Decision Point®: Chart Spotlight 11/6/2009

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MARKET IS STRONG, BUT CORRECTION SHOULD CONTINUE

11/6/2009

Market Is Strong, But Correction Should Continue
by Carl Swenlin
November 6, 2009

Looking at the S&P 500 chart below, the breakdown from the ascending wedge pattern is clear enough, and expectation of the breakdown has been fulfilled. The rising trend line violation brings with it the expectation of a continued decline, but I do not have a price target at this time. The horizontal dotted lines show the closest and furthest likely support levels, but I have no expectations regarding either one.

At this point, I am still expecting a price low at the end of this month based on the 20-Week Cycle low projection, but it doesn't look as if the price correction will be too severe. My reasoning is that so far short-term oversold conditions are generating very strong bounces. Of course, this could change in a heart beat, so keep an eye on it.

Technically speaking, we do not yet have a down trend -- we need a lower high and a lower low.

When we think of a correction, we usually imagine a fairly straight forward decline, but there are other possibilities, such as a consolidation phase. When I looked at the longer-term chart below, it struck me how similar the current rally is to the rally off the 2003 low. There was a sharp leg up, followed by a short consolidation, followed by another leg up. At that point, many people expected a corrective decline. Instead, there was a sideways consolidation with a modest downward bias. I do not assert that the same kind of pattern will evolve this time. I just wanted to illustrate the possibility of other outcomes.

Gold hit an all-time high this week, and it is rising in the face of rising currencies. Gold typically falls when currencies are rising, so many analysts are suggesting that people are starting to view gold as the new reserve currency. On the chart below you can see that gold is being contained by a rising trend channel, so the next move should be back to the bottom of that channel; however, if people are moving away from paper currency, there is the possibility for gold to go ballistic.

Bottom Line: Based solely upon the rising trend line violation, I am assuming that the market is in a corrective phase that will last for several weeks; however, a declining trend has not yet been established, and my assumption could be premature.

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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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