Sunday, November 29, 2009


Several indexes have now tagged major resistance levels and been rejected. For my money the most important is the Nasdaq. This index has been leading this rally all the way. Two weeks ago I pointed out in one of the daily reports that the tech heavy Nasdaq was getting ready to run up against a big resistance level in the form of the declining 200 week moving average. I didn't think it would be able to get through that level on it's first try.

I'm betting on a 3-5 week pullback to regroup before this resistance can be overcome.

The S&P also came within a hairs breadth of tagging the 50% Fibonacci retracement. That's another resistance level I don't expect to get broken without a pullback to regroup.


Energy is now one of the largest sectors in the S&P. This rally is going to need the participation of energy to be sustainable.

Oil, however, is now setting up a volatility coil on the weekly charts.

Usually the initial break from one of these coils is a false move that is soon reversed. The reversal is usually much more powerful in magnitude and duration than the initial break. 

Since I don't think this cyclical bull is over I'm assuming the initial break is going to be down as the markets enter a brief 3-5 week correction. The powerful reversal  that should follow is in keeping with my theory that we are on the cusp of a rally of historic proportions in all commodity markets next year.

In order for this rally to continue we also need to see the banks participating. So far they have been unable to penetrate the 75 week moving average and are now forming a volatility coil just like oil.

The expectation here is the same as for oil, an initial break lower followed by a more powerful and durable move higher next year.

Finally the weekly chart of the S&P.

The 75 week moving average has been a pretty good indicator of bull and bear markets. Since the market is now back above that level we have to assume that this is no longer a bear market rally (actually it is a bear market rally, just a much bigger one, similar to this last cyclical bull from `02 to `07) but a new (cyclical not secular) bull market.

I expect any correction is going to be contained by the 75 week moving average just like they were during the last cyclical bull.