Saturday, November 12, 2011

KI$$ up to real possibility stock market turns bearish from this resistance

My friends, this post is not to say the sky is falling, but to point out the very real possibility that the stock markets may not make higher highs for a Santa rally. It's also possible there can be a lower level (whether soon, or in December) from which a bounce could happen into late December, but still without making higher highs than we've already seen.

I'll admit, it remains theoretically possible that the markets break out into bullish mode and move to levels like 1326 in the S&P 500 ($SPX). [1326 would be the Fibonacci 1.618 extension of the September-to-October 4th range as I marked on my daily $SPX chart, above; whereas 1290 was the 1.382 extension as I annotated onto that chart.] Yet this post is to point out that there's resistance around 1282 to 1287, centering on 1284.50, in the $SPX, which is not far away. I'll add a weekly chart of the $SPX below, along with a few of my favorite technical charts (bullish percent for the $SPX, McClellan Oscillator and Summation Index, and the TRIN). These already show warning signs, such as the StochRSI that's dropped down for the bullish percent chart ($BPSPX), the weakness in the McClellan Oscillator and its Summation Index starting to turn down from overextended..

It isn't just the technicals, of course. There are extra whammies coming from the eurozone, and our country's own staggering economy, perhaps symbolized by the largest municipal bankruptcy in history occuring with the county where Birmingham, Alabama, is located. Demographics play into this as well, for those who study the economic effects of the baby boomers' spending effects diminishing going forward. The economy would be contracting even without the debt and unemployment problems.

I'm sobered as well this weekend by having listened to the audio commentary of Terry Laundry in the Observations page of his T Theory website. Whether or not you agree with his T Theory, it's somewhat chilling to hear him explain his view that the market won't move to higher levels. In addition, there are cycles experts I greatly respect who have sounded the warning that the market will drop significantly into 2012/1213 - and that, even if they don't drop immediately, there's no guarantee that we see higher levels.

So it's more of a gamble than ever. Maybe the markets will put egg on my face. Maybe the $SPX will break above that downtrend line on my daily chart, above, breaking above 1290 and tagging 1316, 1326 or even higher. I just want to put out a sober warning - don't assume it. If you're willing to chase price on a breakout above 1290, fine! But let's not assume that. The prudent course, as best I can see for KI$$ investors and swing traders, is to move to cash / defensive positions, selling into strength toward the end of this week or by early December at the latest. If the market surprises to the upside, breaking out over 1290, you can hop back into for a swing up, then move to cash / defensive from the higher spot (1326 $SPX?) before things turn down.

But if indeed the market is topping out here or in the upcoming days, then we'll be glad I posted this warning.

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