Friday, October 14, 2011

Correction Early Next Week.. Really

The FTA 1203 level was broken in after hours so there was no way to trade it and as expected, trading over this level brought new highs to this leg. I have been wrong on the timing of the correction to this rally and as I speculated on Oct 5th, sooner or later I was going to be wrong so now maybe it's time for me to get it right. It's been a strong rally for sure, 150 handles in couple of weeks without a single significant correction. Bullish legs like these are rare but they all come to an end sooner or later and I am predicting the market will turn early next week to the Fib area. One of the indicators I like the most is the one below. Every time you get over 80% of stocks over their 20 day ma, they correct without fail (at least every single time this year).

So the question for me now is not really whether stocks will correct, it is to what level. Given the strength of this rally, a correction to the 1150 area is now more likely than the 1120-1130 area I had originally projected. Still can happen obviously but 1150 just looks better at this point and once there we should see a wave that could take us back to 1300.. Fundamentally speaking, the problems that started this summer sell off are still there. So one could look at this rally as a snap back counter rally rather than an actual start of a bull market.

Finally, the weekly tracking of the TA system has it at +25.79% vs -8.4% for the SP500.. goes to show trading this mechanically is the best way to go. Also, the FTA level to watch Monday for a market correction is 1209. The market needs to trade below this level to confirm a bearish turn. Until then, we might see 1230 being challenged.

Have a good weekend!

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