Here's my recent analysis originally published for BullBear Traders members on 1/15/11 and updated through 1/26/11:
Thusfar markets have proceeded pretty much as my analysis had anticipated. US equities are now fairly well confirmed to be in a major Wave 3 advance. Increasingly, signals are indicating that the 10 year long lateral bear market is over. The primary fundamental is the secular reallocation of capital from safety of bonds (and the risk of the public sector) to equities. Other safe haven assets, such as gold and the Japanese Yen, appear ready to go into bear markets. Notwithstanding the "sentiment surveys", market psychology is only just now turning somewhat bullish as the majority of participants gradually wake up to the unfolding bull market. The public remains entirely on the sidelines waiting for "the crash". The current wave could see a bit of an acceleration next week as earnings results confirm that corporations are doing well, providing investors with the excuse needed to take the plunge into stocks. While we cannot entirely discount the bearish scenario, it is becoming stretched to nearly the breaking point. As BullBears, we'll need to keep one eye on the mouth of the cave to see if he is stirring in his lair, but chances are pretty good the bear is in hibernation and will be for some time.
The US Dollar and the Euro continue an ongoing epic battle royale. I'm not betting on either at this time, but I am leaning in the direction the world reserve currency. In addition to a good technical and contrarian case, the dollar will also be in big demand as the economic build out of 2/3 of the planet proceeds over the next decade.
Commodities look set for a C wave correction as the dollar strengthens. I am not anticipating a bear market in commodities, but it is possible that as a group the best days are in the rear view mirror. Individually, there is quite a range of possibilities. Select commodities may continue in bull mode in all time frames while others go into bear mode.
Safe haven markets appear to be entering bear markets. This includes bonds, precious metals and precious metals stocks. The bond bear market is well along but the gold bear market is as yet unconfirmed. There is yet hope for the gold bull, but it's fading. There are many reasons to think that a major top is in place for gold. I'll be detailing that in a forthcoming special report. In the meantime I am short from 1368.
SPX is our benchmark for US and world equity direction. It's our weathervane. And right now it is telling us that springtime has come for stocks. I am long multiple SPX buys off the September bottom with the last coming this week at SPX 1268.
Here's the preferred wave count:
This puts it in an ultra bullish iii of iii of (3) mode. Note the long term bull cross of the 50 EMA over the 200 EMA. It's a major technical event that has been entirely ignored. Such a cross often acts as a flash point, particularly in the context of such a very bullish setup. Even so, many pundits continue to try to call intermediate and long term tops here.
Here's a shorter term view:
Several Fibonacci projections cluster in the 1340 area. That may be a level we can look at for a short to intermediate term top. It may be potentially a place to take some profits or just buy the dip to add to the position. In either case it should be a resistance zone.
Another short term view has a short term top potentially in place.
A close below 1280 might mean a correction is underway.
A much longer term view shows a potential roadmap going forward.
There is an intense cluster of Fibonacci targets in the 1315-1350 area which also corresponds with the August 2008 high and lateral price resistance from 2007, making this a likely short to intermediate term topping area. The full wave 3 has targets at the 2007 highs.
The bearish scenario is still somewhat plausible. Let's have a look:
The 78.6% Fibonacci retracement of the fall from the 2007 top could make a good C wave high to complete the ABC corrective Wave 2. I'm not leaning that way because too many other factors argue for the bull scenario.
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January 2011 BullBear Market Report
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