Decision Point®: Chart Spotlight 10/2/2009

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SUPPORT STILL HOLDS CORRECTING PRICES

10/2/2009

Support Still Holds Correcting Prices
by Carl Swenlin
October 2, 2009

EDITOR'S NOTE: I will be on vacation next weekend and will not be publishing a Chart Spotlight article.

The market has begun another correction, but so far no serious technical damage has been done. The S&P 500 remains within the grasp of an ascending wedge formation, the dominant feature on the daily chart. On Friday prices hit their lowest level of the correction, but they remained above the support of the 50-EMA and the rising trend line. Next major support is at the 200-EMA.

As regular readers know, it is most likely that prices will break down from the rising wedge pattern, and I am inclined to believe that will happen in this case. Internal conditions for the medium-term are neutral to slightly overbought, and I think the market needs to get medium-term oversold before the correction will end. Also, it is October, and a certain amount of ugliness should be expected. I hear that a number of people are expecting a crash, but I see no evidence that would make me anticipate anything more than a normal correction.

The following Participation Index (PI) chart shows that the short-term market condition is oversold. This could signal a short-term bounce, or the end of the correction. The latter is unlikely because the market needs to get more oversold medium-term before another up leg begins.

Bottom Line: It is very likely that the S&P 500 will break down out of the rising wedge pattern soon. With luck a breakdown will be followed by a healthy correction, but we are in a bull market and I wouldn't bet on anything worse than that.

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MECHANICAL MODELS

We rely on our mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have included the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their cap-weighted counterparts, and they provide a way to diversify exposure. Daily tracking of these signals is available to subscribers in the Decision Point Alert Daily Report.

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Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.

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2011 TIMER DIGEST RANKINGS FOR DECISION POINT

#48 Intermediate-Term Stocks (52-Weeks) (*TD Index 73.70 Vs. SPX 100.00)

#2 Bond Timer (TD Index: 117.7 Vs. Bonds 118.89)
#3 Bond Timer (5-Years) (TD Index: 139.13 Vs. Bonds 129.60)
#3 Bond Timer (10-Years) (TD Index: 167.20 Vs. Bonds 143.62)

#15 Gold Timer (TD Index: 106.30 Vs. Gold 110.23)
#3 Gold Timer (3 Years) (TD Index: 172.58 Vs. Gold 168.27)

#26 Long-Term Timer (2 Years) Stocks (TD Index 81.90 Vs. SPX 112.78)
#9 Long-Term Timer (5 Years) Stocks (TD Index 115.64 Vs. SPX 111.33)
#4 Long-Term Timer (10 Years) Stocks (TD Index 159.38 Vs. SPX 109.54)

2010 TIMER DIGEST RANKINGS FOR DECISION POINT

#16 Intermediate-Term Stocks (52-Weeks) (TD Index 105.07 Vs. SPX 112.78)
#6 Intermediate-Term Stocks (3 Years) (TD Index 152.31 Vs. SPX 85.65)
#7 Intermediate-Term Stocks (5 Years) (TD Index 156.44 Vs. SPX 100.75)
#10 Intermediate-Term Stocks (10 Years) (TD Index 135.84 Vs. SPX 95.26)

#6 Bond Timer (TD Index: 110.1 Vs. Bonds 105.29)
#5 Bond Timer (5-Years) (TD Index: 126.64 Vs. Bonds 106.24)
#3 Bond Timer (10-Years) (TD Index: 137.03 Vs. Bonds 116.27)

#6 Gold Timer (TD Index: 118.50 Vs. Gold 129.73)
#3 Gold Timer (3 Years) (TD Index: 172.58 Vs. Gold 168.27)

#26 Long-Term Timer (2 Years) Stocks (TD Index 91.9 Vs. SPX 139.23)
#8 Long-Term Timer (3 Years) Stocks (TD Index 124.30 Vs. SPX 85.65)
#4 Long-Term Timer (5 Years) Stocks (TD Index 146.21 Vs. SPX 100.75)
#4 Long-Term Timer (10 Years) Stocks (TD Index 177.64 Vs. SPX 95.26)

2009 TIMER DIGEST RANKINGS FOR DECISION POINT

#9 Intermediate-Term Stocks (52-Weeks) (TD Index 129.36 Vs. SPX 123.45)
#8 Intermediate-Term Stocks (5 Years) (TD Index 147.81 Vs. SPX 92.01)

#18 Bond Timer (TD Index: 87.7 Vs. Bonds 83.86)
#5 Bond Timer (10-Years) (TD Index: 127.25 Vs. Bonds 127.51)

#9 Gold Timer (TD Index: 115.30 Vs. Gold 124.00)
#3 Gold Timer (3 Years) (TD Index: 181.56 Vs. Gold 169.92)
#3 Gold Timer (10 Years) (TD Index: 322.74 Vs. Gold 375.51)

#6 Long-Term Timer (2 Years) Stocks (TD Index 136.41 Vs. SPX 75.94)
#7 Long-Term Timer (3 Years) Stocks (TD Index 141.22 Vs. SPX 78.62)
#2 Long-Term Timer (5 Years) Stocks (TD Index 165.27 Vs. SPX 92.01)
#5 Long-Term Timer (10 Years) Stocks (TD Index 162.51 Vs. SPX 75.90)

2008 TIMER DIGEST RANKINGS FOR DECISION POINT

#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)

#4 Bond Timer (TD Index: 112.32 Vs. Bonds 118.26)

#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)

#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)

2007 TIMER DIGEST RANKINGS FOR DECISION POINT

#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)

#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#5 Bond Timer (3 Years) (TD Index: 114.48 Vs. Bonds 103.58)

#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
#2 (Tied) Long-Term Timer (3 Years) Stocks (TD Index: 132.06 Vs. SPX 132.06)
#4 Long-Term Timer (5 Years) Stocks (TD Index: 142.69 Vs. SPX 127.90)

2006 TIMER DIGEST RANKINGS FOR DECISION POINT

#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)

#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)

2000 TIMER DIGEST GOLD TIMER of the YEAR

*All timers and the benchmark index are assigned a starting TD Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.

Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.

Nothing herein should be construed as an offer or solicitation to buy or sell any security. Past performance does not indicate future results.

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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.

Caveat: Charts featured in the Chart Spotlight are intended as
examples of how to use technical analysis, not as trading recommendations.

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