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December 23, 2006

Market Update: Last Stop?
by Dominick

Be sure to see our Holiday gift below.

The Dec 17th update stated:

"As of Friday afternoon I recommended holding off on any shorting to at least next week. It's a hard call around the holidays, but I've mentioned before about this rally holding up to January 2nd. I would actually enjoy seeing another small move up early next week that completes a pattern from the July lows, but if we trade lower, and able to take out the 1413ish area, I'll go with the flow."

As expected, the S&P did reach a new high on Monday, but then basically sold off all week into Friday's bell. Choppy intra-day trading produced some interesting setups though, and again demonstrated that weekly forecasts aren't nearly as useful as the day-to-day real-time updates members receive in the forum. The chart below was posted on Tuesday, after the index gapped down four points in the futures, updating the diagonal pattern we'd been following.

Once again, anyone in the forum onboard the D-train got the heads up on a great risk/reward trade. We put out our hand to catch the falling knife with only a few points of danger. Sure enough, after finding support in the area outlined on the chart, the S&P shot from a low of 1415 up to 1429 – not a bad way to start the week. The next day we smartly faded that high, knowing the pattern needed a pullback. We sold the futures at 1439 but covered into the bell, not capturing Thursdays additional 6 point selloff. We were still allowing for the smaller diagonal to work. Missing 6 points is much smarter than being in front of a 5th wave of an ending diagonal, in my book.

Thursday's low proved the smaller diagonal we were watching would no longer work, so we went for a larger one instead. Going into the opening on Friday we needed a 10-point drop, but were wary of shorting the last trading session before Christmas. With bullish seasonalities, we tend to give the bullish case an edge but always follow what the markets tell us is right. As it happened on Friday, some other traders must have been on that same page we were because we got the drop. Even when we bounced nicely off the S&P futures low at the open, we didn't fall for the intraday rally, insisting on the same low print for the S&P cash index.

But even though the markets went our way into Friday's close, as traders with late day selling to do brought the cash and futures indices to new session lows, positioning ourselves into the holiday weekend was a complicated decision. The market reached both our extremes in price this week, but didn't give a clear signal which direction it'll travel when trading begins again next Tuesday. It sounds like we might have gotten the final high we were looking for Monday morning, but I'm not convinced that was the case. If the markets rally very early on Tuesday morning, that'll probably be the final advance that marks the top. Of course, I had also said I'd go with the flow if we lost the SPX 1413 area, but just as I don't think we got the high we were looking for, Friday closed two points below the 1413 area and we're not yet short. Between it being a Friday before Christmas, and trying to accommodate an almost finished pattern, we went flat into the bell and will simply wait until Tuesday's trading determines which setup works from here.

Funny how only last week we were surrounded with bullish calls as the indices consistently closed at session highs. Even though I didn't elect to call the market short last week, or now, I certainly didn't see any reason to change my mind about a top forming. Sticking to that thesis, against a very bullish community, paid off in a week that consistently closed at session lows.

Next week, if the larger bullish pattern is to unfold from here, it must follow strict instructions. I would love to see a three-point dip on Tuesday, followed by an advance that lets no one on board. Early projections are 1445.80 and 1452.25, with any new high being acceptable. If that's the case, it will reinforce my belief that the last stop to this train is approaching and you need to exit at the next stop. Otherwise, like a train's last stop, it'll travel back the other way. Don't forget that I will be watching my original NYSE target if we get this rally.

Losing more than our desired area will force me to find short setups until we get close to the SPX 1360/70 area again. In that case, first support is seen at 1399 where we might get a bounce that pretends to be the year-end rally, except it wont make new highs.

As you can see, either way, Tuesday will be anything but boring! Continue to watch the A/D line, and sentiment. Both produced a sell signal on Monday, but was it strong enough for a lasting top?

Thanks to the cooperation and community spirit of everyone involved, the first year of tradingthecharts.com has been a success! I've personally enjoyed sharing the time with all my subscribing members in the forum and chatroom, and look forward to working with them in what promises to be a very interesting 2007.

For non-subscribers, as a Holiday gift, click here to see some "big picture" charts showing why I'm skeptical of being overly bullish after the call in August.

Bonds

Bonds continue to fall proving our perfect call made at the high.
Since that call, 1 short contract in the 30-year bond produced a profit of $2700!
I have Fib support exactly at Friday's close in USH7, along with a lower channel line. Support seen here ends the leg from the high, and we will look for an advance into the mid 113 area. The chart

Grains

Rallied off the week's lows after gapping down on Monday. Our top call continues to be perfect.

Metals

Silver continues to act heavy and we would invite a small low soon before trying to bounce a bit. Joe' top tick call still looks good in the silver futures contract, producing a $9850 move from his target.

Google

Google reached our first target at 506 and closed at 455. Is it done or does it reach the second target? Stay tuned, we're about to find out. Goog is about to move huge one way or another

Oil

Looks like oil made its low 15 cents above November's newsletter target of $56.90 and is now trading at its high from that move up, but within a range.

If you've enjoyed this article, signup for Market Updates, our monthly newsletter, and, for more immediate analysis and market reaction, view my work and the charts exchanged between our seasoned traders in TradingtheCharts forum.

Continued success has inspired expansion of the "open access to non subscribers" forums, and our Market Advisory members and I have agreed to post our work in these forums periodically. Explore services from Wall Street's best, including Jim Curry, Tim Ords, Glen Neely, Richard Rhodes, Andre Gratian, Bob Carver, Eric Hadik, Chartsedge, Elliott today, Stock Barometer, Harry Boxer, Mike Paulenoff and others. Try them all, subscribe to the ones that suit your style, and accelerate your trading profits! These forums are on the top of the homepage at Trading the Charts.

Market analysts are always welcome to contribute to the Forum or newsletter. Email me @ Dominick@tradingthecharts.com if you have any interest.

Wishing you every happiness this holiday season,

Dominick,
a.k.a. Spwaver
TradingTheCharts.com

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual. Check with your licensed financial advisor or broker prior to taking any action.

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