(Update Mon 12/19/11 3:15PM EST)
I don't know how many of you read Martin Armstrong's publications, but I have referenced him occasionally. For the first time in months, I revisited his site and perused his Financial Armageddon article from 11/4/11 (see link below). To me, it seems like Mr. Armstrong is on a different plane of existence than the rest of us, and his musings and predictions intrigue me intellectually. Anyway, he is still projecting a stock market surge into 2014 or possibly early 2015. However, he is hedging his bets a bit against an inversion of his 8.6yr cycle. Specifically, he says a 2011 Dow yearly close above 12567 or below 10605 would suggest a probable multi-year uptrend or downtrend respectively. It looks like Dow will close in the middle which he says will make the long-term trend neutral. For the shorter-term trend (not well-defined but I presume he means 2012), he is using Dow 11909 as the bull-bear line. That equates to SPX 1223ish. I know Mr. Armstrong considers long-term trend lines but you'll need to read his writings further to understand how he arrives at his numbers. Given my preferred bearish triangle count and prediction that Dow will stay positive for the year (11578+) in combination with Mr. Armstrong's bull-bear line at 11909, it would not surprise me to see Dow close 2011 at 11600-11900 which currently equates to SPX 1190-1220ish. It's not something I'd hang your hat on, but Mr. Armstrong's short-term and long-term lines in the sand do match up with my call for a bearish 2012 (but not as bad as 2008) and triangular 2009-2013+ assuming Dow closes 2011 below his key 11909 level. BTW, the System will take 25% profit at 1%, 1.5% and 2% gains which equates approximately to 1202, 1196 and 1190. And, if 1204ish holds, you have what looks a diagonal triangle (Dow overlapped, SPX missed by 19 pennies), so beware a sharp snapback until the 62% Fib at 1200 is taken out. OEW's 1222 pivot area is probably the key to keep the downtrend going. Good luck.
http://www.martinarmstrong.org/files/Financial%20Armageddon%2011-04-2011.pdf
(Update Mon 12/19/11 1:10PM EST)
In line with my thoughts that any pattern is possible over the next 1-2 days, I wouldn't get all bullish if SPX rallies in 5 waves to 1230-1240 into Tuesday because SPX could be forming a 3-3-5 flat from 1209.47 and I wouldn't get all bearish if SPX drops to 1180-1200 because you will be fighting a support cluster, a likely mid-cycle low (projected for Christmas +/-), a corrective-looking drop and seasonality. Turnaround Tuesday (or into Wednesday morning) looks very probable either way. I still think selling/shorting the rallies is the way to go for the next month but the time to hang on tight for the ride down is fast approaching and 1267 looks like the line in the sand. Good luck.
(Update Mon 12/19/11 11:10AM EST)
Another sold rally. The System stopped out of its SPX long at 1214.54 for a draw and, given the System's neutral position, flipped to a short position at 1214.54 with a stop above 1224.57. I am not real confident in any near-term trade right now, so I'll probably take quick profits until we approach the new year. Given the corrective pattern down from 1267 and the corrective pattern up from 1209, there are a lot of possibilities for the next day or two but they all increasingly fit the triangle count from 1075 and increasingly deviate from the 1293+ zigzag scenario. SPX could hold 1209-1215 once again and retest 1225-1240 but I'm still leaning towards a test of 1180-1200 within a few days no matter how SPX gets there. I'm also considering the possibility that the triangle could end earlier than I expected (this week instead of Jan 2 +/-), since each leg is not required to retrace 62%+ of the previous leg. One day at a time but the clock has almost expired on bulls.
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The US government appears to have finally agreed on something: a payroll tax cut extension, an unemployment benefit extension and a $1 trillion budget. http://www.foxnews.com/politics/2011/12/17/payroll-tax-compromise-set-for-senate-vote/ The House is likely to approve the 90% Senate-supported extensions this coming week. However, the extensions will only last 2 months so that Congress could move beyond their impasse and get on with holiday breaks. That combined with the lack of a credit downgrade over the weekend should provide a Monday boost, but that probably depends on European news between now and then. Regardless, the US action is nothing more than a sugar cube which will provide a very short-term energy boost at best, and smart investors will see this as nothing more than another example of Congressional incompetence and debt-based spending to delay a debt-based debacle for another day. As far as I know, that is the last best news we are likely to receive until January 25-27 with the next FOMC and GDP announcements.
I know I have triangles on the brain in recent months, but market action has done little to dissuade me. VIX and USD look like they could be forming multi-week diagonal triangles inside multi-month diagonal triangles. SPX looks like it is forming a multi-month sideways triangle inside a multi-year sideways triangle. It's difficult to predict the day-to-day action in such choppy patterns especially when sentiment and indicators swing from one extreme and historical record to the next while currently being very mixed. I believe the short-term choppiness will resolve into a sharp downtrend starting in 2 weeks +/-. Here's why.
1. My top 5 intermediate-term indicators favor a mid-to-late January low: cycles, leading indicators, sentiment, currency/credit markets and S2EW. See my recent post with details about these.
2. Good news vacuum: Q4 2011 advance estimate late January, next FOMC announcement Jan 25, European conferences just ended, central bank coordination just occurred, payroll tax cut extension and budget just approved, holiday inactivity likely until mid-January+, more credit downgrades expected, next quarterly US corporate earnings in mid-to-late January, unemployment claims are unlikely to get much better than the last 2 weeks, any annual revisions are unlikely to be positive...
3. Fund redemptions: I wrote a detailed post about this a month or so ago. After a series of quarterly market scares culminating in a bad quarter like we had up to Q3 2011, the following quarter's rally is likely to be sold if it cannot break key resistance. In Q4 2011, SPX has been rejected by its 200dSMA, 1250ish breakdown level and its uptrend line from 1011. If SPX cannot rally hard into Christmas, investors will likely issue redemption orders for Q1 before Christmas and most of those will be executed in January while prices are still well above Q3 lows.
Having said that, those same reasons will support a strong 2-3 month rally starting in late January +/- although I suspect distribution to start again by March. I stick to my forecast for SPX to end the year at 1200-1260ish followed by a sharp drop to 1050-1100 by late January followed by a 2-3 month rally and then 850-900 by mid-to-late 2012. The bulls primary hope is for SPX to break 1267 in the next week or so with USD $79.50 becoming resistance. I'll probably add more to this post below before the Monday open. Good luck.
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I just listened to Terry Laundry's latest audio update regarding T-Theory's volume and breath oscillators and time symmetries. Terry is expecting SPX to rally or chop around more into Tues/Wed this week before beginning a deep slide into Jan 22-24. Obviously, that matches my projections pretty closely. My preferred triangle count calls for a final Santa rally once 1180-1200 is reached, but the final triangle up leg does not need to test the upper triangle boundary and the more bearish count could take hold if 1180 is broken. Terry does offer the possibility that only the 1159 low will be broken, but I suspect 1050-1100 will be seen. The key is what is happening as the System cycle low around Jan 19 +/- is reached.
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SentimentTrader is neutral, although it supplied more stats (as it did last week) that favor positive SPX action for the next 1-2 weeks with the possible exception of Monday and early Tuesday due to a put/call stat. From my recollection, the stats supplied by SentimenTrader and the odds supplied by Frank Hogelucht have not worked so well in recent weeks. The positive seasonality and occasional stat extremes appear to be merely keeping SPX from falling apart and even that support should be gone in 1-2 weeks. The current System cycle is left-translated unless 1267 can be surpassed, and that usually portends lower lows.
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Mish's recent article about Spain got me thinking. http://globaleconomicanalysis.blogspot.com/2011/12/home-prices-in-spain-drop-14.html
I stayed in the UK for several weeks at a time on many trips between 2004 and 2007. On my last visit in 2007 due to personal circumstances, my company paid for my family to travel with me and we rented a house. I spoke with the owner a couple times. He and his wife, like many British folks who consider Spain a top-notch vacation spot, were traveling back and forth between Spain and England managing properties. Around that same time, I saw a TV special about booming Spanish real estate and a couple struggling to differentiate their bed & breakfast from others by taking on more debt to refurnish it. I didn't think much about it at the time, but the point is that the Spanish real estate boom seemed to be crazier and longer than the US one. Spain's home prices rose until mid-2008. But, since then, Spain's seasonally adjusted unemployment has risen from 8% to 23% and home prices have fallen 20-30%+. This is a country expected to implement more austerity and reduce debt through restructuring, growth and taxes? They say Spain is too big to fail, but I don't see anything on the near-term horizon to make them truly succeed until the debt is resolved, not delayed. And, keep in mind, the China real estate bubble lasted even longer than Spain, and their downturn is in its early stages.
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Looks like I may have spoken too soon about Congress agreeing. The House is balking at some of the Senate's agreement. And, IMF funding for Europe appears to have more question marks too. Bumpy sleigh ride coming.
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