Saturday, April 2, 2011

The Big Picture

The SP500 cleared resistance at 1257 in January which for the most part eliminated the bearish potential.  Now after a retest of that level in March it is headed quickly toward the next resistance area around 1370.

Bears are hoping this will be the end of the rally from the 2009 low in minor wave 5 from the July 1 low.  However, it is more likely that we are in minute wave [iii] of minor wave 3 of intermediate wave (3) of primary wave [C] from the July 1 low, or alternatively, in minor wave 5 of intermediate wave (3), as I have labelled it.  The latter would leave waves (4) and (5) still to come.

The main point that is being overlooked in so much recent analysis is that if the 1370 level is hurdled, there is no more significant resistance for this market, and if it can make it back to the 1550 level, it will be the third time since 2000.  A fourth move to 1550 would almost guarantee a breakout [ref.  W.D. Gann], which would lead to a 600 to 1600 point move.

Is such an outcome probable?  I really don't know right now.  I only know that we are lot closer to such an outcome than is being suggested in the media.  Perhaps a more likely outcome is a move toward 1550 and another failure as cycle wave x fails to break out.  What comes afterward is any one's guess at the moment.  But the failure of potential cycle tops earlier this year now point to the rally extending well into 2012 and possibly 2013, so there is little reason to be bearish except for the occasional short term setups.  Even that is probably not worth the effort now.

As I said earlier this year, I would attempt to take advantage of shorting one more time at a potential wave (B) top.  Afterward I would be long only until wave [C] ends.  That is what I said and that is what I am doing.  Wave (C) down never materialized, so that is history.

As an example of the longer term potential we have Biogen.  BIIB appears to have completed a decade long triangle in mid 2010.  It is probably in the first impulse move off of wave (E).  A correction should be expected in the near future followed by a powerful 3rd wave which should propel BIIB to much higher prices, perhaps well beyond the first targets of 124 to 172. The prior upleg was 6 years long.  The current leg could be beginning a similar multi-year advance.  One stock doesn't make a market, but this type of action is not consistent with a near term resumption of a bear market.

Another example is CME, which is still in the process of setting up for a strong 3rd wave that should take it up to 500, at least.  Again, this type of action is not consistent with the resumption of a bear market.

Just to repeat myself.  The market is in the process of heading toward the next resistance level of 1370.  If this level is broken, then much higher prices could be seen over the next one to two years.  How high remains to be seen, but even within the context of an x wave, we could see the SP500 exceed its 2000 high by 338 points.  This would project a target of 1890+/-, or about 40% higher than current levels.

My pet stock KKD was pummeled yesterday after it missed earnings expectations.  If you fall in love with a stock, expect to take some hits.  I still like KKD, but its technical prospects have deteriorated.  Fundamentally, the company is doing everything right, and I expect that the stock will be rewarded at some point.  However, barring a major turnaround in the next two months, the current technical picture makes it unlikely that it will return to the 2003 highs during this decade.  My current view is that KKD is tracing out a complex upward double zigzag.  It is probably in wave B or X down now.  Wave C or Y up will probably top with the overall market in a year or two with price somewhere between $12 and $16.  I am long from $1.50.

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