The Importance of the Market's Long-Term Inflection Point

By Jason Haver  JAN 08, 2013 9:52 AM

While the bulls still appear to have control, this update discusses some key price zones for the long-term.


Friday's update noted that the market was approaching an inflection point, but expected that the S&P 500 (INDEXSP:.INX) had at least one more fourth wave correction and fifth wave higher still to come, which the market fulfilled on Monday. The short-term charts are in a bit of flux at the moment, so I'll discuss the short-term later in brief, but I want to focus on the longer-term in this update. In most recent updates, I've talked about the long-term bull potential, which I’m still favoring. I should probably make it clear that I’m not flipping the bear side here, but nevertheless, I do want to bring a bit more balance to the discussion.
I want to start off with a chart that does a reasonable job of highlighting the long-term importance of the current inflection point.  The Philadelphia Bank Index (INDEXDJX:BKX) has broken out and back-tested a bullish basing pattern, and is now in a critical long-term resistance inflection zone.
The problem for bears is that this chart simply isn't bearish -- it has bearish potential; but it's important to understand the difference. 

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The chart below zooms in a bit on BKX and discusses the likely wave structures and targets.  While BKX has loved blow-off tops of late, I have to favor the more traditional market pattern, which is that the strongest waves usually fall closer to the middle of the pattern -- thus suggesting further upside is still out there after the next correction.

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The Nasdaq 100 (INDEXNASDAQ:NDX) also continues to highlight how critical the current zone is for bears to defend.

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Finally, the updated SPX chart. There may still be another small fourth and fifth wave left to wrap up, but this is where the short-term becomes a bit ambiguous. I remain in favor of an intermediate bullish resolution, but as I noted on Friday, this is not a time for bulls to be complacent, given the gravity of the current higher-degree inflection point. The chart notes some key levels and signals to watch.

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In conclusion, it still appears more likely that the bulls will continue to own the intermediate term, but the bears definitely aren't out of the running yet. I do feel that bears need to make a stand in the fairly near future, or risk a more absolute long-term loss of control. I'm working on an article that discusses a bit more about the fundamental problems facing the governments of the world, and why being a long-term bull is challenging for most thinking people. I hope to have it ready for the next update, but I hoped that two updates ago. In the meantime, trade safe.  

No positions in stocks mentioned.

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