Saturday, January 31, 2009

DoctorMad Weekend Update – “…get your bull troops out of the way.”

“…better have some troops prepared to campaign with the bears or at least get your bull troops out of the way if the bears go on another rampage.”

Hmmm… I’m thinking the good Doctor sees the trenchlines pretty clearly. He has them drawn in all nice and pretty for you, I hope everyone appreciates his sharing, I know I do!
For my end of week update I decided to zoom out and give you a glimpse of how I see the overall battlefield for this entire bear market on the SPX 2 year day chart. The first thing I want to point out is that what most technicians see as the triangle or pennant from hell, I see as the coming intersection of the bottom of the yellow wave 4 channel and the all important dashed blue midline of the channel that has defined this bear market. It's a subtle difference looking at the pattern this way and doesn't really change the short-term trading impact of breaking either the top or the bottom line. What the trenchlines (channel lines) viewed from this angle does do is frame this triangle within the larger picture of the bear market.

I channeled in the moves starting from the May 19 top last year showing the 4 channels that contain the 4 major moves in the market since that top. Wave 5 looks to be on deck along with another trip to the bottom of the channel. How does 615ish SPX around the end of March sound to you? It's a very real possibility and you better have some troops prepared to campaign with the bears or at least get your bull troops out of the way if the bears go on another rampage. As long as the bears continue to hold the lines this is where we are heading.

Obviously watching that triangle no matter how you view it is going to be key as we head into next week and next month. The trade of the month is going to be either catching the break of the triangle (which may be hard) or the easier trade and the one I am going to look for is to catch the retest after the line breaks. On a shorter time frame, I also dashed in what I think could be the budding wave 5 channel for this move. As long as the bears continue to hold this new trenchline (note it's fairly steep with the top line being around 855 and rapidly descending) I'm going to continue to keep the majority of bear troops I have positioned to front-run the wave 5 march downward. If we break that new dashed channel (and I think we might) then we are very likely to rattle around the mid 800s for another week or 2 while we wait for the major trenchlines/ the triangle to resolve themselves.

Good luck next week and watch the key battle lines. Don't let your troops get caught with their pants down in case we get a sudden break. There are triangles in other key stocks and sectors that are much closer to resolving than the main SPX battle lines. How those individual battles resolve will determine the outcome of the larger war.

- DoctorMad