December 2nd, 2009

2009 Rewind: Part 4

As you read this, my wife, our dog, and I are cruising down I-95. In the meanwhile, I thought you’d be interested in highlights of just a few of the 157 posting so far this year (there were 259 postings covering the difficult 2008 crash). This is the last part of this 4 part series.

August 7, 2009: Difference Between Correction/Consolidation and Reversal

The 9-month long, inverted head-and-shoulders (Nov, 2008-July, 2009) was a classic, clear-cut, near perfect example of a bottom reversal pattern that you can’t find many clearer than. Once having been completed, the odds of it now failing were slim to none. By early August, the market had was flirting with 1000 on the S&P 500 Index, a level that happened to be the bottom end of the nearly year-long, consolidation in 2004 in the Tech Bubble recovery bull market. Some were beginning to look for the consolidation in the current recovery (and are still continuing to search as the Index is another 10% higher and bumping against 1100. At the time I wrote:

“I’ve mentioned here before the rule-of-thumb for measuring targets out of head-and-shoulder patterns: at a minimum, the neckline represents the approximate mid-point of the total move. If the distance from tip of the inverted head to the neckline represented a 43% move (952 neckline/666 tip), then the minimum target could be around 1350-1375. It won’t be a straight line since there will probably be major, lengthy consolidations along the way…. The recovery from the Tech Bubble Crash saw a major correction that lasted most of 2004 between 1050-1150; my interim target for the first one (after this traders’ remorse correction) is the 1150-1200 area.”

That’s almost where we find ourselves today, level I believe is a likely and excellent place for a consolidation.

November 9, 2009: One View of Market’s Future

Almost a month ago, when the Index was at almost the same level as Friday’s close, I began putting a plan into place for what I see as a short but rather steep correction in Q1, 2010. It was before the Dubai mini-crises, the Greece mini-crises and what be the beginning of a temporary end to the erosion of the $US.
The only thing that seems to be working right now is gold, silver, GOOG, AMZN, PCLN and NFLX. Even other large cap tech stocks like INTC, CSCO, MSFT are having difficulty marching ahead. The market has gotten very narrow.

“As the market approaches the target (1125-1150), it’s time to start speculating about what might come after. To repeat, this is mere speculation and guesswork as no one can predict the future but we have to some view so as to develop an action plan….

The correction or consolidation could be short lived as the true top of this bull market could be nearer 1350. With the neckline at 950 being half-way between the bottom at 660 and the top, on a percentage basis, a potential 17% correction demands an action plan. “

There’s a saying that’s especially true in stock charting: “If you don’t know where you came from, you won’t know where you’re going.” (o.k., I confess, I made it up.) This short recap of the highlights of this ride to 1100 tells us from where we’ve come. Only the stock market, over the next couple of months, will reveal whether we actually could tell today to where we were going.

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  • Jesse Caris

    No one's leaving you any love lately and it's been a while since I've commented. guru, you da man and I mean it. I hope you and yours have a spectacular yule log burning and may all your socks be filled with candy! It appears that the market has 1125-1140 in its sights and there's no power of reality that can stop it. like a drunken sailor in a storm on his maiden voyage, this market continues to defy reality. Based on my positions in the market, I can only hope you're wrong about the correction/consolidation. But when have you, the guru ever been wrong. We should be calling you the oracle.