Friday, January 29, 2010

MTU Weekend Ed - Stocks are poised for a rebound (1/29/10 Close)

The primary degree trend change highlighted in the past three weeks recent weeks has described the subsequent market developments well. From the Jan 11th top to today’s low, the DJ Wilshire 5000 Index and the Nasdaq Composite Index have dropped 6.72% and 7.99% respectively. The primary trend is now down (unless the market advances to fresh high.)

Stocks are now poised for a counter-trend rebound. Most likely, the sell-off from Jan 11th high either requires another up and down sequence to finish or has ended today. Chart 1 illustrates the top two potential near term trajectories of the market (using the SPX mini futures as an example).

More bearish near term scenarios exist but are of lower probability, in my view.

The more important message is that the coming counter-trend rebound ends (and the sell-off resumes), those levels will likely not be seen for months and potentially years to come.

*** Gold Update

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