Market Timing

(Updated 12/12/2009)

The following daily charts show the major indices. The Dow was slightly higher, the S&P and
NASDAQ 100 were flat, while the Russell 2000 was lower last week. The Bollinger bands have
narrowed as prices have moved sideways for four weeks. A break out will occur soon. The Dow
chart shows three possibilities. The first is a drop to the middle white channel line followed by
another rally to the top of the white channel. The second scenario is a drop to the lower white
channel line. The third is a move higher to find resistance at the top white channel line and the
blue trend line. The four charts show prices forming high sloping (red-blue) channels that started
in March, then after a significant June-July correction, prices have moved in a lower sloped
(white) channel with out a significant correction. Prices will eventually break out of the white
channels but this is unlikely to happen with out a correction that is larger than the small pullbacks
that have occurred since the July bottom. A correction is obviously overdue. When it finally comes
it will be followed by another rally to higher highs. A fourth scenario that is not shown is there is
no correction and the Fed's free money (that is not going to businesses) ends up in stocks that
have a parabolic rally. All parabolic rallies end badly.
The following weekly charts show the major indices. Prices are still above rising middle bands.
The Dow is the strongest and the Russell 2000 is the weakest index. This is usually an indication
of a top. Prices have been unable to decisively break above the 50 and 61.8% Fibonacci levels.
The MACD's have rolled over. A significant correction is expected but it should be followed by
another rally that should produce a negative divergence on the MACD. This will be a strong
indication that the March rally is nearing its end. The bear market will resume when prices move
below the middle Bollinger band and the MACDs move below zero.
The following chart is the DJ-30 vs. the Advance Decline line. The Dow has moved sideways
while the A-D line has made a new high. This is a sign of strength and is usually and indication
that higher prices will follow. On the negative side when prices or the A-D line move up the
bottom of an up trending channel instead of having a sharp bounce to the top channel the next
sharp move will be lower. Prices are 17% above the 200 day SMA. This overbought condition last
occurred in August 1997 and May 1999. In both cases prices soon corrected to the 200 day SMA.
The following chart is the S&P vs. the VIX. The VIX is still inside a trading range that started in
June. A significant price correction is expected that will move the VIX to resistance at the Red
line. Prices will then move higher in what could be the last bear market rally.
The next chart is a daily and monthly plot of the 30-year bond yield for two years and from 1988
respectively. Stock and bond prices have been decoupled (prices and yields are coupled) since
late 2000. Yields look like they are in a sideways correction and are preparing to break out and
move higher. This suggests another rally in stocks. At some point stock and bond prices will re-
couple as stocks move lower and yields move higher.