The pullback that we have been looking for since late February has finally shown up. We can be fairly confident of this as the McClellan Oscillator has broken down from a negative divergence with 3 declining tops as the indexes made new rally highs. However, as much as I would like to see the Qs pullback to 45, that need not happen. What is most likely to happen is that the Oscillator will move to below -200 to signal an end to the pullback. We can compare the form of the pullback with the Oscillator level to help us confirm the end of the pullback. The pullback should last 5 to 8 days. The Qs would have to fall below 43.83 for me to consider an alternate view from the triangle discussed earlier. Holding above 46 would put the 1, 2 count alternate on the table.
This has been a long drawn out corrective process that has served to consolidate the stock market gains of 2009. Even though various indexes have made new rally highs, the consolidation process is still in progress in my opinion, but it is nearing it's completion. Stock indexes have developed weekly squeezes (the coiled-spring effect) which should lead to a sustained uptrend after this process is completed in late March to early April. There are still alot of bears out there, and a breakout above the recent rally high should be the last nail in the coffin of bearish sentiment. The Investors Intelligence bull/bear spread should move back to its previous highs by the time the next leg of this rally gets in gear. This will be the warning that we are in or nearing the end of wave (3) of [C] of x.
I believe that there will be at least two more excellent opportunities for gains this year. The first will be after this pullback is complete. The next will be after wave [C] tops later this year. So, don't worry. Even if you haven't made much progress yet this year, we have a long way to go. Don't overlook opportunities in oil and gold. Oil is gearing up for a move and gold may be heading toward an intermediate bottom in the next few weeks. Retail still looks strong also.
The semiconductor sector has begun to lag in this rally and is ready to roll over in wave (C) down. The pattern is a very clear 5-3 with a lower top. However, there doesn't appear to be many stocks that are good short candidates. AMAT may be an exception. Again, this supports the overall view that we have weeks and months of rally ahead.
KKD popped higher in an extended 5th wave out of the ending diagonal triangle Thursday. A pullback began Friday that should end in the 3.20 to 3.50 zone - a sharp pullback lasting about 5 days. A sustained move below 3.20 would be a serious problem.