February 17, 2011

Human memory is short, a hackneyed phrase yet uncannily true. As we sit here amidst the relentless bull market since 7/1/10, it would serve justice to a lot of the retailers who get caught up in the Wall Street driven rhetoric to drive the herds to help form the eventual tops. "Retail investor is back although they are not back all the way yet", said TD Ameritrade CEO a few days back. Are they back once again to prove the greatest fool theory true? I believe so, at least for the year 2011!

We initially published the below chart on the blogosphere on 2/3/11 when SPX was sitting close to 1300. At this point we have cleared the 1313.15 resistance and also surpassed twice the devil's number low at 666 from 3/6/09, where the bull market began. Once we passed the 1313.15 (point #4 on the zoomed in chart), we entered an air pocket essentially that stretches till the 1400-1440 zone from May-June 2008 period.

Our methods of studying Time & Cycles show that the lower end of this range will hold SPX all of 2011. How do we make this determination? Using an objective set of approaches that we utilize at Smartpredictor.com including the Smartpredictor neural itself, that projects time and price. One of these approaches is purely a statistical model based on all of historical data on $SPX that tends to assign a Risk % to a stock portfolio. This model also goes on to reveal the monthly turns and currently shows that a full blown sell on monthlies should arrive most likely on June 28th, 2011 and perhaps stretch into July 3rd, 2011. It is by these turn dates that I anticipate the markets to touch the lower end of the 1400-1440 window that was mentioned above. The model is a monthlies model and to reveal intermediate degree turns one has to look at the Risk %, which at the 1338 $SPX intraday high of 2/17/11 rates the current $SPX levels as portending an 86% chance of a top compared to all previous tops (it is a percentile reading). At the January 2011 close of 1287 the reading stood at 71% chance of a top. Based on this reading we are at or very close to an intermediate degree top on 2/17/11. Once the decline from current level is over, we should head back up to a likely higher high in June/July 2011. In Elliott Wave parlance, that would equate to a 4th wave down at intermediate degree and a final 5th wave up. And how deep could the correction be, 1270/1244 are two likely targets. We will come back and update rest of 2011 in July 2011 for rest of the year after we have seen what transpires till then.