Friday, February 20, 2009

Short Term Rally Possible

The Qs have completed 5 waves down from the 2/10 high and a rally back to the 50dema is possible if not likely. The other major indexes have completed wave i of 3 of (5) of P1, which also supports a wave ii rally. This rally, however sharp, should be brief and should not move above the 2/9 - 2/10 highs in any index. We will probably see some premature market bottom calls next week and should not be side-tracked by this.

The most extreme move of this decline should be the next one after any rally. I expect that the Dow will push close to the final target on this move. It would be prudent to be taking profits at that time rather than risk losing them as waves 4 up and 5 down may not produce much further downward progress. This applies even more significantly to short positions in individual stocks as many will be bottoming ahead of the broader markets.

This last decline lasted 8 days. If wave ii lasts 2 days and wave iii lasts 10 days, then that would align with the March 10 first target date. I am not saying this is how it will play out, but it is a possible sequence to look for. In particular, it gives us a time zone for profit taking between the end of next week and March 10.

I also expect that we will see extreme calls for the gold market both for upside targets and for a top. We may be close to a top in gold, but I suspect gold will continue to move inversely with the stock market, which means a pullback in gold over the next few days before a final push to a top.

As a reminder, this is the time to be scanning for leading stocks and stocks with clear bottoming patterns to buy when the market bottoms. The cream is rising to the top now.

I wish you all the best during the exciting days ahead.

1 comment:

dave said...

i'm afraid betw now & the March bottom we'll have another choppy, sideways corrective period for DJI & SPX similar to 1/20 to 2/9.

Do you see that likelihood (even allowing for alternation) ??

Regards,
dave