Friday, December 11, 2009

The Squeeze Continues

There is little to add tonight. The tightest squeeze in the indexes that I have seen in years is still in progress. This setup occurs more frequently in individual stocks. The bands usually only stay this flat for 6 days, rarely longer, which puts the end of the setup at Monday and the start of the breakout on Tuesday. This is only a guess, of course.

A similar setup in the SP500 occured in December 2005. The index first fell to the lower 1.50 Keltner band, but reversed and broke out to the upside. The current setup is widely known, whether in the above format or not, as almost everyone recognizes the tight trading range of 30 to 35 SP points over the last 4 weeks. We all know what happened after the most widely recognized head and shoulders top formed in June this year. It faked a breakdown and then reversed to the upside. I think the same type of thing will happen here. The first breakout attempt will be the false one, after which it will likely reverse and show us the real move.

I have updated my turning point and cycle calculations. The next turning point occurs next week on December 16 followed by the 10 month cycle low projection on January 3-4. At this point a sharp move down to the 200dema may be all that we see with such a short window of time.

The Absolute Breadth Index fell to its lowest point since May 2007 today. Another indication that a turning point is at hand.

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