Monday, December 31, 2012
2013 Should Come in with a Bang
Some markets are inherently difficult to predict and trade. They whip up and down, they make higher highs, then they make lower lows, then they reverse. They shake everyone out of both sides of the trade -- and then, after they've messed with enough players, they run. This is one of those markets, and it's gearing up to run. That pattern is such that it probably shook out many bears right near the top, and has since shaken out many bulls. Now it's almost time for it to pick a direction.
For the past week, I've noted that the market had reached an inflection point -- and while the market's reaction to an inflection point isn't always predictable in advance, these points do represent a challenge to the market, and thus always open up the potential for a change of trend. The bears managed to seize control at that inflection point, and have not yet let up their chokehold since.
Meanwhile, Congress has only had a year to work out the Fiscal Cliff dilemma, so of course here we are in the eleventh hour, still trying to figure out what to do about it. In alignment with this uncertainty, it's interesting the position the market has placed itself in -- it hasn't locked-in the bearish count, and it hasn't locked-in the bullish count. It's still floating in inflection point limbo, and it seems to be waiting for the starting gun to fire. One thing that does seem clear is that it's going to make a large intermediate move very soon -- but the market seems uncertain on the direction yet. When the market commits, I'll follow suit.
Everyone seems to be looking at how bearish it would be if the Fiscal Cliff deal doesn't get done -- but what happens if it does?
There are still mixed signals in the charts, and the daily chart of the Dow Jones Industrials (INDU) helps illustrate the challenge.
Zooming in on the INDU chart, we can see that the rally since November is only three-waves so far, but it has not yet knocked-out the critical low to lock-in the rally as corrective (corrective moves are always expected to be fully retraced).
I'll admit, many things look very bearish -- but until the market dictates otherwise, I have to continue considering the bullish wave counts as viable possibilities. 12765 on INDU and 1385 on SPX is where the bulls become severely handicapped. Below is the S&P 500 (SPX) bull interpretation with noted levels: (continued, next page)
And the SPX bear interpretation, with noted levels:
The currencies are still bothering me for the bear view, as I covered in the last update. I would also like to publish a fractal that's still open in the US Dollar, before the key levels are crossed. Note this is simply an open possiblility left by the market, based on the three-wave rally and (presently) three-wave decline. I am more inclined to favor dollar bears, as noted in the last update -- but a long-lasting chop zone can't be ruled out yet.
Finally, below is a chart that may be of considerable help in unlocking the market's intentions over the near-term. The chart is the Philadelphia Bank Index (BKX) and provides a nice framework to help project the next directional move.
In conclusion, the bears have pushed the market right to the edge, but have not yet tipped it over. I believe the market is waiting on the Fiscal Cliff resolution (or lack thereof) to reveal its hand -- so hopefully we'll have an answer in the next session or two, and the market has positioned itself for an extended directional move in the near future. In the meantime, I wish you and your family a safe and prosperous New Year. Trade safe.
Reprinted by Permission; Copyright 2012, Minyanville Media, Inc.
Posted by PretzelLogic at 4:22 AM