The "Least Trustworthy" Of The Indices Has

Many calls started late in 2007 for a developing Head and Shoulders Top on all the indices. No argument here. I might have even been one of them, who can remember. $INDU has hit 90% of it's measured move objective off this H&S Top, easily enough to satisfy as a completed chart pattern. The bottom line here...on at least $INDU, on a H&S measurement basis, we don't need to trade any lower to complete this pattern. (1 chart)

U.F.O.

There's a few things that bother me: 1) The market made a W bottom and started to go up. The natural target for W bottom for the DJIA would be around 13,800. This is pretty obvious and we've seen this many times in the past in 1998, bottom of 2002, etc. 2) We're right at the breakout point of the W bottom, and the least sophisticated traders are pretty bulled up here, based on the following polls: AAII Lowrisk Bloggers TSP Smart money/dumb money (proprietary poll in Sentimentrader.com) CPCE ISEE Rydex bull flow vs bear flow I haven't gotten the OCC data, so I can't tell you what it looks like. 3) Price is leading internals. I would hope that the breakout point would have more supportive internals strength, but anyone who can see the cumulative AD can see this. However, I do see that NASI and NYSI are strongly pointing up. Odd thing is, internals for banks still look pretty crappy. And before you say nasdaq cumulative AD always seems to go down, I'm talking the NDX cumulative AD which follows price closely, and right now price is leading breadth. 4) There's many expectations that a drop in commodities will fuel the stock market. This makes sense, but this is now in mainstream media all over the place. If anything, I expect a fakeout before it actually happens. A fractal I track in gold implies there's still more upside to go, perhaps the last purging of shorts before the real drop. 5) We're about to hit 'sell in may and go away'. No one really knows how that works, but I have NOT seen the kind of shoes that need to drop in europe from their subprime. Apparently this indicator is more accurate in europe than in the US, so it wouldn't surprise me if weakness in europe spills over to here. Now before you think all I'm thinking is bear, I want to present what I see as bullish: 1) The W-bottom can be real. The second test on low volume is textbook and there were major selling climaxes amongst many indicators that weren't seen in loooong time 2) Even tho sentiment right now can be classified as modestly bullish, it can go a lot more bullish especially if momentum and price continues to confirm. And following on the heels of major sentiment bottoms like the one we had can mean momentum will continue through the breakout. 3) VIX broke down definitively, on the weekly. People are selling puts with low premium because future expectations of volatility is low. Thats bullish in my book. 4) Fed is still greasing the cogs with a mop instead of a paint brush. It takes about 6 months for the 1st cuts to start affecting the economy, and its been about 6 months since the first cut, and 5 months since they went medieval on the rates. So that money is going to end up like trash everywhere, and some of it will find its way into the market. My BEST "guess" at the moment is that we will chop sideways for another week. At least another surprise downside is in store for bulls... I don't know when. But bears won't give up this easily if this is an uptrend that will continue. That downside may come after they take everyone out at 1402, then head towards 1360. All I know is, rebate checks are coming soon. The sharks on wallstreet want part of that. How they're gonna get it.. I don't know. Either through higher gas/food prices, or by marking up stocks for people to buy.

$SPX, 89% measured move objective off the H & S top hit. This, on a much more trustworthy index. ( 1 chart)

U.F.O.