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SP (June) declined to 1493.50 exactly .25 under the 38.2% retracement of
w.3 - the minimum target for corrective w.4. The way this correction is
shaping up, it could turn out to be another ABC of which the A decline
may be complete. At minimum, I would expect to see a short rally return
to the area of the previous high followed by a retest of the 1490 area
which should offer a trading opportunity to go long the futures. This
correction is likely to require until at least 04Apr. If the 1490 area
holds, I would expect to see w.5 reach 1623 (minimum 62% expansion) and
perhaps 1703 (100% expansion). The 1703 just happens to coincide with
the upper channel of the historical channel chart (attached) I've posted
periodically for some years now. The NYSE timing and breadth models are
holding up very well during the correction which appears to confirm
price expectations.
I expect that the April SP rally could cap the major indexes for some
months to come, if not years. What most have lost sight of is that the
SP EarningsYield/TBill relationship (normally 0.90 when in "balance")
was already extended far beyond levels of the past 60 years i.e. at 1.87
it is nearly 50% above its peaks in Ju73, Dec80, and Aug87. The SP
valuations were vastly overextended, but the NASDAQ pushed the envelope
so much further that the SP looked positively cheap near the 28Feb low.
It wasn't cheap, it isn't cheap, and the next rally combined with
further rate increases should put the EY/TBill ratio into orbit at 2.0
or higher. Any close below SP 1432 will switch me from SP index fund to
Money Market. Should SP reach 1700, I will switch to MM. Should SP reach
1623, I will switch 50% to MM and switch the balance if the previous
pivot low is violated. Should SP reach 1700, I will switch the remaining
50% to MM.
The NASDAQ, not only remains in sell mode, but continues to deteriorate
badly. The NYSE timing model, which switched from sell mode into
extended sell mode on the 15th, severely violated a possible double
bottom on Thursday. This is confirmed by the rest of the breadth models.
At a minimum, NASDAQ appears to need a good deal more work before any
meaningful rally is mounted. Given the fact that we are approaching a
seasonally weak period for tech stocks and the prospects for a top in
SP, it's possible that the prospects for ND are dismal.
Earl
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