SPX outlook – same result from a different angle

Mc Laren (worth reading) comes basically to the same conclusion as my analysis does – the ongoing zigzag pattern from 1937 is pretty much the same as the current situation. We are in a 100 point range right now 815 -915 but at some point we will have extensions to the upside, hence 1000 and 700 more likely in Jan. For now, we should expect a few days of weakness before the holidays but we will get an upside attempt after the holidays for window dressing. Early Jan should be with a clear downside bias and another test of the 815 level is due. Obama’s stimulus package will be close to $1 trillion and might trigger another upleg to 1000, but at the end of the day, the yearly GDP of America is a roughly $14 trillion economy – so what can $1 trillion over 2 years produce other than to cover some erosion?Definitively not a miracle.  


December 19 2008



Every one is assuming this rally is a counter trend rally against the bear trend and are looking to sell into it. These will be traders looking for the opportunity to position in the direction of the trend and advisors and individuals who missed selling at the very anemic counter trend rally from July through August and will be desperate not to miss this opportunity to lighten up.

Therefore we might see something “abnormal” in the form of this counter trend. Right now there is a very weak wave structure up since the November low and on that basis this rally could end anytime. The price level I have been using for a top to a counter trend continues to be 950 to 1000, and is a very high probability.





This pattern of trend is a bit abnormal for a counter trend rally. Most intermediate term counter trend rally jam up and then run on the side to allow for distribution and don’t do any downside testing anywhere near the low until the counter trend rally is complete. In the circumstance of 1937 there was an exhaustion low followed by a break of that low, just as our circumstance. Followed by a weak rally and a down side test close to the low and then a run back to marginally above resistance. This was followed by another run down to support and a rally. Then a final run down to break the low and wash out the sellers. Our current circumstance could show a longer leg down in time but this basic pattern of counter trend remain a probability with a lot of investors and traders looking for a normal style of counter trend.

If there is a normal form of counter trend the rally could end around the 5th through the 8th of January and that time historically can bring in a change in trend. In 1937 the counter trend last exactly 92 calendar days from the November 23rd low (our current low was November 21st) and 126 calendar days from the exhaustion low. That gives us the date of February 13th through the 19th. If the index is going to repeat this style of counter trend it will bounce up from the 800 to 820 price level.

~ by behindthematrix on December 19, 2008.

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