11-2-2012 Comments

Today is day-4 count in an attempted rally on the NASDAQ. As long as Friday's low is not undercut on an intraday basis the rally attempt will remain active. On day 4 or later we look for a follow-through day where a major index closes up 1.25% or more on volume higher than the day before. By major I mean S&P500, NASDAQ or NYSE Composite. The Russell 2000 index had a day-4 follow-through day yesterday. CANSLIM methods do not use this index for market direction changing purposes however Mike Webster, O'Neil head portfolio manager has noted that rallies started by small caps earlier than the general market tend to end early.

I still wonder if the market top is in but realize that The FED is working overtime trying to reinflate multiple bubbles. For this reason I never seriously considered any of the short targets that set up. I also remained partially invested with KORS and PII. I added to KORS this morning on a possible pocket pivot and have a 130% position. I don't normally make purchases before the buy switch comes on (Market in Confirmed Rally) however I have some conviction with KORS. I booked 70% profit earlier this year in KORS and it appears early in its advance, if Mr. market allows...

If you look at a 50-point 3-box reversal Point and Figure chart of the NASDAQ the longer term trend from 2009 lows so far does not look in trouble. The recent pullback may not be complete however using the technique proposed by Richard Arms in 1971. The NASDAQ plotted on an equal-volume chart suggests that we need a little more volume to transpire before a change in directions off the recent mini head and shoulders top formation. That volume will likely come in by mid next week. Below is my construction where the length of the upper blue line is proportional to the total volume in the H&S pattern and the green line which is the same length ends where the exact same volume will expire.

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Bonds seem to still show that the 30-year top may still be in. I know the battle field is littered with soldiers who predicted the war was over so this remains a tentative conclusion.