Here's one I think has much more validity. Of course I'll never be able to remove the bear suit, no matter what happens <G>
Technical Analysis
Spike Top or Continued Surge?
By Jeff Cooper
Street Insight Contributor
1/5/2006 6:57 AM EST
URL: thestreet.com
Technical Analysis
Despite Wednesday's lack of piggyback follow-through after Tuesday's jubilation over the Fed minutes, the market held well and consolidated Tuesday's gain.
A continued immediate spike higher here would make me more defensive than offensive. Of course, we may still get that spike.
I am more than suspicious that Tuesday's rally was program buying -- putting the pedal to the metal to squeeze the market higher.
All that I heard on the tube Wednesday morning was commentary about the lack of follow-through to Tuesday's sharp rally. Talk about the desire for immediate gratification! This is the nature of the computerized information age that we live in. It is what it is. However, the nature of the market is to thrust, pause, and pivot back in the direction of the initial impulse.
But with the Street married to the bull case -- which is almost always the case -- and with the notion of the January Barometer well imbedded in the psychology of market participants -- the Street has an interest in running the bull banner up the flagpole in the first week of this new year. As the January Barometer has it, there is a good correlation that as the first five days of January go, so goes the month. And as the month of January goes, so goes the year.
Wall Street has an ax to grind and a color to paint the tape, if it so chooses. That color, of course, is deep green.
As program trading now accounts for 57% average daily volume, we have to be suspicious and ever vigilant of one-day wonders without the benefit of follow-through. Follow-through reflects commitment.
Despite Wednesday's lack of piggyback follow-through after Tuesday's jubilation over the Fed minutes, Wednesday held well and consolidated Tuesday's gain in my estimation. In my work, a continued immediate spike higher here would make me more defensive than offensive. Of course, we may still get that spike.
Moreover, I am more than suspicious that Tuesday's rally was program buying -- putting the pedal to the metal in order to squeeze the market higher. Remember the old adage, "They run them up to sell them down." I am suspicious because the spike, after the Fed minutes were released, was not really supported by the contents of those minutes.
Firstly, the idea that the Fed is in the end game of raising rates is not a surprise to anyone. It is now unequivocal that the agenda to cool off the property market has finally taken hold.
Secondly, the Fed minutes show that there is still strong disagreement among said officials. It hardly seems that the Fed's statement that future Fed policy will depend upon future incoming data is a revelation or a cause for jubilation. But, be that as it may, it does appear that the Fed is looking for an excuse to stop tightening.
The important thing to remember is that words are not data any more than opinions are price. It is also important to remember that the Fed has not actually been tightening; it has simply taken the fed funds rate to a more neutral stance by removing easy money and accommodation. A move back past 5% in the fed funds would be definitive tightening.
Now, if you happen to know what the future data will be, then you can forecast like every economist on Wall Street does this time of year. The difference is that you and I don't get paid well for being wrong. As they say on the Street, it is never a good forecast to forecast, but when you do, give them a price or give them a date but never give them both.
With that said, I will stick my neck out -- not with a forecast so much as an expectation. This January is a tale of two cycles, maybe three. Time and Price are one and the same. According to legendary speculator W.D. Gann, the anniversary of important highs (and lows) in time and price will resonate or vibrate into the future, squaring out each other. This is what Gann referred to as the Law of Vibration. Last year, we looked at the vibration of the high of the Dow Industrials in September 1929 prior to the devastating 1929 crash. That high on the Dow was 386. Moving forward 386 months is November 1961, which was the top and rollover prior to a crash which began in May 1962.
As you know, 2005 was one of the narrowest trading ranges in decades. It reminds me of the narrow trading range of 1972, coming off the end of the go-go market of the 1960s that blew off into the end of that decade. In 1972, the market made a higher low in the fall of that year and ran up strongly into January 1973.
After a short-lived pullback in late December 1973, the market made a significant top in mid-January, prior to a devastating two-year bear market. From January 1973, 386 months forward gives us the spring of 2005. The S&P made a high in March 2005 and had been grinding somewhat higher ever since carving out a higher low last October -- similar to the October low of 1972. Although we are somewhat past the analog of the six-month pattern from November 1961 to the onset of the crash in May 1962, "History," as Mark Twain once said, "although it may not repeat exactly, it often rhymes."
Additionally, the important four-year cycle shows a high in January 2002, a break, and then a test in March followed by a subsequent sharp decline. My expectation is that the S&P can break out over 1278/1280. It could run to the next target of 1310.
Conclusion: The S&P hit its head once again on Wednesday on our 1275 pivot. Any move from here below 1260 would indicate a much more bearish posture was necessary. If I am wrong about a spike-top here in January, then it opens up the possibility of a continued run toward 1350 into March.
However, tomorrow I will show why Jan. 5-6 squares out with 1275 S&P. Consequently, it would not surprise me to see the market respect this 1275 level once again and give us a pullback before attempting to mount a possible breakout over this 1275 level -- if that is the market's agenda. |
