The chart above of the Dow Jones Whilshire 5000 index is probably the best representation of where the overall market is at the present time. The index closed below the 50% retracement level of the 2007 to 2009 bear market yesterday after moving briefly above it intraday. It is also trading below both the median line and the lower trendline of the rally from the March low. We thus have a confluence of 3 points of resistance that must be overcome for the rally to move higher. At the open yesterday, it appeared that was exactly what was going to happen. The failure to do so on such positive news was a clear failure at resistance and points the way to lower prices. No doubt, another attempt to get through these levels may be seen in the coming week, but until there is a solid close above resistance we should assume the next move of significance will be to the downside or that a longer period of consolidation is coming.
The above chart of the FXY which tracks the Japanese Yen shows a clear breakdown below trendline support on a likely move to below the April 08 low. When I first presented this chart on November 18, the upward correction in the FXY appeared to be complete, which is why I felt confident that a market high was imminent. The Dollar has since moved lower and the YEN higher, but now that the FXY has broken down below the 2008 high, we should expect a retest of the April 2008 low, which should correspond to a correction in the US stock indexes.
The pattern in the FXY appears to be a very large flat correction, which means that the decline should occur in 5 waves. The impulsive decline should occur with some speed as well implying that a bottom is not that far away in time. There is no way to know how severe the decline will be in the stock indexes but until we get a solid breakout from current levels, all the facts point to the 10 month cycle low still ahead.
For those of you who read Carl Swenlin's weekly posts at Decisionpoint.com I want to point out that my work does not agree with Mr. Swenlin's view that the "9" month cycle low occured in November. Mr. Swenlin's market views are some of the most sound and rational that I have seen, but on this point I must disagree. If we do get a breakout, then I'll have to reconsider.