Friday, February 3, 2012

A Market That Just Won't Quit

Despite attempts by many, including myself, to find a top in this rally, the market seems content to keep marching higher.  Since August I believed that we were in wave (X) of [X], but the action in the Qs this week seems to negate that view as almost the entire weekly bar is above the 2011 highs.  And now we have a weekly squeeze long signal in the Qs as well to go along with already existing signals in the SP500 and the Russell 2000.  The last time there was such a confluence of weekly signals was 2010, which led to a 19 week rally after the signal week.  

I will look at a new wave count next week, but the best interpretation is that the November low completed the combination correction.  This means the Qs are now in wave [iii] of 1 of (A) of [Y].  Wave [ii] ended at the December low.  Typical fib projections of wave [i] put a target for the Qs at 65.58 to 69.94.  I suspect 65.58 will be seen at least before wave [iii] ends.  A 2 to 3 week correction in wave [iv] should follow as a flat, expanded flat or triangle (I would bet on a triangle given the market strength), and then wave [v] with a target between 69.07 and 74.47.  If wave [Y] = wave [W], wave [Y] will end somewhere around 90, but if speculative fever takes over, we could see a retest of the 2000 highs.


There will be pullbacks of course, but until we begin to see some distribution the only place to be is long, with perhaps a few exceptions.  As things heated up this week I began to add new long positions and will continue to do so until I see a reason not to.  I had exited STX with a 26% gain off of its pullback to the 50ma, only to see it rocket higher another 30%.  This was a pretty good clue that my original view was wrong.

There are those who continue to wait for the mythical wave [3] down, but I believe those hopes will be dashed when the SP500 eclipses the 2011 highs over the next few weeks.

1 comment:

farmland investing said...

Fundamentally, nothing has changed. We are still in an uptrend. BUT, if you consider the broader macro picture, nothing has been solved in Europe and default by Greece and likely Portugal too is right around the corner. Just be careful. Personally, am long volatility now as an equity hedge.