Sunday, February 22, 2009

DoctorMad Weekend Update - Blitzkrieg or War of Attrition?

Gee Doc, I’ll bet the bulls are hoping those aren’t the only two options! Unfortunately, that’s exactly what the fundamental picture is saying to me.

The bears continued their campaign south this week circumventing the Maginot Line at 800 SPX and extending their gains to the bulls last line of defense at ~750 SPX (the tech bust and Nov. lows). The bulls then mounted a small counter offensive to close out the week. The question heading into next week is will the bears mount a blitzkrieg type of assault smashing the 750 line and quickly heading to the depths of hell at sub 700 or will this be more of a groundout affair with the bulls holding onto their last defensive line and only grudgingly giving further ground.

The answer, in the short-term, lies in whether or not the bears can hold the momentum of the wave 3 channel, and in the medium term whether they can turn the 800 SPX line into their own Maginot line – capping future bull advances. Those are the key lines for the bears to hold. For the bulls it all comes down to this last line around 750. If it fails spectacularly and we get a major bull rout, it could be months or even years before the bulls see the current territory again.

Watch the NDX for clues as to how the action might unfold. Right now the bulls are piled into that index and holding onto it like Davy Crockett at the Alamo. So far the strategy has worked reasonably well as those inside the NDX fort have faired better than those outside of it. BUT, we all know how that story ended and not because there were a lot of survivors from the inside to tell it. 1140 is an important level below us that the bulls must hold, while the bears have to make sure the bulls don't get back inside their triangle they finally broke late last week. The bulls are also closest to breaking the wave 3 channel in the NDX than in any of other indicies.

Good luck next week.

One more quick note on the daily ES is we are still well on track for that 680ish March 17th bottom. Still alot of fighting to do, but that objective as defined by the momentum channels remains clearly in sight.

- DoctorMad

Love the Alamo analogy, Doc. I hate to see all the dead soldiers, but the truth is the battle of the economy has already been lost – it’s going to happen sooner or later. Since we’ve been on a military kick lately, here’s a Doors tune that I hope everyone enjoys. Jim Morrison is just awesome, he reeks of cool and I really like this staged format he did. Too bad he took himself out of life’s battle…

Doors – Unknown Soldier: