2010 The Year Ahead - Part V

In this final post on the year ahead in 2010, I would like to consider the possibility that my previous speculations are wrong. How will we know and how would we or should we react?

First, if the primary wave 3 view is correct, then in all likelihood the initial selloff from the impending high will be more severe with expanding downside breadth than would be expected from a b wave correction of the still ongoing bear market rally. Wave (1) down should take the SP500 below the June 09 high quite quickly and probably below 850. We would be able to recognize wave (1) down and look to go short on a retracement in wave (2) up. We would look to add to short positions in wave (3) down. Being a 3rd wave, it would not be advisable to try to trade in and out like we did during the decline from 2007 to 2009 as there will most likely be many powerful downside gaps, and we don't want to be out of short positions when those occur. The one thing that could make the current situation difficult is that theoretically, wave [B] could retrace almost all of [A] and the proposed scenario would still be valid. However, it should not be an impulse wave. As long as the SP500 remains above the June 09 high, we can be fairly confident that were are in wave [B]. Below that level we will have to reconsider.

The other alternative is that we are at the beginning of a new secular bull market. This case is fairly easy. Since we now have possible 5 wave counts in at least a few major markets, we will be able to recognize that a possible 4th wave is developing after wave [C] is complete. If the high of wave [C] is taken out we would then have an impulse of primary degree, and we would adjust our future plans accordingly. This case is easy because, for now, we just go with the proposed scenario. There is no change in our plan for 2010. Only later in the year, or possibly in 2011 would we have to make an adjustment.

We should know by the end of March, if we need to change our view, but based on today's action after the less than stellar jobs report, I don't think the current view is wrong. The Qs closed well today if not powerfully, and wave iii of (5) appears to be underway. See the earlier post today on the T Theory update. The latest we should see a top is probably January 21.