[stained jeans]

The closing high on the S&P 500 last week was 1140. That, I believe, is the final advancing high on a weekly closing basis for the current counter-trend cyclical bull market. There could be more push up in the early part of the coming week, but I suspect that 1140 weekly will be all she wrote for a long time to come.

Using inflation-adjusted monthly averaged data, there have been four market sell-offs in the S&P 500 over the past 35 years that exceeded 25 percent. These began in January 1973 (-53%), September 1976 (-39%), August 1987 (-26%), and August 2000 (-45%). What did all of these have in common? Was it rising inflation? Nope. Only in 1973 did rising inflation play a major role in triggering a bear market, though it did contribute to the 1976 bear later on. Short-term interest rates? Uh-uh. Just in 1973 and 2000. Long-term interest rates? In 1987 alone. How about a falling dollar? 1987 again.

The one common thread to each of these cyclical bear markets was falling liquidity. In every case where my liquidity indicator RPCM2 was falling and either at or near its 7-year moving average, one of the above mentioned bear markets was in progress. As of December 2003, this indicator has fallen as far below its MA as it did by July 1987 -- just one month prior to the final top that year. That hints that we should be on the alert for a top in this month of January.

(By the way, ignore the topic description. I was playing around with a few ideas and then posted before I was ready. Now I can't figure out how to edit the damned thing... )

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[stained jeans]

Speaking of 1987, one week before the S&P 500 peaked out on a weekly closing basis, trading volume reached a 52-week high signaling that a buying climax was in progress. The same thing occured in the week ending January 9, suggesting that Friday's close is the end of the road.

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[stained jeans]

It would be reassuring to get confirmation by my favorite sentiment indicators. The BullBear Index reached 37.6 last week and a move over 40 in the coming week would support the bear case. My greed/fear indicator below is testing its recent high. Elliott Wave says that the retrace of the fifth wave diagonal triangle should not exceed the high made within that triangle. So this suggests a downturn is imminent. A close by this indicator below its 25-week MA is a sell signal.

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[stained jeans]

It would be of great comfort to bears to see interest rates rising at this time. However, as noted before, the 1976 bear market was not triggered by interest rates. Nor was it the result of either rising inflation or a falling dollar. So while these would make it easier to believe that a major sell-off is at hand, history tells us they are not required.

From a strategic standpoint, I will sell my longs (QQQs) just as soon as the 8-week long uptrends in the NASDAQ and the S&P 500 are broken to the down side. According to my Elliott Wave count of this most recent leg up, it is currently in its final 5th wave. And just as a point of interest, when 1987 prices are synchronized with the current ones based on the selling climax spike noted above, Friday's closing price coincides with the final closing high on August 25, 1987.

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[The brown one]

Excellent work SJ--hope you are right.

[FeedFool]

Still in the 5th wave, one should be looking at wave structure for the clue once spoons goes in correction mode.

Watch 22nd

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[Hiding Bear]

Tanks.

I mentioned about a month ago that the outlook for the M-2, M3 money supply would be down over the next few weeks or so. The trend is still down. In the latest weekly Fed report, M-2 money supply dropped by $5.5 billion but M-3 reversed and rose $29.8 billion. Over the period from 20 week period ending January 5, 2004, M-2 has dropped $124 billion (5.2% annual rate); M-3 dropped $148 billion (4.3% annual rate). My prediction would be that at best the Ms make only small gains over the next month or so: more likely continued declines, but at a slower rate.

Looks like a bearish setup, and every day seems to be closer to the sell signal, but the technicians say we are not there yet.

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[FeedFool]

Hiding Bear, on Jan 18 2004, 03:07 PM, said:

Tanks.

I mentioned about a month ago that the outlook for the M-2, M3 money supply would be down over the next few weeks or so. The trend is still down. In the latest weekly Fed report, M-2 money supply dropped by $5.5 billion but M-3 reversed and rose $29.8 billion. Over the period from 20 week period ending January 5, 2004, M-2 has dropped $124 billion (5.2% annual rate); M-3 dropped $148 billion (4.3% annual rate). My prediction would be that at best the Ms make only small gains over the next month or so: more likely continued declines, but at a slower rate.

Looks like a bearish setup, and every day seems to be closer to the sell signal, but the technicians say we are not there yet.

http://stoolcities.c...fool/index.html ----->Click here<----://http://stoolcities.capitalstool.com...ck here<----://http://stoolcities.capitalstool.com...ck here<----


Doug Noland has said look at the whole debt creating machine not just one components.


I can see what Grease Al is up to. If one reads what he has been saying then it will become lot clearer soon enough.

I would just keep away from shorting for at least 3 months or a failed rally.

[stained jeans]

The brown one, on Jan 18 2004, 08:54 AM, said:

Excellent work SJ--hope you are right.

Don't we all.

[stained jeans]

FeedFool, on Jan 18 2004, 02:15 PM, said:

Still in the 5th wave, one should be looking at wave structure for the clue once spoons goes in correction mode.

Watch 22nd

Feed-

Based on Fib ratio of Wave 1, I get Wave 5 projections between 1142 and 1158. Looks like that fits well with your projection. Beyond that level and I am back on Top Watch.

[stained jeans]

Hiding Bear, on Jan 18 2004, 03:07 PM, said:

Looks like a bearish setup, and every day seems to be closer to the sell signal, but the technicians say we are not there yet.

Hey, I'm a contrarian so you're talking my lanquage. I get real nervous when there is a lot of agreement among the bears. The Gann types have pointed out that 1139 S&P is 360 degrees from the October 2002 low of 769. That's more company than I prefer but I'm heartened by the fact that none of them appear ready to pull the trigger.

[FeedFool]

stained jeans, on Jan 18 2004, 05:00 PM, said:

Feed-

Based on Fib ratio of Wave 1, I get Wave 5 projections between 1142 and 1158. Looks like that fits well with your projection. Beyond that level and I am back on Top Watch.

I must tell u I don’t use Preacher Ewave. 5th wave may not end there its just an illustration. Best thing to do is see how waves unfold and watch those corrections then analyse them. Secretes are in the waves.

If u look at Nikkei it's in 4th wave not an ending diagonal so what does it mean for the American market?

We will soon find out hopefully next week where market is heading.

[MrHankydoesWallStreet]

SJ,
Thankyou for your superb charts and analysis.
Truly some unique and fascinating research you have done and so good of
you to share with us.
My FCS is on ST sell ON all three QQQ,DIA, SPY since Jan 6.
IT signal is still long (since April2002). I only act on the ST signals that confirm the IT trend so just in cash now. I do see other reasons for a decline here on SP (RSI bearish divergence on daily) and some price resistive features along with that .5 time extension.
Will it be the BIG PIVOT? Won't know for a while, but the techs look SO strong, bullish charts EVERYWHERE, financials breaking to new highs, hard to believe it will fall apart here!
But C waves are characterized by there very sudden changes of character.
I have no open trading positions at this time but anticipating next chance to go long with many on my watch list.
We will see if I will need to scrap it and start scanning for the short set-ups but there sure are very few now.

Regards,
Hank

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[MrHankydoesWallStreet]

Fiber Optics on Fire

The Technology Groups were strong on Friday and the Networking Groups were amazing. On January 2nd I wrote "On the long side today the Network Fiber Optic group got a major blast of buying with volume. This once mighty group is still way down and could provide plenty of upside if they can gain and sustain momentum." We posted the Group reversing long that day and every day since the initial post. Check out the charts in the Group and you will note that many of the stocks are up as much as 30 to 40 percent. This is the best most recent example of the power of Industry Group rotation. The Electronic Manufactures are an equally good example.
Our post for today on the long side is all Groups that we have been posting because they keep going up.

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[stained jeans]

MrHankydoesWallStreet, on Jan 18 2004, 06:27 PM, said:

the techs look SO strong, bullish charts EVERYWHERE, financials breaking to new highs, hard to believe it will fall apart here!

Hank-

Thanks for the input. Always value your opinion.

It would be stunning to see these collapse over a week's time, but I just calls 'em as I see 'em. Yeah I noticed the ST divergences on the overbought indexes and although they are overbought on an IT basis, no divergences there. Suggests at least a retest of the highs after the next ST pull-back.

By the way, what is FCS?