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January 3, 2009

Bulls 1, Bears 0

Looks like I was wrong about the 65DMA rejecting price on the first attempt. Fortunately, I "cheated" this morning by gaming the market for a better short entry. I ended up not taking the trade, and my few remaining longs were able to do some work for me. So what does this conquest mean? I believe it strengthens the idea of seeing a larger rally. However, I do not think we will see much more from the current leg. Remember all the short-term indicators signaling stretched buying?

market indicator

market indicator

market indicator

The put/call ratio particularly worries me. It's extreme reading is more indicative of a significant top than a temporary one. While I am still expecting a labored A-B-C formation to play out (see the second chart in the January 1 post), we traders should stay on our toes for signs that a new major bear wave will begin.

Much of Friday's strength may be attributed to money leaking out of bonds:

bond chart

At the moment I don't have any great read on commodities. However, I will note that gold is approaching the downtrend line formed by nearly a year of decline:

gold chart

So begins 2009. I'm working on my annual outlook, and if I can peel myself away from some new economics books I've acquired, I'll post it this weekend.


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