Despite the excitement of a 7% gain this week I think the next move is more likely to be down than up. There have been three attempts to move above 1250 on the S&P since late Oct., each weaker than the one before, and we're at the cusp of the fourth. In fact, with today's retreat from a 1-1/2% intra-day increase, I think we just saw the fourth attempt. On the DJIA these Four Tops lead back to the last high of July, suggesting that from then until now we have been in a steady decline that has resisted breakout.
The other side of the coin is that the market is in an up-trend since the late September low of 1075 on the S&P, up through last week's low of 1155, and giving support today at 1170 or 1175.
Of course we're in both. So we're in a transition (that's not news!), but to what? The lines we're between form a triangle whose lower and upper legs will meet in three weeks at about 1210 on the S&P. (If we connect the highs of July and October the line is a little more gradual, and meet at 1240 a little later.) The DJIA corresponds, with the legs meeting around 11,900 in 4-5 weeks. So it'll have to break out above or below one of these lines by then.
I think we'll break downward for several reasons. The main one fundamental, that despite the gradually improving economic figures, the whole world economy is this house of cards built on debt. The US's economy depends on consumer spending and that also is based on consumer debt. I think we're reaching the unthinkable, just as we did with the 2000 stock market bubble burst, the more recent housing bubble burst, and the banks' near meltdown with surviving banksters obviously not learning a single lesson from it yet. This incredible debt, not just in the US but the whole industrialized world except China (with its own looming problems of one-party rule), together with a concentration of extreme amounts of wealth n the hands of a smaller and smaller percentage of people -- this just can't go on forever. That much is just my opinion. everyone will have their own, and I don't claim to have more insight than anybody else.
The other reason is when you look at the really long term the charts don't look good. I looked at the S&P from about 93 to the present with quarterly frequency. You see a huge head-and shoulder pattern -- the first shoulder in '99, a neckline of 800, the head in '07, and the second shoulder in July of this year. This won't stop being a shoulder until the market exceeds July's highs, and if it does it's still a shoulder if it collapses before reaching 1550.
I realize I have a 49% chance of being wrong. OK, a 51% chance. OK, more. One day at a time. But we'll know more in 10 months at the latest. That's when the descending trend above us (Oct. '07 high on the S&P 500 down through July '11) meets with the ascending one below us (from March '09 through last month's lows). Any breakout above or below prior to that time will give us a little more confidence in saying we're in a trend one way or another.
In the meantime I'm going to try to make what I can on the oscillations. Still learning. Making mistakes, like staying greedy and staying in after making 5% in Oct. then again 4% in Nov., and not taking my profits and relaxing until another opportunity comes. This time I did -- got in (cautiously, only 50%) Nov. 28 when the market showed it had bottomed, then got out when it fantastically rose on Nov. 30. (So I can aford to be pessimistic! If I'm right this time, I'll get another chance if/when the shares go back down!) I'm going to aim for singles and doubles for a while, not home runs. I don't think I have the timing for that yet. While everyone's so excited about the 7% solution this past week, we're still 2% below where we were three weeks ago if we stayed in the whole time.
I really like Tom's daily comments. I'm new enough at this to learn a lot from them, and feel that if I knew more I'd still be reading what he pulls together from so many sources and his experience. I often get ideas contrary to what I'd been thinking myself, or better, get turned on to topics and ideas I had no opinion about before because I did not know they existed or mattered.
