Monthly bars for January just closed, so it's a good time to review the charts for a broader view. I am going to comment here and list the charts below. Just match the numbers of the comments to the charts underneath.

1. SPX M: Very strong uptrend with this chart above its 20MA (orange line) on close basis since October 2011; the 20MA has been the smart money buy in December 2011, May and June 2012, and then held again on a near test in November 2012. This chart makes it clear that SPX wants to test its 2007 high. I'll be watching both the price and monthly close highs shown by the blue lines. The real question is not if gets there but whether it goes higher. 

2: INDU M: Has been leading this phase of the rally, and already entering its 2007 high zone. Reaction from 2007 price high at nearly 14200 will be important. So far it is approaching it in a manner that suggests new highs and not a failure. 

3. RUT M: Less known but useful indicator of breadth is the Russell 2000. As you can see it has already made substantial new all time highs. This is very bullish as it means smaller caps are not just participating but leading the rally (after lagging for move much of 2012).

4. NDX M: Still stuck under the 50% retracement of the 2000H to 2002L. Looks quite dull in comparison to SPX, INDU and RUT as it is still well under its 2012H, and did not join in the January blast-off. 

5. NDXE M: The other indexes are relatively common but here's one you don't see often. It is the NDX equal weight index. The NDX (like SPX) is a market capitalization weighted index where the biggest companies have more sway. As it says, the equal weight index gives the same portion for each stock. As you can see this index looks quite healthy. Although I only have data back to 2005 (not sure if index existed before), it is well above its 2012 high.

So what is the issue? How can NDX look so bad while the equal weight index is blasting off like the others? Very simple answer on chart 6.

6. AAPL M: Ugh, down huge 4 months in a row. Appears to be referencing its June 2010 low on Fibs with 2 bars at 38% or 511 and then a drop down to 50% at 452. Any lower would point to 392. In MA (moving average) terms, a break of the 20MA often means a visit to the 50MA (purple line). Unfortunately for AAPL fans, the monthly chart can easily go lower. 

All the indexes are ripping higher. While there are other companies that are lagging or even down, the problem isn't technology sector, but just mostly AAPL. 

While we're at it lets check 2 more.

7. TLT M: This is a commonly referenced ETF for bonds that includes both 10 year and 30 year Treasuries. I actually prefer the actual yield charts ($TNX and TYX respectively) but wanted to make something very clear here. Bonds are down from multi-decade highs, but on a key Fib level at 115.35. If that holds stocks may cool off, but if bonds are down stocks continue up. There is quite a long way down to the next support on this chart.

8. GLD M: Gold had an incredible run in the 2000s and just had minor damage in 2008 when stocks got sliced in half. It continued its run through a 2011 with a nearly parabolic top, but hasn't done much since then. Its 20MA is starting to crack. As should be apparent from AAPL and TLT monthly charts, breaking the 20MA can turn out badly. 

Stocks, excepting AAPL, are the place to be. (But that doesn't mean I am saying buy Monday.)

In the last post I pointed out that VIX, while at multi-year lows, could go lower. And that meant stocks could continue higher. As it turned out the VIX low so far was 1/18 but stayed in bullish territory through 1/24 (meaning not significantly up) and stocks maintained the trend; but on Friday when SPX was again making new highs VIX put in a blue reversal bar. It will be interesting to see what happens. 

In the past week even I was not bullish enough. Shorter time-frame charts on the main index (SPX and the futures) reached momentum extremes I have not seen in quite some time. While positive timing certainly played a part, I am also considering the QE fuel from FOMC in the full tank amount of 85 billion a month. 

Granted the Fed is not buying futures, but Treasuries and other mortgage backed securities; yet *someone* is getting $US and it appears they are buying stocks. 

Check the SPX weekly chart below which marks the various FOMC actions since 2008. 

QE1 was first announced in late November 2008, and then more than doubled (up to 1.25 trillion in MBS) in March 2009; these purchases ran through March 2010.* This coincided with a huge rally in S&P that made what is likely a generational low in March 2009 and rallied with an important top soon after in April 2010. After a run of 83% from the low, there was a pullback of 17%.

QE2 was telegraphed by Ben in August 2010 and then officially announced in November; these ran through June 2011. If you include the "Jackson Hole" speech in August, this coincided with a 31% rally that topped in May 2011. A 19-21% drop followed (depending on which low to count, August or October).

In September 2011 the FOMC began Operation Twist. This is not true easing since it was a balance sheet neutral program, but another extraordinary action designed to keep long term rates low. As it happened stocks made a major low in early October 2011 and have been in an uptrend since then, currently up nearly 40% from October 2011. Operation Twist was expanded in June of 2012 (again near a low).

The FOMC has learned the lesson to keep the money flowing. QE3 was telegraphed in the summer of 2012 and officially announced in September. This turned out to be a sell the news event, but since doubling QE in December the market has been quite strong. Unlike QE1 and QE2 there is no set amount or end date to the program; but instead tied to a lower unemployment rate. I have drawn the green line to the end of 2013. Although there are occasional rumblings of ending it sooner Ben has made it clear that he expects the programs to remain in place for quite some time. I have been calling it "QE infinity times two." 

Keep in mind all the easing and twisting this is on top of very low interest rates that have been in place throughout, with the FOMC target of federal funds rate between 0 and .25%. 

Regardless of whether you think these moves are cause or coincidence, the fact is the market is in a strong uptrend. With the exception of April 2012, the weekly chart has pushed to overbought levels before a larger drop. Weekly RSI is currently 65; getting up there, but room to go higher.

If the market was able to rally half in percentage terms of its QE2 rally of 31%, so let's say 15%, this would give a target of 1545 if projected from the November low. If it can rally 20%, then we see above 1600.

Ben was appointed on February 1, 2006. The crash occurred on his watch. I think returning the market to its 2007 high is a point of pride for him. He will chair the FOMC until the end of January 2014. At 1400, even 1300, the market is not at crisis levels. While Ben has said that all this easing and twisting is designed to lower unemployment, I think he really wants to leave with the market completely recovered from 2008.

* For a detailed FOMC timeline see this. 

This was sent to trading clients on 9/30/2012 for Q4. Nothing has been omitted or added from the original. See the review in the section below the original text called Results. 

Q4 map
"Significant medium and long term timing changes point to shift in character for the market. Q3 rally based on QE from FOMC which is now a done deal as well as corporate earnings and balance sheets; not much positive macro economic data to fuel advances other than some mild housing improvement. Bottom line: I think buyers less likely to support market this quarter which means after any China stimulus, news such as earnings misses, warnings, weak guidance, poor jobs or other data, etc, more likely to produce sell-offs in weeks and months ahead. Fear may return as we have not seen it for quite some time.

In addition, politics in USA has proven to be dysfunctional and I see a lose-lose scenario. #1 Obama wins, Republicans sour and bring things again to brink in fiscal cliff negotiations (don't think they won't). #2 Romney wins, Republicans feel like they have mandate and attack gov't spending except for military and higher income tax cuts. This may not have an immediate effect for Q4, but USA GDP already just barely positive so it would not take much to fall into recession down the line; smart money will see where things are heading. 

Technical picture already suggesting better odds of pullback due to monthly chart structure, weekly charts near RSI OB (overbought) and red bars from there, daily charts on some USA indexes already below 20MAs (moving averages). That said daily charts have untested highs outside the daily BB (Bollinger band) and no clear lower high yet; so still some chance of another push up to test highs or form divergence highs. If so then chance of reaching daily and weekly BBs currently 1480-90 area (these fluctuate) which lines up with higher E-wave targets of 1484-1489, and if my bias is wrong conceivably market could be heading towards 2007 high levels and targets near 1560+. But preferred scenario is deeper pullback as first move and expecting down results overall for Q4.

Q4 more likely to produce sell-offs on bad news and test lows, and chance of fiscal cliff negotiation breakdown plunge after elections. A 61% pullback on the weekly chart would bring SPX to 1346 area currently near the weekly 50MA. I cannot call this an official target yet without a lower high on weekly chart and market still well above daily 50MA now 1412 and rising, but this kind of move is possible for Q4. In fact such a move is quite doable given past declines in current market phase from March 2009 to now; see Charts & Notes weekly chart section for a chart that shows magnitude of all declines since 3/2009. Given timing, we could see more than that as well.

It is possible the declines I expect in Q4 are the start of a larger drop into 2013 and then if so continuing to mid 2014. Media will not call it a bear market until it is down 20% which is currently 1152 SPX, but weekly charts would fall into negative territory in my view with a close below a downward sloping 50MA. This is quite far from happening as of 10/1/2012. However, one of the significant timing changes is on a par with a change that occurred in September 2007. I am not suggesting a repeat of 2008 because that was a combination of factors that are not repeating in 2013-14. But after 3.5 to 4 years up, a larger decline is due.

Preferred scenario for Q4 is something like this: SPX stays below 1457 on close, daily 20MAs act as resistance; down to daily 50MA, then probably bounce from there; daily 20MA then sloping down and acts as resistance again, then another move down to below daily 50MA to weekly support levels which are now 1340-1395 on usual Fibs and MAs. This is a very rough guide and we'll see how it plays out.

Because of the chance that market is at the start of larger decline, I think worth being more aggressive on shorts from here which means 75-100% short on investment positions. This is contrary to my typical rules since daily charts still have rising MA lines and weekly charts in up-trends, so usually I would limit investment positions to 50% short. Also, if daily charts return back to close above their 20MAs then one should be focused on protecting capital (ie slide up stops to breakeven or cut for small loss on later entries) instead of holding out for a big drop. That said investment recommendations are already 50% short and can move up to 75-100% short on any trigger this week, or add on any bounce during 10/8 week.

10/1 week: Looking for high 10/2-3 area then down into the end of the week so 10/4-5 low.
10/8: Mixed signals overall; 10/9 area high. This week better chance of holding up, producing positive results or at least fighting the drops.
10/15: Should drop or at least upside limited.
10/22: Down and maybe sharp into 10/24-26.
10/29: Better chance of recovery here, expecting positive for week after 10/29 low.
11/5: Mixed signals with some high near 11/6-8. (Not really to due with election but cycle status change on 11/6.)
11/12: Down and very sharp drop possible into 11/13. Perhaps most at risk for plunge all year here.
11/19 Lower to start, then probably some lift 11/23.
11/26 Could be volatile, mixed signals with down then up. 11/27-28 another key low area.
12/3 Rally! At least to start.
12/10 Down before any up. 12/12 high then weaker.
12/17 Some recovery, but could be slow sessions in tight range.
12/24 Some up?

Expecting key highs 10/2-3 area then ideally lower high 10/9 and key lows 10/24-26; some high 11/6-8 and then down and maybe sharp into 11/13. Then we'll see where things are; 11/27-28 should be another key low.

A more bullish October would back up above 1457 for 10/2-3 high, pullback low 10/4-5, then up to 1465-75+ the week of 10/8. Even so 10/15 week probably down and then lower week of 10/22. As noted above, if daily charts are above rising 20MAs, cannot really stick to bearish script but still think 10/15 week weaker and down into 10/24-26."

Results
1. First paragraph: key lower high / re-test high on 10/5 and mostly down. NDX and tech stocks in particular dropped as not seen in quite some time. The market had the largest down days and weeks in several months. Check.

2. Second paragraph: election was a lose-lose scenario. SPX 11/6 high at 1433 straight down 90 points in 10 days. Check.

3. Third paragraph: larger pullback is next move. Yes, after lower high test as suggested. 

4. Fourth paragraph: 61% pullback at 1346 doable. Nailed!!

5. Fifth paragraph: possible that decline is start of larger bear market. No, as of December I have changed this view. 

6. Sixth paragraph: preferred scenario that 20MA acts as resistance, then down to 1340-95. Yes and no. SPX cleared the 20MA twice, but this is pretty much how it played out on NDX. 1340 was the right idea. 

7. Seventh paragraph: be aggressive on shorts even though downtrend not established yet. Check.

Now week by week:
A. 10/2-3 high then down; a bit off as high came on 10/5.
B. 10/8 week off as this was negative and 10/9 not a high.
C. 10/15 also off as market bounced from 50MA.
D. Now on track with drop into 10/24-26 exact.
E. 10/29 recovery with bounce into 11/6 exact.
F. Down and sharp into 11/13, totally nailed especially considering that week extended the low to 11/13-16 window. 
G. 11/19 says lower to start but per time and price low 1346 had changed weekly view to bullish.
H. 11/26 mixed and volatile with 11/27-28 another key low, nailed.
I. Rally! was too optimistic although 12/3 was a minor high.
J. 12/12 high then down, check (and that was before looking at FOMC calendar).
K. Some recovery but tight range; a bit stronger than this.
L. Some up? This was off but recent updates called for 12/20-24 key high and sharp drop into 12/28-31 low. 

Bottom line was that most larger themes were quite correct. Not all the weeks were written out in advance, but boy did I nail the 1346 idea which also occurred when market was "most at risk for plunge all year." As most know, the SPX low for the quarter was 1343; and keep in mind this was written with SPX nearly 100 points higher at 1440. Several of the weeks that were not exact in advance were correct in the ongoing updates. 

In the last post, I said to watch 61.8% resistance on SPX at 1424. On Monday 12/3 the market opened higher right on the level and sold off. The high of 1423.73 was the top for the week.

This week I'd like to look at the monthly and weekly charts of TLT, a commonly traded ETF for bonds. As you can see in chart #1 below, the monthly 20MA (orange line) chart has a very strong slope. RSI on the monthly chart has reached full overbought territory twice from 2008 and nearly again with two RSI readings at 67. 

In comparison, the monthly SPX chart (not shown) reached an RSI high of 66 in April 2011; since then monthly RSIs have been lower. Even though stocks have had a larger percentage increase from their March 2009 lows, bonds have been overall the much stronger market, especially from 2008. 

But look at the weekly 20MA on chart #2 below; it is starting to turn down. This alone doesn't guarantee a downtrend; the weekly 20MA turned lower at the end of 2010 and again for a brief period in early 2012. Yet if bonds drop, stocks will probably rally. 

Currently both TLT weekly chart and SPX weekly chart (#3 below) are just above their 20MAs, both above their 50MAs yet both below 61.8% resistance. This condition will not last. If TLT drops further SPX will probably rally above 1424. If TLT turns back up then SPX will drop from its resistance level back towards its 50MA (purple line). 

I consider the definitive measure of a long term trend to be the 50MA and it slope. Again, both TLT and SPX are above their weekly 50MAs; both have a rising slope though currently stocks are stronger than bonds in this regard. Both have recently broken their 50MAs and have come back. While markets may turn out range bound as we approach the holidays, I don't think this condition will last that much longer. 

In weeks ahead, either SPX  will be clearly rejected from 1424 or chance 1435-43 resistance as TLT rallies back up towards 126.80 and then its upper weekly Bollinger band; or SPX pushes higher as TLT moves down to its 50MA or lower. 

The last blog post from 11/17 said that both stocks and bonds were at key 61.8% levels. These were SPX 1346 and TLT 126.80 respectively. As you can see in the weekly charts of SPX and TLT (#1 and #2 below), both markets have turned from these levels. 

I said that all the smart $ would be watching these levels, and indeed as stocks showed signs of strength above 1346 even more buyers came in to the market. At the same time, bonds did not go higher though the drop has been mild. 

Now both indexes are near their weekly 20MAs (orange lines). These are now the levels to watch. Currently SPX is just slightly above its 20MA, and TLT is still above its 20MA as well. If the SPX 20MA turns into support, then the TLT 20MA will probably break. But if the SPX 20MA turns into resistance as stocks drop back down, the TLT 20MA will remain as support and bonds will rally.

In addition, we can also watch the 61%s on the other side. 61.8% resistance on SPX is 1424, and 61.8% support for TLT is 121.54. These are shown on charts #3 and #4 below. Currently SPX is much closer to its 61.8% resistance because it has bounced more in the last two weeks than bonds have dropped.

So one of these markets is a bit off. Either stocks have gotten a bit ahead of themselves and due for a drop back down as bonds remain firm; or the stock rally is correct and bonds should break. It would be rare for stocks to continue to rally and bonds stay up, although this can happen occasionally since bonds via TLT is the stronger market on the on the monthly chart. However, with the EU currently in a period of calm, the more likely move is stocks up and bonds down OR stocks pull back and bonds rally. 

It has been a few weeks since my last post. As of the 10/26 post here, I said the levels to watch were the SPX support zone 1395-1404 and the NDX daily 200MA. At the time wasn't sure if next move was bounce for break. Here's how it turned out.

NDX led the market down and broke its 200MA on 10/31 (see chart #1 below). There was a battle around this area as bulls tried to come back the very next day. The following red bar again closed just below the level but not enough to be definitive. However, 2 small blue bars set up the convincing break on 11/7. 

SPX was able to hold the support zone and lifted into 11/2 price high and 11/6 close high. But a small blue bar on the weekly chart (see 10/28 bar on chart #2 below) above support set up the break. A small blue bar above support is not bullish; see my post here about this idea. 

SPX has already broken its weekly 50MA (purple line), although the slope is still rising and bulls may try to recover this level. For now 61.8% of the move from the June low to September high at 1346 is acting as support. This is a very key level. 

TLT (bond ETF) is at similar 61.8% resistance of its move from July highs to September low at 126.80. (See weekly TLT chart #3 below.)

What would you rather own? A market that has broken its 50MA support and now at 61.8% support; or a market lifting from 50MA support and heading into 61.8% resistance? 

All the smart $ will be eyeing these levels. A short term bounce for SPX is probably due, but if it does not get far then the market will be at risk for another move down. Similarly, if TLT clears 126.80 on daily/weekly close, then it has a good chance of going for its weekly Bollinger band which is currently about 131.00. But if stocks can put in a better rally from this level it may look good as an intermediate term low; and if TLT drops hard from resistance it could define the July high as 'it.'

Bottom line: both stocks per S&P and bonds per TLT are at key support and resistance respectively. Usually there will be some reaction; it is the extend of the lift in stocks (drop in bonds) that matters for the next larger move. 

If S&P stays below the weekly 20MA (orange line) currently 1409, then larger move is down; any lower than that would be even more bearish. Similarly, if TLT holds its weekly 20MA as support then it will probably make a move towards highs. 

Reminder: for all my price notes, it is the close that matters on whatever time-frame is appropriate. 

In the last post, I pointed to two levels to watch. On SPX it was a weekly support zone from 1395-1404. The session low of the week was 1403, right on the weekly 20MA. The futures market went lower Thursday and early Friday to a low that corresponds to above 1399 SPX. So right in the support zone. 

But is it a hold or pause in downtrend? In other words, bounce or break? I'm not sure. Check the first chart below. A larger red bar above a support line does not guarantee a bounce as the next move. If Monday opens below 1403 that would look quite bearish.

NDX was able to hold its daily 200MA (see chart #2 below) on close basis on Friday, but pros know the market was much lower after hours on Thursday! NQ futures were as low as 2604 after poor earnings from Amazon and Apple; futures are about 6 points below cash so that corresponds to the daily 61.8% Fib exactly at NDX 2610.

In addition, a smaller blue bar above support is not necessarily bullish. This is because a small blue bar means a weak bounce. To my eyes, a small red bar above support might have looked better for the bulls, because that would show down pressure abating. 

We'll have to see where things open on Monday. I have no problem with this approach. Sometimes I have a very good sense of where the market is going via time or price or both. That move has happened, and there will be another one soon. In between I'll be watching to see what develops.

After another failure near highs last week, market has dropped hard for 2 of the last 3 trading days. These are the levels to watch.

SPX daily chart has broken support, so let's turn to the weekly chart (#1 below) for context. The blue lines represent the prior price and close highs from late March and April 2012. The prior close high is marking the low so far.

Just below that is the 20MA (orange line), currently 1403. Just below that is the first real Fibonacci level at 38.2% or 1395. I think a move to this support zone 1395-1404 is likely. As usual, how the market responds to support is important.

Biases aside, the weekly chart doesn't look horrible here - 20MA and 50MA are rising with a nice slope, and RSI near overbought has worked off with a relatively minor move compared to the June rally. That said, why should a shallow 38% pullback hold with all these companies missing on earnings and revenue and NDX leading down? Still, 1395-1404 usually is good for some bounce.

NDX has been the weakest index of the 6 I track. It is already near its daily 200MA (thick black line on chart #2 below). Keep in mind that NDX was the only one of 6 to hold its 200MA in June, and I think this helped the summer rally. If the NDX 200MA breaks, it would be the first time below since end of 2011. This would be an important shift for the larger market.

In the last blog post, I said the bounce from the SPX 50MA was looking healthy, but due to chart structure was not jumping in bullish to see how market fared at resistance. 

This was a wise move. SPX (chart #1 below) poked above 61.8% at 1455; but I saw the daily Bollinger band with a falling slope and less common 76.4% both creating a resistance zone from 1463-68. In addition, my timing work suggested caution on the long side. This is why I was "not thrilled" with a long entry and simply watching instead. 

The reaction was sharp. The bearish view is that this 'should be' the move that breaks the 50MA (purple line) which will lead to lower prices. Given all the earnings misses and tech weakness, I think that will play out. But considering the election it is still somewhat possible the market will be range bound, and perhaps it will bounce from the lower Bollinger band currently 1424.

But let's put this move in the context of the weekly chart (#2 below). After the FOMC high which tagged the weekly Bollinger band with RSI 68.8 (nearly overbought), we have seen: a small red bar, a larger red bar, a decent comeback but lower high, a larger red bar, now another failed attempt at highs and small blue bar.  

The most recent blue bar looks weaker to me than a small red bar, as it shows paltry buying and a huge failure at last week's highs to boot. Lower prices lie ahead. At minimum we should see a test of the weekly 20MA currently 1399, but maybe higher next week. Fibonacci ratios from the June low are also shown at 1395, 1370 and 1346. 1395-1400 (or whatever the 20MA turns out to be as next week's bar opens) is the path of least resistance. 

How that reacts will be key; a very strong bounce will open the door for move back to highs. A weak bounce or none at all open the door to the 50MA.

As most are aware, stock indexes have made a healthy rally Monday and Tuesday of this week. Per the last blog post, I thought the weekly SPX chart had a ways to go before reaching support. Also after seeing lower highs and lower lows on the benchmark index daily chart, it looked to me like a real pullback was underway. 

So far the daily chart support level 1425-1433 (highlighted in this post) is holding in a convincing fashion (see SPX daily chart #1 below). A cautious investor could have cut or trimmed on Monday at close viewing SPX holding its 50MA for break-even from a 10/9 entry; but even so a stop out today is not that big a deal for an investment position. 

10/9 was a red bar under the 20MA after a lower high, close level 1441; today that signal has been effectively canceled, close level near 1455. This is under 15 SPX points. If the signal re-instates then will take it again but for now I'm not arguing with the bulls.

There is a 61.8% Fib level to watch which is 1455 on SPX (chart #2) and 146 on SPY (chart #3). I think this is worth watching since the 20MA now has a falling slope. So, not thrilled with a long entry right at this level because I want to see how it reacts.