Thursday, December 30, 2010

Uncanny Close In The Qs

The January range displayed its predictive effectiveness this year as the April high and today's close were precise multiples of the January range above the January high.  Long entries were possible on a breakout above the August high which was above the January high, and the November pullback which remained above the April high. Shorting opportunities were available in June and August against the January high.

I will be reviewing the trading strategies in the strategy tracker for 2010 and giving my outlook for 2011 next week.

Tuesday, December 28, 2010

Wave B of (B) Is Nearing Completion

I've shown what I believe to be the most likely count for the Qs with a zigzag for wave B.  The correction from the April high would then either be an expanded flat or a running triangle or even possibly a running flat with 5 waves down terminating above the July low.  A running flat was seen in the middle of the 2002 to 2007 rally and could show up again.  It would probably be best at this point to wait for the secondary reaction in wave [ii] or [a] of C down to complete before getting short or adding to existing short positions.

While not shown, one possible alternate is that the move from the early November high to date is part of a 4th wave expanded flat correction and the Qs could see another new high.  That would not eliminate the above expectations for an expanded flat or running triangle, but it would change how it is counted.

Monday, December 27, 2010

Mirror Mirror On The Wall

In a somewhat strange manner the highs and lows of the Qs since the March 2009 low have formed an almost perfect mirror of the decline from the October 2007 high.  The only significant difference being that the rally is stretched in time compared to the decline.  At some point this unusual behavior will break down, but if the correspondence continues to hold up, we may be looking at a significant decline in the very near future.

Thursday, December 23, 2010

Happy Holidays

The SP500 appears to be completing a small degree 4th wave triangle while the Qs seem to be completing a 4th wave zigzag in a ending diagonal triangle.  My best guess is that Santa Claus will deliver tomorrow followed by muted selling next week with perhaps one more attempt at a high by next Thursday.  The last day of December is usually a down day while the first day of January is usually an up day.  However, either on January 3 or right after a correction should begin.  Once underway we can begin to assess the prospects for the extent of the correction.  At a minimum the April high should be tested.

Posting will be minimal until the end of next week unless something dramatic happens.

VIX Approaching 3+ Year Low

For the fourth time since October 11, 2007 the VIX is approaching the 15 level.  Each time this occured it was accompanied by a selloff.  Will this time be different?  It's possible, but beware a false breakdown in the VIX that sucks in the last of the bulls.

I suspect we may see a new 3 year low in the VIX coinciding with a market top.  However, the subsequent rise in the VIX should be limited to the July 1 high of 37.58 which is the origin of the declining wedge pattern.  This should correspond with a wave  C or 2 low.

Any sustained break of the 15 level would indicate the SP500 is ready to run to its all time high now instead of later.

Tuesday, December 21, 2010

SP500 At Resistance

The SP500 has neared resistance at 1256.98 at the March 21, 2008 low with a high today of 1255.82.  However, this is an area of weak resistance.  I define weak resistance as a previous swing low that has been penetrated by a subsequent swing high.  Strong resistance is a previous swing low that has not been penetrated.  The July 15, 2008 low of 1200.44 was a level of strong resistance.  Price did not penetrate that level again after closing below it on the weekly chart in 2008.  We can see that this was a strong resistance level in the price action this year as it has taken 3 attempts for the market to successfully move above 1200.44.  We should say successfully so far, as a failure to hold support at that level now would likely be viewed as a major failure.

When the market hits an area of weak support or resistance it is unlikely to hold that level.  We can see that once the SP500 failed to hold support at the 5/12/06 high of 1326.70 for the third time in 2008, the previous levels of weak support from the 2002 to 2007 rally gave way rather easily which partly explains the severity of the crash that occured in 2008.

I have pointed out the likelihood for an intermediate to long term top at the current time window.  Should the market top in this area, there is weak support at 1219.80 and 1200.44 and strong support at the August high at 1129.24.  The previous July low of 1010.91 is an area of weak support.  While double bottoms are common, a low that occurs well above a previous support zone creates a level of weak support.  The next lower level of strong support is the 6/12/09 high of 956.23.

Based on the above, I expect that a top that occurs now would likely try to hold the 1200 to 1220 zone.  If that zone fails, the 1100 to 1130 zone would probably halt the decline at least for a sizeable countertrend rally.  If the 1100 to 1130 zone holds, then a new base should form to propel the SP500 back to the vicinity of its previous all time highs.  If that zone fails, I would expect a retest of 950 to 1000 to follow before another rally could materialize.

The one thing to really keep an eye on here is if the 1256.98 level is taken out, there is little to stop the SP500 from racing ahead to its all time highs as there are no strong resistance levels remaining.

Monday, December 20, 2010

Waiting For A Signal

At the moment it is just a waiting game.  Of course I am looking for a top as I have explained over the past couple of weeks, but we haven't quite got there yet.  We probably need to see some sort of spike up and reversal to conclude that the top is in.  Tomorrow would be a good day for it being the winter solstice.  We also have a lunar eclipse this evening.  Maybe that will mean something. 

In any case, we are waiting for a MACD sell signal, which would be a negative divergence sell signal, as well as a break of the December low, which is now the low of the high month, for signals to go short this market.

For the time being I am still of the opinion that the coming decline will be wave (2) of [C] or wave (C) of [B] either as a triangle or a flat, but it will be many weeks before we will know how it will unfold.  Even though this will be a cycle high, I am reluctant to conclude that it is the top of primary wave [2].

Saturday, December 18, 2010

Update On AMGN

It has been over a year since I've mentioned AMGN, and it has continued to progress steadily in a very boring B wave triangle.  Presently, wave [d] of B is in progress and should continue for a few more weeks before wave [e] begins to complete wave B.  There is a slight chance that the December low completed wave [e], but I doubt that's the case.  After the completion of wave B, there should be a sharp upthrust in wave C of (D) which should last 6 to 9 months.

Given the very long nature of the primary wave [B] triangle, it may be prudent to exit long positions at the end of wave (D) and wait for a new entry point at the low of wave (E) which should bring AMGN back down to current levels.  However, there is no guarantee of that and wave (E) could just hang out high for a few months before it breaks out.  So, pick your poison. 

BIIB is slightly ahead of AMGN in the overall pattern, and it is disappointing that neither company is paying a dividend for the privilege of owning their stock during this huge consolidation, but I am personally accumulating shares in both as I think at least one will eventually have a huge runup similar to the 1990s.  I don't know what the catalyst will be for the runup, but the pattern says it should come.  When it does I will be counting 5 waves on the monthly chart to find the exit point.

What Did GE Do Today?

Yeah, it DOES look like EVERYONE'S getting into stocks.  A rare mention in the comics yesterday:

I don't know what's going to happen over the next few weeks, but the above is enough for me to not be buying stocks for a while.

Friday, December 17, 2010

Triangle In Progress

A small degree triangle is near completion that should carry the Qs up to 55+ prior to a top.  The next up move should be the last one for the rally from the July low. 

Sentiment has reached extreme levels.  See the article from Mark Hulber:

Thursday, December 16, 2010

4th Wave Triangle In Ford

A 4th wave triangle in Ford points to a likely continuation of its rally into year end.  It is also points to a looming correction when wave 5 is over.  It is hard to say whether the broader market will follow in Ford's footsteps.  The stock indexes appear to have almost completed a very small degree triangle that indicates higher prices Monday and Tuesday.  That may be it for the rally unless the markets can manage to subdivide the rally further.

Wednesday, December 15, 2010

Evidence For A Top Continues To Build

Two key breadth indexes are pointing to a top in the very near future.  Notice how the Absolute Breadth index has marked or preceded most of the major tops for several years.  Once again it has returned to an extremely low level that often occurs at or up to a couple of weeks before a significan top. 

The High Low Logic index shows when there is a divergence in breadth with a large number of new lows occuring with new highs as it rises above the 2% level.  It now stands at 1.93%.  I have highlighted previous instances where the 2% level was hit that resulted in a correction or selloff.  Notice that once the 2% level is hit, the index tends to fall with the market.  Bull market conditions are said to exist when the index falls back below 1%.  A sell warning occurs when the index rises from below to above 1%, which it did on November 5 and December 10.

The market may continue higher into the end of the year, but I think there is no doubt we are in a dangerous market period.  It is truly amazing how easily the drumbeat for a continuation of the rally into 2011 has increased in volume over the last few weeks.  Trader beware.

Tuesday, December 14, 2010

AAPL Ripe For A Fall

AAPL appears to have completed 5 waves up from the August low.  If the current impulse is also completing intermediate wave (5), then the coming correction in AAPL could be severe, but at a minimum it should retest the April and July highs around $275.  The action in AAPL just adds to the evidence that a top could be coming soon.

For those with an interest in astrology and the stock market, Mercury went retrograde on Saturday December 11.  It will go direct again on Thursday December 30.  It has been my experience that one of three things will occur when Mercury goes retrograde:  1) nothing happens as the existing trend remains in force, 2) the market sells off on the retrograde, reverses at 9 calendar days in +/-, and then sells off again into the date it goes direct, or 3) the trend continues until 9 calendar days in +/-, and then the market sells off until the end of the retrograde period.  A turn at 9 days in occurs quite often and would correspond to Monday December 20.  It looks like things could be lining up for a turn around December 20/21.

Monday, December 13, 2010

A Bullish Count For The TLT

Calls for the end of the bond rally may be premature.

Saturday, December 11, 2010

A Cycle Turn Of My Own

It is my personal and humble opinion that all of life is connected. Connected in ways that we will probably never fully understand. For some reason that I cannot explain, it seems that major events in my life have been connected directly or indirectly to the financial markets even before I became so involved with them.

I married my wife in December 1987. We were in love. I didn't have a full time job, and I didn't know anything about the stock market or any other financial market for that matter. I wanted to live a simple life, but life had other plans. Little did I know that the crash of 1987 would affect me so greatly. Even though I was highly qualified for a variety of positions in the engineering field, the economy was in the doldrums and there were few jobs to be found. I needed a job badly, and I only had two offers. One required moving to another state to work at a stable Fortune 500 company where I would probably still be working today if I hadn't taken the other job that did not require moving.

The other job (the road less travelled, if you will) has led me down a path that has been an adventure to say the least. But adventures are rarely easy. They can be fun, exciting, fear provoking, life threatening and a host of other uncommon things. I was able to get my professional engineer's license, general contracting license and heating and plumbing licenses while working in the other job that didn't require moving. After some time I got up the courage to strike out on my own in construction in 1995. This was coincidentally the acceleration point for the late 1990's stock market bubble. I had no idea.

I had this sense that housing was about to take off. I was right, but we were not in the right geographical location to really benefit from the boom. So although we were able to develop a high volume of work, the margins were not so great, and the business was difficult.

I started trading in late 1999. At the same time several important developments occured in the construction business. We landed several large commercial contracts, and it really looked as though my dreams were coming true. The sky was the limit. My trading account soared, and so did the construction business. But then just as quickly, the tide turned. First of all, I gave back all of the profits in my trading account and then some. Then, one of the commercial contracts fell apart after 9/11. Things continued to get worse into 2002. It was in December 2002 at the bottom of the bust that I learned I had a thyroid disease. I was so physically spent that I could barely work, but it was at that time that I committed myself to really learning how to trade.

Over the next four years I worked to regain my health, maintain enough construction work to pay the bills, and I learned to trade. I kept a small account. My goal was not account appreciation, but learning how to trade safely, prudently, consistently and successfully. During that entire time I only added money to my account one time, and it was a small amount. By late 2006 I knew that I had achieved my goal of learning to trade. The only thing to do was to keep on keeping on. I did add a little to the account at that point, and I started using sufficient margin to generate sizeable returns. The experience that I gained during the four years from 2002 to 2006 has allowed me to keep drawdowns under control with appropriate position sizing and risk management. These two things alone have kept me out of trouble most of time.

At the same time that I reached a level of competence in trading. We decided to buy a development from a local developer that was getting out of the business due to health problems. The price was right. I had done a proforma based on a worse case scenario. If the worse case scenario was seen, we should get out around break even. I also knew based on the work of Robert Shiller, Harry Dent and Robert Prechter that the housing market was likely due for a downturn. We had hoped to have the small development finished by late 2007 or early 2008, so I believed that we could miss the coming disaster. Well, I was wrong. Things started off great, but just as we passed the halfway point in 2007, the bottom fell out. The contracts fell through on the houses we had under construction because the banks would no longer loan money to the buyers. We ended up sitting on those unfinished houses until 2009. Fortunately, our business bank worked with us and did not call the construction loans or it would have been all over for us financially.

Also, fortunately we had found a great new realtor who was able to find buyers for those homes. She also got us presale contracts on the remaining lots this year, and we have been able to finish the development. We closed the last unit on December 1. I did some touchup work the following week and everything is complete.

Back in 2006 when we bought the development, I had a strong sense that I needed a backup plan. By another set of fortuitous circumstances it was suggested to me that I should consider doing consulting engineering work by a draftsman that had done some work for us. I had kept my PE license active all these years and a friend referred me to a businessman in our town that needed an engineer. After an interview with him, he hired me to do all of the mechanical and plumbing design for his new microbrewery. He had already been brewing beer successfully for many years and is well known in the area. This launched my consulting engineering business. There have been many ups and downs and late nights, but after two years I was able to replace my construction income. This is what allowed me to continue working on the development even though we only broke even in the end.

I am now officially no longer a contractor. I am leaving that business behind after 16 years. I find it interesting that I may be doing so at another important cycle turn date.

In late 2007, I decided to start blogging. I knew that this would be an exciting time for trading, and I got started right at the beginning of one of the biggest downtrends in many decades. It is my goal to replace my consulting income with trading income. That hasn't happened yet, but I started this site for the purpose of conveying to others what I have learned along the way, and as a way of forcing myself to maintain an even greater level of personal integrity with respect to my trading. I will continue to blog, and I have plans to expand this site to include for pay services in the future. These will be more along the lines of trading education, not stock picks and trading signals. I would rather people learn to trade for themselves.

At this time I am also starting a joint venture with a friend to trade a futures system that has proven successul over the last few years. It is a conservative system, and I expect that it will be profitable over the long run. I will let you know how that is going next year once we get everything up and running. This will not be a fund or for outside investment.

So, I am starting a new chapter in my life. I expect that based on past history future changes in my life will occur at important times in the financial markets as well. If so, they may be coming fairly soon as there will continue to be regular major turning points over the next six years before the next secular bull market gets underway.

Friday, December 10, 2010

Heading Toward A Cycle Top

For some time now, from late last year, I expected that we would see a market low in the time frame around the middle of December 2010 to the middle of January 2011 with specific target dates of December 21 to January 6. I have done some additional cycle work this week that narrows the window to December 30 to January 6.

The typical pattern for the 10 month cycle, which can vary from 9 to 11 months, is 12 weeks up - 4 weeks down - 4 weeks up - 12 weeks down. In a strongly trending market the up weeks will increase and the down weeks will decrease. At the beginning of a new 4 year cycle, there will hardly be any down weeks. This was the case in 2009. In 2010, we saw a surge off of the February 5th 11 month cycle low followed by a selling panic that bottomed on July 1 - just shy of 5 months from the previous cycle low. At that point it was quite reasonable to believe that after a 4 to 8 week rally, the market would sell off into the next 11 month cycle low due around January 6. However, this has not occured, and with each passing day it seems more likely that it will not occur.

Apparently, the force of a larger cycle is at work here pulling the market up into a high. More than a couple of analysts have noted the 7.25 year cycle that has been in play since the 1974 bottom. 7.25 years subdivides into four 21.75 months quarter cycles and is related to a larger 45 year cycle.

In comparing the 2009 low to previous lows, the 1974 low has the greatest similarity, in my opinion, so perhaps I should have given greater weight to the extent of the rally off of that low which lasted from December 9, 1974 to September 22, 1975 for a period of 1 year, 9 months and 13 days (21 months and 13 days). This is pretty darn close to the 22 month cycle period I have been discussing for the last few months.

I had hoped that we would see a low this December or January to set up the next leg of this cyclical bull market, but it appears that will not be the case unless the market sells off hard into the end of the year starting Monday. Unfortunately, triangles have formed all over the place which indicate more upside over the coming week. (BIDU is an example) This strongly suggests to me that we are moving up to a major cycle high as indicated by the basic price tee in the chart of the Qs.

In support of this view is the fact that sentiment has reached extreme levels as measured by the TRIN, the PPO of the equity only put/call ratio, and sentiment surveys. In addition, the Absolute Breadth Index is setting up for another top, the High-Low Logic Index appears ready to breakout for a sell signal, and the McClellan Oscillator and Summation Indexes are diverging strongly against price as are the MACD and RSI. Volume has also been below average.

In short I now believe that a top of Intermediate if not Long term significance is near at hand. If so, we should see many weeks and possibly months of down to sideways market action. At the moment it is too early to say whether this is the top of the infamous Primary wave 2. Personally, I don't think it is. Rather, it is more likely that we will see a larger double top with highs 10 to 20 months apart after which a more powerful down leg will ensue into the 2016 low.

So what is there to do now? Based on the above I will not be buying stocks or adding to existing stock positions until there is a clear cut unambiguous cycle low. I will be trading the Qs and the metals using my basic trend following strategies, some of which are shown in the Strategy Tracker.

The selling after the end of the year may be surprisingly strong. Be prepared. If the market were to top in the same time as the 1975/76 rally, the top would be December 19, 2010, which is also amazingly close to the winter solstice date. However, I suspect the powers that be are working to keep it afloat until December 30 if at all possible. Unless we see selling materialize in a dramatic fashion beginning early next week, there is little doubt that the coming cycle turn will be an important top.

Thursday, December 9, 2010

A Short Term Top (At Least) Is Imminent

The TRIN closed at 0.50 today and the 5 and 10 MAs of the TRIN remain well below 1.0 as they have been for some time. This is an excellent indication that strong selling event is imminent. The PPO of the equity only put/call ratio ($CPCE) hit 19.50 today - only a fraction below the level of 20 that has been associated with market tops for the last 3 years.

As has been the case since the November top, it remains to be seen how far the selloff will go and which elliott wave pattern will win out.

Developing MACD Sell Signal For The Qs

Wednesday, December 8, 2010

Sentiment Finally Approaching An Extreme

Sentiment as measured by the PPO of the equity only put/call ratio is finally approaching its extreme upper limit after hitting an extreme low in May. Had we put aside all other speculations and gone long on the low of this indicator we would have done quite well.

Tuesday, December 7, 2010

Citigroup Supports Bull & Bear Case

Citigroup is working on a very nice textbook elliott wave triangle. The most likely scenario is a move down in wave E beginning about now and ending in January followed by a 6 month advance in wave (C) up. However, the triangle could break to the downside which would mean wave (C) would be delayed for a few months. The primary takeaway is first that there will be a wave (C) up. It will likely top well before the rest of the stock market and so could be a leading indicator. Second, Citigroup will retest its 2009 low which supports the case for a resumption of the bear market once the current cyclical bull market comes to a conclusion.

JPM is tracing out a much smaller B wave triangle that also suggests more upside after a 2+/- month decline. I am not suggesting that either of these would be good investments or trading vehicles, but rather they point to the likelihood that the cyclical bull market has further to run. Less risky alternatives to C and JPM would be the XLF or the KBE if one is so inclined.

Summation Index Still On Sell Signal

New highs in the SP500 and the NYSE were not confirmed by the NYSE Summation Index. The Summation Index remains on a sell signal as its MACD is below its signal line and the zero line. A MACD hook sell setup is now in place which would be triggered by a fall to new lows in the MACD. It also appears that the Summation Index is about to break long term support around the 400 level.

Whether or not the expected selloff is just wave [c] of minor wave 4 or represents the beginning of wave C of (B) is still open for debate. As I have said before, it will probably be December 20 or thereabouts before we can know for sure.

Sunday, December 5, 2010

FXI Double Top

The double top in the FXI (Xinhua China 25 Index Fund ETF) looks pretty solid. We have 5 waves down from the November high for wave 1 and wave 2 appears to be underway with a likely top at the previous 2009 high. Thereafter a break of the December low will confirm that an expanded flat or triangle is in progress at primary degree.

Given that the FXI has led the US markets by 4 to 5 months more or less for the last 2 years, if the relationship holds up, we should expect a top in the US markets around the end of December to first of January followed by a decline in January, another high in March/April and a low in May/June.

Overall the pattern in the FXI is long term bullish for stocks as it suggests that once the correction is over in US stocks we will see another leg up along with the FXI. Exactly how the pattern will develop is still open for debate, but we may see a sharp decline over the next two weeks which corresponds to the August decline in the FXI. The nature of that decline and the subsequent rally will tell us a great deal.

Saturday, December 4, 2010

Isn't It Obvious?

This morning I find that IBD has now changed their market stance to "Market Resumes Confirmed Uptrend" without a follow-through day based on the Nasdaq Composite making a new closing high for the year. This is only the 2nd or 3rd time I recall this happening. It certainly is a reasonable position to take. Yet, I suspect by the middle of next week, we may see another change.

The rally to new highs appears to be wave [b] of 4 of (C). OK, I give in. Since it is so obvious to everyone, it really must be true. Yet, I had said that if the SP500 rallied above 1207.38 we would have to reconsider the bearish case. Now that it has happened it is time to get on board the train even if it is nearing the station. Without getting into all of the details, there are very good reasons to believe from cycles work that we will see selling from early next week into December 20+/-, but that will likely just be wave [c] down at this point. Thereafter, a rally into January should follow. Again, a fall below the July/August highs before wave 5 is seen would reinstate the larger wave (B) or [B] view.

While some may see the positive in this view, I definitely do not. Unfortunately, this outcome raises the specter of a very much less bullish resolution to this cyclical bull market than I have heretofore believed possible. In other words, it is beginning to look possible that the Robert Prechter camp could be on to something. The problem here is that we are heading into a cycle turn date of significance which raises the possibility that once wave 5 is complete the entire rally from March 2009 will be complete. The next large time frame turn date is in the late 2012/2013 time zone, so we could be looking at a two year bear market very soon.

The only thing that could save the bull market would be if the coming 5th wave is only wave [v] of 1 of (C), or wave 3 is wave [i] of 3 of (C). The question is how will we know? First, we will be looking at the character of the decline. Is it impulsive, or is it corrective? Secondly, we will be looking at sentiment. Does it get extremely bearish very quickly - perhaps even more bearish than the July low? If we see a corrective pattern and quick turn to bearish sentiment, then we are likely looking at a 2nd wave, and an even more powerful rally to follow.

The PPO (50,5,1) of the CPCE has been an excellent measure of sentiment during the entire rally from March 2009. It has remained in the neutral range during the entire rally from the July low. Wave 5 should produce and extreme high reading in the PPO. If it does not, then we may be in the middle of wave 3 instead of 5, with a more muted pullback coming after the January high. A pullback that remains above the December low would be the most bullish of all.

The low volume of this week's high coupled with low TRIN readings is consistent with a [b] wave high. We should see a retest of the November low before wave 5 begins in earnest.

For those who are interested, since 2000 the Nasdaq has been following the pattern of the Dow from the 1929 high. If this repetition continues, January will be a high followed by a two year decline (see the Dow 1939 to 1942). While such synchronicities can be helpful, they can be just as dangerous if you believe in them too much.

Thursday, December 2, 2010

A 22 Month High??

Markets are pushing toward new rally highs. The Russell 2000 and the Dow Transports are already there. These could very well be [b] waves of minor wave 4 of the rally since July 1. If so, it adds another layer of uncertainty to the big picture. We are coming up on the 22 month cycle turn date which is due in the time frame from December 20 to January 20 with a mid-point of January 6.

The problem is that instead of a cycle low, which has been my thesis since this summer, we could be looking at a cycle high. This might very well coincide with a completed wave (C) of [2] or [C] of x for the rally from March 2009. Unfortunately for the bulls, this would mean a long and significant decline is very near upon us.

The alternative is that the 5 wave advance from the July low is just wave 1 of (C) or (1) of [C]. In this case, a multi-week pullback in wave 2 or (2) should follow a top in December.

At the moment the wave [B] flat correction or triangle interpretation is still on the table so there is no reason to jump to conclusions just yet, and there are quite a few indications that a top is imminent which could still derail the wave 4 view: 1) the Absolute Breadth index is making a double bottom with its November 1 low suggesting a big top is near, 2) the Summation Index is still falling with a negative MACD, 3) Volume on the latest short term rally has been anemic, and 4) the JNK is not rallying with stocks suggesting that the appetite for risk is falling.

I think we will definitely see some kind of top tomorrow or early next week that may last into December 21. Whether it is just a part of wave 4 will not be known until then.

Wednesday, December 1, 2010

Not So Fast!

While the percentage gain today was impressive, I have not found any major stock indexes with higher volume than yesterday which means that today's action did not qualify as a follow-through day. It does appear that we may see at least another short term rally high before this upward correction ends, but it still looks like some sort of upward correction - double zigzag for the Qs, expanded flat for the Dow, etc.

Of course, the descending bearish wedge pattern was invalidated. Even so, I am seeing alot of large cap stocks that have completed impulse patterns and are ready to correct. I suspect this market will try to hold up until early next week before another leg down gets underway. So far, the 4th wave scenario is still on the table. We'll see next week if it stays that way.

My Take On Oil

VIX Breaks Out

The VIX has broken out from a falling wedge pattern, a typically very reliable pattern which targets the origin of the pattern. It will take a move below the November low to invalidate the breakout at this point. The breakout suggests stock market weakness in the coming weeks.

As of this post, the pre-market futures are making a strong showing with the SP futures up over 14 points. As long as the SP500 remains below 1198.62, the bearish triangle pattern will be the top count, and as long as it remains below 1207.38 the recent action should be viewed as an upward correction. However, if 1207.38 is taken out, then we would have to reconsider the bearish interpretations.