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First Quarter Forecast

Dec 10, 2012 8:27 am Print Print

Outside in the distance a wildcat did growl
Two riders were approaching, the wind began to howl.

-All Along The Watchtower (Bob Dylan)

Redeeming hedge funds continue to sell into strength.

The S&P spiked toward the key 1421 pivot and quickly lost steam, fizzling out to another test just above the pivotal 1409 mid-point of the entire September-November decline.

Despite the solid gains at the open and the tape quickly turning choppy, the S&P managed to hold above 1409, allowing for slow but steady upward trade in the afternoon.

The day ended mixed with Google (GOOG) and Apple (AAPL) acting as a drag on the tape, despite which the bulls managed to hold the market in a relatively tight trading range.

The S&P continues to coil into an apex of a triangle which looks due to resolve this week as it approaches 90 degrees in time from the September 14 recovery high.

If GOOG and AAPL are strong today, the broad market may go down. This is because the usual sell program before the Fed meeting is probably waiting in the wings so that if the market panics on the FOMC, the sell basket can be repurchased in order to take the market right back up as it approaches 1409 again.

There seems to be a concerted effort by 'someone somewhere' to keep the S&P north of 1409 and certainly 1400 while the Fiscal Cliff carries on.

I think the ability of the market to shrug off the stalemate over the 'Cliff' and to basically brush off Geitner's comments that the administration was "absolutely" prepared to let the country go over the cliff has instilled misplaced complacency.

That said, with this week setting up as a likely resolution of the recent trading range and the last FOMC Cha Cha of the year, I would not be surprised to see the shorts, which probably have stops just above the last swing high, get jammed with the index spiking to 1428/1429.

I say that because with December 14 being 90 degrees in time from the high, 1428/1429 is opposite December 14 on the Square of 9 Wheel.

1428/December 14 sets up as a time/price square-out.

This is the value of how the Wheel allows one to set up anticipatory strategies.

In other words, if the S&P rallies to a Pinocchio of the 1421 level and the recent swing high and the 50 dma and begins fizzling out, it sets up a solid short-side try with a tight stop.

Alternatively, if accelerated momentum occurs past December 14 and 1428, it is probably an indication of higher prices into year-end.

I'll believe it when I see it. However, in addition to the potentially significant time harmonics flagged in this space during mid-November, remember that the recent low also tied to the 4-year anniversary of the low November 2008 low around the world. The jury is still out as to whether the strength into early December was a pivot high since early December is 180 degrees opposite the early June 2012 low.

But strength past this week could continue into the next turning point, which sets up mid-January.

We should also be cognizant of the misplaced complacency in December of 2007 as a storm swirled.

Mid-January is 120 degrees from the September high. It is also SEVEN months (7 often ties to a panicky phase) from the key June low so a show of strength in January could be false strength, leading to a Spike & Reversal pattern in keeping with the cycle I've flagged from January 1973 and the false breakout at that time followed by a devastating 2-year bear market. And when that 2-year bear bottomed, it did not lead to a "V" as the Street has grown accustomed to expect off big lows. Rather, following the December 1974 low, another 6-year trading range ensued until a new bull began in earnest in 1982.

2018 ties to 6 squared or 36 years from 1982 and should be an important turning point for many reasons.

In addition, from 1982, the market ran up 18 years to 2000.

18 years from 2000 gives 2018.

Is it possible a secular bear market won't end until the beginning of 2018?

I can't help but think about how significant the 1370 level is currently. This is because the S&P low of 100 in 1982 plus 1374 ties to this year's high.

In addition, this week we are 1374 days from the March 6, 2009 low.

Will another break of 1370 indicate that a 50% retracement of the September/November decline defined another pivot high with new lows ahead?

The bottom line is that mid-December shapes up as a turning point, as does mid-January.

If this week is a high, mid-January may be a low followed by one more rally phase. If this week is another higher low, then the chances are that mid-January sets up as a big top.

Either way, from a 1st quarter pivot, it looks to me like a multi-year bear market will begin.

The first quarter has a lot of ground to cover, with several potential false swings, so timing will be critical to capture the moves.

February, 2013 will be 540 degrees in time from the primary low on the decline ending in August 2011 (the October low being a short-lived undercut).

540 degrees is an important measurement in time and price as 90 degrees X 6 = 540 degrees -- a true square or cube having 6 hard right angles of 90 degrees.

I think it is quite important to consider that assuming the S&P has not bettered its 1474 recovery high by the end of the first quarter, that 1474 calendar days from the March 6, 2009 low is March 19, 2013.

Of course, this date ties to the Spring Equinox in 2013.

Moreover, the closing high on the S&P for this year ties to March 21.

Gann always used to say in order to measure, you need to find the zero point.

The Spring Equinox is 'a' zero point; it used to be considered the beginning of the year. The month September for 'sept' being 7 and the 7 month from March with October for 'oct' as in octagon being 8. Likewise, November for 9 and December for 10 as in decennial.

I want to be carefully observing the price action around 2/22 as well, as it vectors 1474.

If tax selling, such as has occurred in AAPL for example, and a plunge in the market into mid-January occurs on a dive over the Fiscal Cliff, the market may find a low as bulls who have kept their wallet on their hip waiting for 'blood in the street' to buy step in.

This could play out in a 6 to 7 week rally, again, if mid-January is a plunging low.

That said, IF mid-January is a low, I think whether it is a higher low (above the recent November low) or a low that violates the mid-November low, will tell us a lot about the prospects for any rally phase.
No positions in stocks mentioned.



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