With another rough year rapidly coming to a close, my guess is that Wall Street will do everything in its power to push the Dow above 10,000 and keep the Comp above 2000.
But Steve Hochberg, co-editor of the Elliott Wave Financial Forecast in Atlanta, recommends selling into any near-term rallies: "My sense is we're topping here in the next week," he said.
The market's up-down-up-again pattern since the Sept. 21 lows is called an "ABC pattern" in Elliott Wave's nomenclature, Hochberg explained. The market is in the "C" portion, or end game of what is "without a doubt a bear market rally," rather than the start of a new bull market, he said.
The newsletter writer predicted a "good down leg" beginning early next year that will retrace 50% of the rally since Sept. 21 and leave the S&P 500 in the 1050-1055 area. Such a move would be about an 8.5% drop from today's close.
"I think [the market] will wash out for a few weeks and generate fear," Hochberg said, indicating such a development will then "bring on another upturn."
In conjunction with the Elliott Wave principle, which catalogs long-term price patterns and seeks to use them to predict market trends, the newsletter also employs sentiment indicators, which show rising complacency among investors.
The three-week average of bullishness in the American Association of Individual Investors' sentiment index has recently risen to more than 62%, levels not seen since January 2000, Hochberg said.
The Chicago Board Options Exchange Volatility Index, which fell 5% to 24.16 today, suggests little fear. Finally, he noted that the sell-side indicator published by Merrill Lynch strategist Rich Bernstein shows "overwhelming bullishness" among Wall Street strategists.
"Nothing in our work shows a buy signal anytime soon," Hochberg said. "You need to have a downdraft to get that." |
