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Is It Extra Innings or Game Over for the Stock Market?


Stay defensive, wait for a correction before swinging for the fences in stocks.

Ninth Inning, Extra Innings, or Game Over?

As the stock market enters the second week of its most famous month of the year, one has to wonder if we're in the last inning of the game for this powerful market rally. The S&P 500 and NASDAQ have had a spectacular run since the March 2009 lows, so it would be natural -- and even healthy -- for the market to pause and have a 5-7% correction.

However, the stock market has decoupled from economic realities, so all market bears must beware that it could very well go into extra innings before a more serious correction or crash comes later in 2009 or early 2010. This stock market in 2009 has an 88% correlation to the 2003 market, so any serious correction may not happen until 2010. This assumes we continue to follow the 2003-2004 market paths.

Below 869 and it's Lights Out and Game Over

The fact of the matter is that price is truth and all else is commentary. Fighting the Fed and the tape isn't a wise or profitable thing to do. It we have a serious correction and close under 991 on the S&P 500, then look for a very volatile and potentially bloody end to the year in stocks.

For secular-thinking bears, a close below 869 will confirm that it's game over for the bulls and game on for the bears. A break below 869 will be confirmation that we're headed significantly south, and that this recent move was, in fact, a bear market rally versus a new secular bull market. Right now, the market is technically bullish with a giant inverse head-and-shoulders bottom in place on the weekly charts, so don't be surprised if 1125-1200 happens before the right shoulder is tested or broken at 875 on the S&P 500.

Gold Stocks Heading into the Seventh-Inning Stretch Until November

For those that are concerned about the overall market and economy, I'd suggest looking at the big secular bull market in gold and gold stocks. Seasonally, gold and gold stocks should very shortly start a decent-sized correction into early November, and that will be the time to buy.
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No positions in stocks mentioned.
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