12/17/2010 Market Recap: The Next Pivot Date

TREND MOMENTUM COMMENT Long-term 2 of 2 are BUY   Intermediate 4 of 5 are BUY 4 of 5 are NEUTRAL SPY ST Model in BUY mode; Non-Stop in BUY mode. Short-term Model is BUY, not confirmed though. 5 of 6 are NEUTRAL I hold trapped long position over the weekend. GANN DAY MOON:SOLAR CYCLE CONCLUSION 12/21,12/27 12/21 : 12/22 12/26 Next pivot date: 12/21, 12/27

BULLISH 09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months. 10/01 Market Recap: Positive September plus mid-term election means 11%+ up to year end. 10/29 Market Recap: The last 2 months of year are bullish. 11/05 Market Recap: SPX daily bar completely out of BB may mean bulls are safe till the year end. BEARISH 1.0.6 SPY Unfilled Gaps: 22 unfilled gaps, the max was 23. 10/29 Market Recap: Commercial (smart money) short Nasdaq 100 heavily according to COT Report. 12/10 Market Recap: Smart/Dumb money confidence spread too high. 0.2.1 10Y T-Bill Yield: ROC(30) >= 9, topped? (Due to Quantitative Easing, I’m not sure if it still works) 1.2.0 INDU Leads Market: INDU had a lower low, so SPX might follow eventually. 8.2.7b Record High ISEE Equities Only Index Readings 2010: Record high, top is close? 12/14 Market Recap: Too many Sentimentrader’s indicators are at bearish extremes. 0.2.2 Extreme Put Call Ratio Watch: Both CPC and CPCE are low, so topped? 8.1.4 Normalized CPC: Too low, so topped? 0.2.3 NYSE McClellan Oscillator: Hindenburg Omen confirmed. 0.1.1 SPX Intermediate-term Trading Signals: CPC MA(10) too high, so topped? *6.2.3 VIX:VXV Trading Signals: Too low, so topped?

SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE. TRADING PLATFORM: SSO/SDS, UPRO/SPXU Non-Stop 09/07 L N/A ST Model Buy mode doesn’t mean long, a 2nd buy signal is needed to enter long. NYMO Sell 12/09 S 2*ATR(10) Reference only, not meant to be followed.

SHORT-TERM: DIRECTION NOT CLEAR, SENTIMENT IS TOO BULLISH BUT SEASONALITY IS VERY BULLISH

The market is consolidating so the direction is not clear. Bear has the support of indicators as well as way too bullish sentiment (see table above), while sure bull has the bless of very very bullish seasonality, so how the market is going to resolve this conflicts, we’ll have to wait and see. Personally, I’m more interested to see if we could see more record sentiment readings in the following couple of weeks.

INTERMEDIATE-TERM: COULD BE WAVE 5 UP TO SPX 1300+, PIVOT TOP COULD BE AROUND 01/05 TO 01/12

For intermediate-term, I’ll maintain the forecast for calling a wave 5 up to SPX 1300+ (See 12/10 Market Recap for more details). Because the sentiment is way too bullish (see table above), so I’m more and more inclined to believe that eventually we’ll see a correction similar to what happened in April. NOW THE ONLY QUESTION TO ME IS WHEN? My guess is the top could be around 01/05 to 01/12 for 3 reasons:

• The most important reason is from chart 8.2.9c QQQQ – 2002 to 8.2.9k QQQQ – 2010, check by yourself in my public chart list, starting from the 8th trading day in January until the end of the month, QQQQ has been bearish since year 2002 without exception.
• 4.1.3 Volatility Index (Weekly), let’s assume in the most bullish case the VIX keeps dropping (which is a reasonable assumption because it’s now the 4th time the support is being tested, so the chances for the support to hold is very remote), see the %B below, looks like at most the VIX would have 2 to 3 weeks to drop, this means the SPX could rise for 2 to 3 more weeks which happens to be around 01/05 to 01/12.

• The 3rd reason may not appear very solid but you never know, the world never lacks coincidences. Counting 28 trading days from the TED Spread top happens to be on 01/05. And are there any other factors that makes 01/05 so special? Well, remember the Magic Day 6? See Gann Day table below, since year 2000, there’re at least 2 pivot dates around 01/05.

Speaking of TED Spread, I’d like your attention to chart 4.0.7a Collection of Leading Indicators I again as I feel that divergence is now too much, combining with the Hindenburg Omen triggered recently, I think now it’s the time to pay attention to this chart.

SEASONALITY: NO UPDATE

See 12/03 Market Recap for December seasonality chart.

HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST

	SIGNAL	COMMENT
QQQQ	12/14 S
NDX Weekly	UP
IWM
IWM Weekly	UP
CHINA
CHINA Weekly	UP
EEM
EEM Weekly	UP
XIU.TO	12/02 L
XIU.TO Weekly	UP
TLT
TLT Weekly	DOWN
FXE
FXE Weekly	DOWN
GLD
GLD Weekly	UP
GDX	*12/17 S
GDX Weekly	UP
USO		*Could be a Pennant in the forming, so more push up?
WTIC Weekly	UP
XLE	06/15 L
XLE Weekly	UP
XLF	10/15 L
XLF Weekly	UP
IYR
IYR Weekly	UP	Home builders are lagging.
XLB	12/01 L
XLB Weekly	UP	*BPMATE is way too overbought.

1. Please make sure you understand how to use the table above. The purpose of this report is to provide info so contradictory signals are always presented.
2. Position reported in short-term session of the table above is for short-term model only, I may or may not hold other positions which will not be disclosed.
3. Conclusions can be confirmed endlessly, but trading wise, you have to take actions at certain risk level as soon as you feel the confirmation is enough. There’s no way for me to adapt to different risk levels therefore no trading signals will be given in this report except the mechanical signals such as SPY ST Model.
4. * = New update; Blue Text = Link to a chart in my public chart list.
5. Trading signals in OTHER ETFs table are mechanical signals. See HERE for back test results. 08/31 L, for example, means Long on 08/31.
6. UP = Intermediate-term uptrend. Set when I see at least one higher high and higher low on weekly chart.
7. DOWN = Intermediate-term downtrend. Set when I see at least one lower high and lower low on weekly chart.