Rally Attempt Underway

(Click to enlarge)

It's been awhile since my last post. I must say that I admire all the bloggers that can find the time to post daily reports. Lately, I have been pushed with the demands of business and family commitments. However, we are now at an important juncture and I want to share my thoughts.

IBD confirmed a market rally on 7/29/08. (The System Tracker has been updated.) Even though the Qs have not pushed through resistance at 46.15, it certainly would not be prudent to enter new short positions here. Some analysts are calling for an immediate return to the bear market based on the weakness of the rally, while others are waving the All-Clear sign, but it's too early to say one way or the other.

One fact that I would like to bring to your attention is how often markets turn near anniversary dates of previous highs and lows. The Qs topped on 7/19/07. We just had a bottom on 7/15/08 4 days before the anniversary date. I have seen this phenomenon too many times to dismiss it as coincidence, so I look for confluences of projected cycle highs and lows with these dates to help pinpoint tops and bottoms.

I am not suggesting that you should try to trade directly off of these dates, but look for potential reversal signals around these confluences. When market sentiment is extreme, it may be reasonable to buy a bottom as was the case recently with the financials. The UYG is now up 56.6% from its low. With the bad news around Fannie Mae and Freddie Mac on 7/11/08, I took a position in the UYG with an expectation of a similar reaction after the Bear Stearns event. I added to that position on 7/15/08. My target is the 26 to 30 range. I don't typically take this type of trade, but in this case there were just too many factors suggesting a bottom was at hand to pass it up.

But what can we expect from this point forward. The market bottomed last year on 8/16/07, so we could see a top or bottom around that date. Currently, we are in the upswing of the 22 week cycle with a top expected around September 9. However, given the lateness of the previous 22 week cycle low, I would not count on the market holding up to that date. If the Qs continue up to 8/16, I would expect a quick pullback before a final top around 9/4 to 9/9. If the Qs move down into 8/16, then I would expect a sharp rally into the top.

In either case, don't count on too much upside. If the May/June highs are not taken out in September, look for a nasty selloff this fall. Look at the trend following systems in the System Tracker for a guide to entries and exits around these dates. Most of the systems are still short, however, most are near exit and/or long signals.

Good trading.