In the November 18th email on the $/index, affirmed the long position (bought in late Oct at 84.75), but warned that further near term upside may be “difficult”. Reached a slight new high at 88.35 before reversing sharply lower, breaking below the base of the month long rising wedge and taking profits yesterday (then at 86.40, closed at 86.10 for at 135 tick profit). These are generally topping patterns, and suggests at least another week or so of downward chopping ahead (see “ideal” scenario in red on daily chart below). Note too that the daily macd remains in sell mode (see bottom of chart below), also suggesting at least some further downside ahead. For now, would short a nearby bounce toward 86.10/20 for declines toward 83.10/20 (Oct 30th low) and possibly below. Initially stop on a close back above the recently broken base of the wedge (currently at 86.45/55), but will want to quickly switch to a more aggressive trailing stop as further downside may be short-lived (see longer term below). Nearby support is seen at the earlier 84.80 low.
Longer term with the market overbought after the sharp gains since March, risk is rising for at least 3-4 months of correcting lower. However, there are still no signs pattern-wise that top of that magnitude is in place, and also have been pointing to the mid Dec timeframe a potential area for an important top. “Ideally” this suggests a final push to new highs (following this shorter term period of correcting lower, see shorter term above) to complete a more important top (see scenario in red on weekly chart/2nd chart below). Note too that important longer term resistance/long held target is just above the recent 88.45 and 90.00 (38% retracement from the July 2001 high at 121.00). For now, would maintain the long held, longer term bullish bias but will be looking for signs of a more important top (for at least 3-4 months) on new highs above 88.45 over the next few weeks.
