Trade Strategies, October 10, 2011; 8:00am
In last Wed's Technical Blog we introduced some developing factors that may contribute to a base/reversal environment that could present a tremendous buying opportunity for weeks or even months ahead. The weekly log chart below shows the market thus far holding at the 11.50-area defined by a pair of Fibonacci progression and retracement relationships while market sentiment has eroded to levels that, in the past, have accompanied base/reversal environments.
Indeed, our MRT Bullish Sentiment Index of "hot" Managed Money positions, while still arguably high at 78%, has eroded to a 73% reading that is one of its least bullish levels in the past 15 months. Additionally, the Bullish Consensus measure of market sentiment (www.marketvane.net) has dropped to its lowest level (46%) since that that accompanied Jun'10's major base and reversal.
Another factor that adds to a compelling base/reversal threat is that the decline from 27-Sep's 12.79 high detailed in the hourly chart below has spanned a length exactly 61.8% (i.e. 0.618 progression) of the preceding 14.65 - 12.38 decline. We believe this Fibonacci fact contributes to an Elliott Wave count that contends that 04-Oct's 11.52 low completed a 5-wave sequence down from 31-Aug's 14.65 high. If correct and especially combined with the longer-term factors discussed above, the market may be in the embryonic stage of a reversal higher that could produce significant gains.
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