For Sunday, April 19, 2009                                          Go to Website
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Last week we wrote:

"Last week we warned that profit-taking was imminent and early this week it looked like we had some selling ahead. But again, the market turned higher and on Friday exploded upwards breaking above resistance as well as the prior rally highs."

This week:

Early this week the markets pulled back and it looked like the start of the expected correction. But after only minor selling, the advance began again and pushed prices to new rally highs for the S&P 500 Index - SPX, though not new 2009 highs.

All it took were several earnings reports not as bad as expected and soothing words from the current administration, to stop the early week selling.

This is now the sixth straight week of gains though the gains were less percentage wise than in some of the early rally weeks. It was another week with higher weekly highs, higher weekly lows and a higher weekly close.

There must be a correction in here somewhere, so be aware that it is inevitable. Profit-taking must occur and we are overdue for it.

The SPX ended the week just below its prior 2009 highs at SPX 874.09, a double top that occurred in January and early February.

A close above SPX 874.09 would set the stage for a run to the Wave 4 highs at SPX 934.70. This is a very critical level that, if also surpassed, would be an Elliott Wave confirmation of a new bull market.

This Wave 4 high marks important Elliott Wave resistance. If surpassed, it will confirm that a major Elliot Wave Theory low is in place, having been reached in early March (see daily chart). It would also forecast a continued advance with several waves ahead that should last months if not longer.

In this advance there have been six better than 9 to 1 up vs. down volume day on the NYSE, in only five weeks. We have no records of six in a row and consider two in a row to be bullish.

These 9 to 1 days are bullish indicators if there is more than one such day in a short time span (three months). We now count six in five weeks. The 1982 bull market started with just two.

Volatility remains very high with huge daily swings exceeding 1% typical instead of unusual.

The CBOE Volatility Index - VIX, declined to 33.94 this week, the lowest closing level since September 2008. This tells us that investors are beginning to believe in this rally, and typically this is bearish as a contrarian indicator, at least for the short term.

Conclusion?

The early March close below the November lows as well as below the 2000-2002 bear market lows has probably completed a bearish Elliott Wave (5 Wave) pattern. If this is correct we are the beginning of a new advance that will last months and possibly years. How far it will go is unknown, but it should be very profitable and consist of several waves higher, with corresponding corrective waves along the way.

The SPX is well above its 50-day moving average. The target for this advance is SPX 874.09. A close above this level would likely result in a run for the Wave 4 highs at SPX 934.70, achieved in October-November 2008. These highs, if surpassed, would constitute a bull market confirmation in Elliott Wave Theory.

There have now been six breadth surges of better than 9 to 1 as discussed above.

Look for profit taking to trim some of these gains next week.

For subscribers who overly worry about short term swings in the financial markets, remember that you do not have to be an aggressive timer to be a profitable timer. This strategy can and does incur small losses on occasion. Money is made in both aggressive and conservative style trading. Our Conservative S&P Timer strategy trades only the long term trends but that means it profits without the numerous buy and sell signals that active and aggressive traders take. The Conservative S&P Timer has been in cash since January 7th.

The SPX portion of this strategy is in a BULLISH position and in the Rydex Nova S&P 500 Fund - RYNVX (or other bullish SPX index fund).

S&P 500 Index (SPX) Daily Chart

S&P 500 Index (SPX), Weekly Chart

Nasdaq 100 Index (NDX) Chart Analysis

Last week we wrote:

"Another solid week for the Nasdaq 100 Index (NDX) that ended with a gap higher day on Friday with a 3% gain to close out the week. Typically gaps are filled, and we now have two of them. The gap open day on March 2 and the gap open day on March 9. If we see profit taking in coming days, these levels may very well mark the lows of the declines. It is likely they will be filled."

This week:

At the start of this week we had a fast decline that filled in the gap created in the prior week's Friday rally. Gaps are typically filled so the sooner the better.

But this advance is becoming substantially overbought and profit-taking looms ahead.

Overbought is just a term that means the buying needs to slow a bit and traders need to take profits. Logging in profits is what stock market investing is all about. It will happen sooner or later, and sooner is easier on the nerves.

The close this week at NDX 1352.92 is only 2% below the Wave 4 highs and is also closing in on the 200-day moving average. Either of these resistance levels, if surpassed, would be a substantially bullish event.

The NDX is pacing the advance and has broken above all major resistance levels except the prior 2009 highs and the 2008 Wave 4 highs. The Wave 4 highs are at NDX 1378.40 and it was reached just before the final leg down in the bear market.

The chart clearly shows that a Wave 5 decline was reached in November and successfully retested in March, but to validate a new bull market according to Elliott Wave Theory, the prior Wave 4 highs must be surpassed.

This is the target for the advance.

In conclusion:

The NDX has a Wave 5 Elliott Wave low in place at its November 2008 lows. The NDX needs to close above 1378.40, the Wave 4 high, to confirm this bottom based on Elliott Wave theory.

The NDX is well above its 50-day moving average and the 50-day average has turned higher. The NDX 1378.40 level is the next target and also strong resistance. Expect selling but watch for a close above this level to indicate the next surge higher has begun.

The NDX continues to outperform the big caps and as the advance progresses, it should continue to outperform.

The NDX portion of this strategy is in a BULLISH position and in the Rydex NDX 100 Fund - RYOCX (or other bullish NDX 100 index fund).