Technicals, December 13, 2011; 7:55am
On a short-term scale detailed in the 240-min chart below, there is little question that the trend is down. This decline was initially exposed by 05-Dec's short-term momentum failure below 01-Dec's 1737 corrective low, and then reaffirmed with last Fri's break below 06-Dec's initial counter-trend low of 1705.7. Yesterday's sharper, more obvious weakness and clear break below the 1705-area support leaves this 1705-area as new resistance and defines Fri's 1727.9 high as the latest corrective high and risk parameter the market is now required to recoup to jeopardize the impulsive integrity of any broader and more immediate bearish count. In these regards, a cautiously bearish policy may be pursued, but we believe only on a rebound attempt closer to the 1690-to-1700-range where the requisite 1728-area buy-stop would produce a preferred risk/reward ratio. Given the market's encroachment on the lower-quarter of the past 3-1/2-months' lateral range, we do not advise chasing bearish exposure lower.
Taking an even bigger step back to appreciate the magnitude of the secular bull trend, the weekly log close-only chart below shows the market still well within the boundaries of the major up-channel from Oct'08's 718 low. Per such and while 26-Sep's 1594.8 low daily close continues to hold (1622 on a weekly close-only basis), our preferred count is that the current correction is one of only moderate scope (i.e. the 4th-Wave of a 5-wave sequence up from Oct'08's 718 low weekly close). A clear break below 26-Sep's 1594.8 low would have to be taken as exposing a much larger-degree correction similar to that that unfolded from Mar to Oct 2008 when the market lost 28%.
Given the scope of the secular bull trend from Jul 1999's 253 low shown in the monthly log scale chart below, the process of any major peak/reversal threat could take quarters to unfold before any discussion of which can be seriously considered. But given the high nominal price levels this bull has achieved, even a relatively minor correction could produce sizeable gains or losses. On this scale, this market could easily get whacked by $300 or $400 and remain well within the confines of the long-term advance.
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