Thursday, December 15, 2011

Stock Market Update

Click on Chart to Enlarge

See notes on the chart above. While it doesn't look like we will get the ideal confirmation of pattern completion here, I would again refer you to the pattern in silver this past summer which is similar to this pattern in stocks. It did not give classic confirmation right after the price high, but it drifted sideways to the B-D trendline, then gapped below it. Then it continued to chop for a few days before the bottom fell out.

Given the seasonal tendencies for stocks to rise during December expiration week, and for generally low volume and positive seasonality through the New Year, we may see something similar to that in stocks from here.

So bottom line, from all the historical comparisons and price logic applied to patterns, time seems to be drawing close to a major leg down in stocks. One point of note is that the 61.8% retracement of the 2007-2009 bear market is at SPX 1226. That is basically right where the market is now. I have noted that there is a recent node of harmonic confluence there and it's a level of repeated support and resistance over the past 5 years. I have looked at these situations on charts before and many times if prices close sharply below that level, it can lead to fast declines to the next major horizontal support level. So the market is kind of teetering on the edge here. From the way commodities are positioned and the recent breakout to new rally highs in the US Dollar Index, I expect the market to fall through the support.

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