$$ Where We Are

Achal asked a good question:

"Do you have an update on your initial scenario (peak on Oct 27th, and a final peak later in Nov)?"

As you know, on October 13 I projected a cycle top "on or about ~October 27."  We got an intraday top on October 25 at 1196.14 at the top of the price channel.  Off that October 25 peak, instead of starting a correction all we got was a trip to the bottom of the price channel at 1172.  

I was surprised it was not more than that, but once the channel held it was clear we were not going to get a change in trend.  The October 25 peak held until the day QE2 was announced, so I don't view that forecast of a cycle top as a complete failure. 

Today, the S&P reached the 1220 target I mentioned yesterday in historic fashion:  the S&P closed higher than its 3 standard deviation upper Bollinger Band for the first time in at least 10 years.  

In September of 2007, the S&P pinned its 3SD upper BB intraday.  What happened next was 6 days of sideways action before price rose into its October peak at the end of T12.  Likewise, in June of 2005 the S&P pinned its 3SD upper BB intraday.  It traded sideways for three days after until correcting hard.

Second, I would note that it took 51 trading sessions from the low close on Feb 8, 2010 to establish the high close on April 23, 2010.  Currently, we are at 50 trading sessions since the low close on August 26.  

As you can see from the chart above, we threw above the price channel today.  While I expect us to take a breather tomorrow, we may well get a parabolic blow off top here (as discussed below).  Note that the inverse Head & Shoulders pattern suggests a potential target at 1250:

Likewise, here are the next Gann resistance levels to watch:

1240 is 240 degrees from the early July 1011 low

1250 is 120 degrees from the early August 1129 top

On the other hand, note the bearish divergence on the Money Flow Index.  One way or the other, this condition usually does not last long.  Price and MFI will start to mirror each other.  

On the weekly chart, we can see that we are in a steep bearish ascending wedge much like we were this Spring:

There is also some bearish divergence on the weekly RSI.  We did, however, break through the 200 week moving average.  The 200MA had served as resistance in April. 

The T Theory Volume Oscillator shot up to 61 today.  This matches the previous peak reading on October 13.  So we have readings of 

June 15 = 134

July 26 = 124

Sept 10 = 100

Oct 13 = 61

Nov 4 = 61  

We certainly blew through the extension of the green line from 100 to 61 that was dropping at 1.7 points per day.  But Terry is the expert at interpreting the VO.  I'll leave it to him to determine whether we started a new VO T today or whether we can connect the 61s and keep that green line intact.

To answer Achal's question, recent price action while historically bullish is not inconsistent with my forecast of an end to T13 within several days either way of November 12.  This rally is long in the tooth, overcooked, and due for a serious correction.  Can I be wrong?  Certainly.

One of the things I will be watching for is the establishment of a third, steeper trend line for this move.  Parabolic moves usually come in three waves.  As you can see from the chart below, the green trend line is the shallower than the black trend line.  I anticipate that after taking a little breather, we are going to set an even steeper trend line (for example the red dotted line). 

There are usually excellent shorting opportunities available when the steepest of the three trend lines in a parabolic move fails.  But as always, manage your risk.