Ian Woodward's Investing Blog

We have eked out an Eleven Week Rally and the Market is looking a trifle tired at this stage.  Last week was a rotten week for the Bulls, giving up all its cushion from the stellar bounce back to Uncharted Waters as I wrote in a previous blog note.  The time has arrived for the Bulls to fight back or collapse into a long awaited correction by the Bears.  Blame this week on a Stronger Dollar, the Irish kerfuffle over its Economic outlook and the hiccup on POMO delivery on Friday:

         

The Bottom Line is that the Bulls are Weak and the Bears are gaining the upper hand, while Grandma’s Pies have got more than a trifle moldy.  65:35 is the last call before we see danger and we are already at 57:43, so next week will be interesting.  The Inverse ETFs Portfolio I featured a few notes back is showing signs that they are stirring, but next week is do or die for them as well:

Although all Market Indexes have risen in unison, the true leaders for the rally have come from the Nasdaq 100 (NDX)…the Technology Big Caps.  Here is a snapshot of what has transpired with that Index inside one day, thanks to my good friend Chris White and his EdgeRater tool, which gives the picture in a wink!

The Market has given up its cushion, and we are at the Breakpoint:

We have had an Eleven Week run for this rally, and we are again suffering from Droopy Drawers…it would seem that three strikes and you are out from the picture below.  So we shall see if the Bears can gain the upper hand after patiently waiting all this time.  Frankly a little correction would be good before we trot into the Santa Claus Rally which usually starts around Thanksgiving:

So what caused the sudden deterioration this past week?  Blame it on a Stronger Dollar, the problems with the Irish Economy and a momentary glitch in POMO land:

So what are the High Road, Low Road and Middle Road Scenarios:

High Road:  An immediate strong bounce that sweetens the Pies again to >70:30.  This will be the true test as to whether the Bulls can regain control and win the fight at the High Chaparral at High Noon on Monday!

Low Road:  The Bears follow through on the gains of this past week and we head down for a minor correction of <8% from the high.  We will worry about anything more until after we reach that crucial point.  Remember that there is a 75% chance of a recovery on the S&P 500 for <8% corrections.  After that watch out below.

Middle Road:  We trot down a couple of points more and then the Bulls rally back enough to hold the fort until the following week when they should start to gain steam once more for Thanksgiving and the anticipated Santa Claus Rally.

Best Regards, Ian.

This entry was posted on Saturday, November 13th, 2010 at 1:19 pm and is filed under HGS Principles, Market Analysis. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.