Talk about false breakouts

[David Randolph]

I believe the market will do whatever it has been doing. And what the SPX is doing is false breakouts, it establishes a range, then breaks it on the downside to rise and ... break it on the upside. But there's no new bullish trend, it comes back down again, establishes a new range and finally ... breaks it on the downside. But it is a false breakdown, it comes back into the range again, goes on climbing and, pushes to new highs.

If technical history is any guide, and I believe it is, the current medium term move will also be a false breakout. Maybe the bull leg will give a new spike up, maybe not, but I don't see the bullish move last much longer.

So I want to buy defensive stocks and maybe if that spike comes, use a part of the 3 Stocks on Fire capital to sell some stocks short. For now I'll just buy some stocks that did well when the market was down, and are interesting at this point.

[David Randolph]

Good morning !

I'm a little short on time today but I want to give you my current view of the general market. I think the S&P500 has about 1.5% more of upside and that the current rally is a suckers rally (I don't like the expression, since I'm proud to be one of the suckers profiting from the advance, but ...  ).

I thought of going back to full invested again, but I feel that for just 1.5% of potential upside (according to my personal view, which can be wrong - I'll justify later) it's not worth it. What I'll do is to prepare myself for the next big move, which I think will be down, not up.

1285 points on the SPX, or 128.5 on the SPY, is the stop and reverse point. If we reach that point I will sell some longs and go predominantly short, even for the 3 SOF Fast Portfolio (specially in this).

Good luck and enjoy the bull ride, while it lasts 

[metro]

Remember that the S&P 500 is not a good representation of the broad market as it is weighted with only 100 stocks making up 70% of the index.

The equal weighted S&P that uses all the 500 stocks made a new all time high yesterday. With caution the volume has fallen off....

http://tinyurl.com/8ueol

and also making new all time highs were Russell 2000    S&P 400 MidCap  and Value Line.

Short term we may see a pull back that would probably be good as so many stocks are over bought but things now look promising for the next month to 3 months. But Feb or March often spell the end of rallies.

[eliteG]

I see possible short-term trouble in the Nasdaq in the form of a v-double top. 

[ScottishTrader]

I don't know too much about Wolfewaves, having only found them recently through Calven, but if my analysis of the Wolfewave patterns are correct, they confirm EliteG's sentiments.

The 6 month chart shows a perfect WW that broke to the upside and achieved its target (where the target line is determined by connecting points 1 and 4, as shown).  WW analysis would expect a drop once this target has been reached.

On the long term chart, a Wolfewave has been forming in an ascending wedge, and point 5 has just been formed (for those that don't know about Wolfewaves, point 5 should break out of the channel or wedge formation, to the upside in a bearish wolfewave, to the downside in a bullish wolfewave, which has recently occured).  The target for the long term wolfewave is less than 2000, and the COMPX could make a move to those levels over the next several months.

For more info on Wolfewaves, see Calven's thread:
http://www.3stocksonfire.org/trading/index.php?topic=3732.0

(Calven - if you see this, please let me know what you think!!)

[Lucas Scott]

Calling market tops and bottoms is a tough game. The best pundit I've seen at doing it is Donald Luskin in his "Ahead of the Curve" articles at Smartmoney.com. He writes an article once every week or two. It first got my attention when he was calling a bottom in late April. That turned out to be right so I went back about a year in the archive and saw his calls were consistently 'ahead of the curve.' Since then he was right about the market top in late July and the bottom again in late Oct/early Nov. I know I probably sound like a paid shill LOL. I'm not. He just seems to know his s--t. The articles are free. I keep this URL bookmarked:   

http://www.smartmoney.com/aheadofthecurve/index.cfm?story=archive

From the 11/18 article:
Stocks remain deeply undervalued vs. corporate earnings, and that's a plus for the bulls. My model still has the S&P 500 more than 40% undervalued. But the market has risen over the last month — and the more the market rises, the less room there is overhead for future gains. Don't get me wrong: There's still room above. So be optimistic, but don't be greedy.

[Terliso]

I never heard wolfwaves pattern is this a new added technique? please enlighten...

[metro]

The broad market NYSE has been doing great with a double in the last 3 year but has shown negative divergence for a couple of years. The index is now at all time highs and the negative divergence could change if we get a break out here. This could then lead to a four year cycle top that is due time wise in the first quarter of 2006. The smaller NASDAQ has been greatly under performing but it may pick up as the semiconductors have started to pick up steam.

In the next 1-3 months we may see a blow off top like we did a year ago when finally investors who had been sitting out finally decided to get in...when all the money does get in then there is none left to move the market higher...

For the DOW watch how leaders like IBM and GE do as they have been hot for a couple of months and how they handle the pullback is a clue for that narrow market.