to do now is show a lower high.

Stocks are still being held hostage to the US Dollar Index which is still trying for some basing and a rally would pressure US Stocks.

LET’S LOOK AT THE WEEKLY CHART OF THE S&P 500

There is a caveat to this scenario.  On occasion, when this struggling style of trend occurs during a high momentum movement, it can resolve the struggle with an exhaust to the upside as occurred in 1982.  This chart is an example of that circumstance.  So as always you can never let a position run against you no matter how strongly you feel.

There are a number of technical analysts who believe this is a bear market rally and expect the index to test the March low. They mainly come from the Elliott camp.  First there has never been an established bear trend that has exceeded a 3/8 retracement this is currently at 50% and exceeding 180 calendar day rally also puts huge doubt in the rally being part of a bear trend and currently this rally is in excess of 250 calendar days with 270 days the first week in December.  We are still looking for a smallish correction or the exhaustion.