Look for an extended trading range

I dont see anything that changed the likelyhood that the market is going into an extended trading range with room for a lower low to 1020. Typically when going into an extended trading range, it starts like this followed by a dead cat bounce and then spends several days testing the low end. Then there is the snap-back rally to the previous highs followed by a more gradual decline to the previous lows. With so much talk of a higher USD (pure advertising by the media to get longs back IMHO) to help talk it up for the Fed, this can be expected but the market wont rally in the face if a higher USD short term to 77-79.

Also, this pullback should be a little more and longer than the last few. So 8% and a few more weeks hanging around the low end of the range would make a lot more sense than a sharp rally back to 1100 or +. So far this does not look like it will be a 9:1 upday in volume.

Is it a top yet

For all practical purposes, I must say yes, at least for the short term. That does not mean that the market can't see one more surge to 1100+ on a USD induced rally next week. The indices and various sectors all pulled back to support and the USD still does not want to rally just yet. It all seems like bracing for a dollar rally that may not start until next week or sometime soon after.

Technically, we have seen virtually every sign for a top, but stocks will continue to take their cue from currencies. There are many moving parts there. For example, Gov. Carney of the BOC spoke of possible intervention. Many traders reacted with short-covering in USD/CAD. Markets will probably continue to heed the BOC threat, so in the short term, I expect to see more of the same in the coming weeks.

So, considering how central banks are in the middle of playing a big game of chicken, it would be reasonable to assume that the USD can make one more last drop before we see some intervention, if indeed it gets to that. We all know the Fed has no choice but to debase the dollar for the foreseeable future (2-3 years).

Be careful since we are at a critical inflection point for currencies. In the past, the USD has rallied in the 4th quarter when at these kind of levels technically and fundamentally.

Playing the next dip?

It could be tricky and will take some nerve to get short ahead of the weekend but my guess is that the markets drop at the open next Monday from whatever level we close at this week.

Market wants to go lower, but it is not convinced yet which direction the US$ is going to take short term.
Things are bound to happen soon there, and probably over the weekend.
The last rate increase from a foreign central bank came over the weekend, and currencies had a big reaction the following Monday.
We will probably see next week follow that same pattern. With US$ at this level, it will be very easy to see it bounce then and stocks drop on a Monday open.
It will take some luck to peg this top, and I will probably reenter short efts before Friday close depending on where we go in the next few days.

Also, valuation is still high at 1100 for S&P, but rising earnings estimates result in raising fair value after this earnings reporting season.
This market is looking forward to 2010 and beyond, and valuations will probably remain high until future expectations come back down

For now, if i see S&P dip to 1082 again today, my guess is a bounce back to 1095 will setup a possible H&S top formation and be a good entry to get short ahead of next week for a US$ rally induced correction.

Top SOON at least for the short term

From what I gather, the S&P may do well to break 1000 next week. I am not expecting much above that and will probably be below the 50% Retracement level I had been hoping for at around 1122 and by mid-week.

What to buy?

Health Care sector is a good place to look as the reform will likely be a windfall for the insurers if/when passed.
Also, as always, I will keep quality bio techs on the buy list when they dip as they always do from time to time.
I hope to elaborate on these ideas in the near future and share a few more as well. Keep in touch.
Don't forget, that even though GS and others have repaid TARP, GS for one still needs to come into compliance with banking requirements per Bloomberg guest early on 10/13.

BBS

These last few weeks have been like running a marathon juggling 2 jobs, let alone trading, but I have been keeping up to date with the markets. Time has constrained my desires to make weekly entries on this blog but in the future, if I ever see a turn in the market coming or significantly change my short or long term views, I will always find time to make a note of it on here. I was a little surprised to see the market bounce off the 50 day sma and hold up around 1060-1080 and was expecting a little more consolidation around the 1010 +/- level for at least 1 more week, but it still looks as if 1100-1150 is still the next target over the next few weeks.
Meredith put a neutral rating on GS today, which probably fits the broader market as well, since it seems the upside is limited to less than 8% as we head into 2010. (Another point of interest on GS is that they still need to come into compliance with banking requirements. So far, the Fed has been keeping rates low in order to make it easy for the banks to repair balance sheets by making it a cinch for them to make money in borrowing at low rates and giving it back out at higher rates.) I agree with Fleckenstein's recent comments on Bloomberg that early 2010 will be the best time to heavily reenter short positions on the market. As I said before somewhere while posting on another blog, I do not expect this market to go down too quickly, and it would seem likely to form a double top around 1125 +/- over a period of a couple months around the end of 2009/early 2010. I know it seems early to make that kind of call, but historically, markets do not make major turns without taking time to put in a top or bottom and my long term chart, 4 $SPX - Weekly Simple Timing System large (that is found in my chart book), shows that. I give precedence to the long term moving averages and give less weight to the short term squiggles when looking for a market turn. It seems to work!
I really must go now, but feel free to leave some feedback. I would be glad to elaborate on what I see in the markets or share views on a particular subject.


btw. Before the market turned on March 9, I told those who were following me at the time on the previous Thursday to expect the final low early in following week and that the market was within 50 points of making a final low. Not bad for having no knowledge of EWT at the time! Remember, many times in the past, markets turned around earnings season and usually soon after getting a good sampling of how they are going to come in. I expect this next turn to be no different and is why I look for the market to rally a bit higher as earnings start to come in this time, and I suspect there will be selling into this strength.