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All We're Getting for Christmas is a Trading Range?


Keep an eye on that upward sloping resistance...


"No one would have crossed the ocean if he could have gotten off the ship in the storm."
-- Charles F. Kettering

Market Comment:

Good Morning. In the last 'Jo', we discussed the possible change in intermediate trend and potential break of this rising wedge formation the markets have been in since 2004. The key technical action to confirm such a change was a break of the 1170 - 1180 range on the S&P 500 Index (SPX) with a follow-through to the downside.

However, as it stands today, it looks as if the market is still not ready to bust down through support just yet; at least not on a closing basis. Hope on the part of nearly every institutional money manager for a Christmas rally has resulted in some dormant assets being put to work. "Self-fulfilling prophecy?" So yes, Virgina; maybe there is a Santa Claus. With this bounce off support getting underway, the most important questions beg to be asked, "How long will this pattern last?" and "Where and when is it going to potentially end?" This is the topic at hand today.

I have gone back to the inception of the SPX (1963) and searched for every long-term divergent rising wedge/declining momentum formation that has occurred. The discovery was astonishing. There is not one single instance in which the market has broken out to the upside and sustained any type of rally following this type of formation. In other words, the market has not been able to break above the resistance lines of these past patterns. As discussed in the last 'Jo,' this is a market topping pattern.

Assuming this bounce is going to get the market back up to the upward sloping resistance, that should bring the SPX up to the 1260-1270 range. If this happens I'll bet my bottom dollar every market TV station and newspaper will be talking about how the market has hit a new high for the year - just like they did in late August. And where does that get us? Nowhere! Okay - maybe 4% from here, but still vacillating in this ever-tightening range.

On a more fundamental note...

With the announcement of a new Fed Chair, Ben Bernanke, thus ending Alan Greenspan's 18-year reign and the 12th interest rate hike in a row, the market found some muster to bounce once again. Consequently, "Helicopter Ben" has as much as assured us there are at least 2 more rate hikes coming in the following year. Subsequently, the world's largest bond trader, Bill Gross, is calling for only a 2% GDP growth in 2006. In other words, the "R" word - Recession (defined as 2 or more consecutive quarters of a decline in GDP).

Many of the talking heads - media commentators - have been bantering about the market getting out of this 2-year trading range to the bullish side and finally putting an end to this massive sector rotation. However, this is very far from fruition. They have looked at the action over the last week and a half and talked about a bottom. Yeah right! Bottom of what? Another bounce off the bottom side of this wedge? What's that gonna do for us? Answer... nothing except keep us in this seemingly everlasting malaise.

Stay tuned...

Until next time...


No positions in stocks mentioned.

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