Happy New Year!

The trading environment in 2011 was one of the most difficult in many years.  It was somewhat similar to 2004, but with larger price swings.  It was also more difficult than 2010, which at least offered a couple of decent trends.  It is not likely that 2012 will be more of the same despite the consensus opinion.  Instead, 2012 will most probably follow the typical election year pattern with corrective action into March and May to complete the larger correction that began in May 2011.  Afterwards, the trend should be mostly up into the end of the year.

What is most perplexing at the moment is the disparity between investment advisors and the general media.  Investment advisors are mostly bullish at the moment, which is in sharp contrast to the tenor of media stories that have focused on the seemingly dire situation in Europe and the US budget problems.  This suggests that although the trend is up for the moment, the sentiment of investment advisors will need to return to a bearish outlook before a solid trend can emerge.  This should be the job of wave (Y) [not labeled].

Currently, the market is in wave Y of (X) up.  Whether wave Y completes immediately in the first two weeks of January or there is another shakeout first, the target zone near 1310 to 1320 should be hit either way.  Then a 4 to 5 month correction in wave (Y) should follow.  There are many who are calling for a major bear market to begin at any moment from a variety of perspectives, but the problem is that not all markets are aligning with the same wave count as was the case in 2007 and 2008, and also unlike 2007 and 2008 the sentiment of the general public is far more negative.  I think we will see an erosion of sentiment in the beginning of the year, which will allow the market to climb the proverbial "wall of worry."

I will be looking to exit short and intermediate term long positions at the target zone in January.  I will then be looking for shorting opportunities.  I will be onto long term positions into the expected 2013 or 2014 long term top.

This promises to be an exciting year for those who have not given up on basic trend following methods.  If the expectations do not materialize, we may see a pattern inversion like we saw in 2008, but there will plenty of time to change gears if that is the case.

I wish you all the best of trading success in the coming year.

Approaching Resistance

The Dow and SP500 are approaching resistance at the early December highs.  While there may be a pause there next week, the weight of the evidence points to a likely breakout with the Dow hitting 12800 and the SP500 hitting 1350 in January.  As has been the case all year it could fall apart anytime, but this time should be different.  Unfortunately the Nasdaq indexes are lagging, but they should be playing catch-up in January.

Happy Holidays!  Due to the demands of the season and other matters, I may not post again until after the New Year unless something major happens.

Dow Rebounds Off Support

The Dow gained 2.87% today in what appears to be a late follow-through for the rally that began 11/28.  The target is around 12800, which may be reached by year-end, or by mid-January at the latest.  Thereafter, traders should be watching for signs of a top at the 2011 highs, and an ensuing correction that could last into May.  

As I pointed out on Friday, sentiment had approached an extreme level, and on Monday we saw waning downside breadth which hinted at the possibility of a strong rally today.  If the Dow can clear 12258, the bears will have been pushed to the sidelines once again.  

The target for the Qs is 63 to 64.

Sentiment Closing In On Bearish Extreme

There are a number of cross currents in the market at the moment that are sending mixed messages.  The elliott wave pattern is ambiguous with a bullish bias.  The VIX is trending down, but the Dollar is trending up.  Leading stocks are no longer doing well, but some are beginning to show some buying interest.  This is a typically bullish seasonal period, however, advisors are too bullish.  One measure that is beginning to support a bullish outcome is the short term sentiment as measured by the equity-only put-call ratio.  The PPO of the ratio is now beginning to approach levels seen at intermediate term lows.  This suggests that while there may be some more testing at the current level, the next significant move will probably be to the upside as I have previously indicated.

There is one thing that bothers me though, and that is the High-Low Logic Index which reached 1.18 today.  This is not a sell signal, but it is a warning as it has moved into the neutral zone.  Confirmation of a buy signal would occur if it falls back below 1.00.

There has been buying interest at current levels the past two days, and there is every reason to think that next week will be positive.  However, the pattern of the action suggests at least one more probe of this week's lows before wave [c] up can begin.

Another Disappointing Close

Another down day was disappointing, and the bears seem to be expecting a significant decline, but while slightly lower prices may be seen tomorrow, the extended pullback seems to have run its course.  The McClellan oscillator has turned up from an oversold condition, and the pattern of the decline looks complete or nearly so.  Maybe Santa will show up next week.

That said, the weakness has put a significant dent in the number stocks that are set up to break out.  This probably means that the best we can hope for as we approach the end of the year is a rally back toward the early December highs.  It is fairly certain that the current choppy and weak rally that began October 4th is an (X) wave, and the market is currently in wave [b] of Y of (X) with wave [c] of Y of [X] to follow shortly.  Unfortunately, there is nothing that says that wave [b] can't be a triangle or double zigzag.  I'm thinking a triangle that plays out into the new year to keep everyone guessing, with a surge into late January.

What I don't see at the moment is primary wave 3 down, the mantra of the elliott wave perma-bears.

Dow Tags The 50ma

GOOG At Top Of Trading Range

GOOG has returned to the top of the range established since the January high and the June low.  After completing a 5 wave impulse at the January high, GOOG has been working on a flat correction that will most likely complete in the early part of next year after a retest of the June low.  At the moment a breakout is possible, and maybe even likely, but it would be prudent to wait for a pullback to support before assuming that it is the real deal.  It would probably be a false breakout.  Negative divergences are forming on the MACD, which may be used for short entry with a target at the low end of the range.  From there the upside target is 750 to 800, which may be seen toward the end of next year, or the early part of 2013.