The idea of a Santa rally is a rise from lows - like October lows - then up into December. We thought we'd see that this year. But Fibonacci and technicals have me questioning that (i.e., can the market make a higher high). Fibonacci time (1.618 time extension of the slide off October 2007) suggests that June-July might have been the highs of the move up from March 2009. Fibonacci price retracements raise this possibility too, as I've marked on my daily S&P 500 chart (courtesy of Stockcharts.com). Going into this "scary" Hallowe'en weekend, this stock index reached a Fibonacci retrace level (61.8% to 70.7%) consistent with a wave 2 pullback. The scary thought is, this could be all we get from the rally, even though we thought the rally might continue into December (after a pullback we'd expect over the next few days). I might not be the only person seeing that there's a potential downtrend channel marked by parallel lines incorporating this week's rise, as I marked on that chart.
We can let the markets tell us. For example, collect on the rally, then either re-enter if it goes higher, or re-enter after a pullback maybe by the end of next week or mid-November with a tight stop in case it's more than a pullback. So this could be a KI$$ approach. Can the market break above the bearish downtrend channels? Sure! - but we can wait to see if it does, or not.
Below are charts of the S&P 500 daily, the Baltic Dry Index, and the SPX monthly. I've included some markings, plus there are technical indicators that support what I'm pointing out. Daily basis the technicals still look positive (though the McClellan Oscillator does have some negative divergence, plus VIX as I pointed out last night is testing support); but the BDI has turned down, and the SPX monthly indicators show merely a backtesting that hasn't turned the indicators actually positive. The BDI is thought to point the way for stocks, because it's a measure of shipping activity and therefore economic conditions.
PS - Fibonacci fans, the 1.382 time extension of the 17-month drop from October 2007 was March of this year, which certainly was a wild time in the stock market. And the 1.786 time extension was August of this year - so a low, from the high crest at the 1.618 time extension. The next time that may echo (and possibly the last of much significance, we'll see) will be the 2.0 time extension in January. I've had to correct this note, because it's January (not December as I originally posted). It actually adds to reasons to look for a significant low (or maybe high) in January (and we'll see if that's a drop from a higher high than already reached). There are also reasons to look for a relative high in March - we'll see.
PPS - the 3.0 time extension will be in June 2013 (note, even the base 17 months is intriguing because it's twice 8.6 which has its own Fibonacci-type characteristics). So June 2013 could be a time projection for a major low, if we get a high-low-high-low-low sequence (10/07, 3/09, 8/10, 1/12, 6/13). Perhaps also interesting, a h&s target if the SPX made a neckline around 1075 that it'll go below, would be about 775. But a 70.7% retracement of the move 667 to 1370 would be roughly 880; which also interestingly, would be about 61.8% of the retrace from the 2010 highs back toward 667. That price range would touch around the midline of the downtrending fork on my monthly chart, around May 2013. I'm not saying this is ironclad, or even my primary point of view. Just charting out possibilities in case the SPX is going to work out a deep second-wave retrace by the May 2013 time frame.