For Sunday, January 31, 2010                                         Go to Website
	Current Strategy Positions   2008 Full Year Results Fibtimer Timing + 17.3 % S&P 500 Index    - 39.9 % 2009 Full Year Results Fibtimer Timing + 54.8 % S&P 500 Index  + 23.4 % also SPX Aggres Timer   + 84.8% Gold Fund Timer     +102.7%  Smallcap Timer      + 74.0 % FibTimer currently has 12 successful strategies   S&P 500 Position -        BEARISH   Nasdaq 100 Position - BEARISH   Gold Stocks Position -  BULLISH   SmallCaps Position -   BULLISH   U.S. Dollar Position -    BULLISH   Bond Fund Position -    BULLISH These positions were started over previous weeks. You need a paid subscription for real time signals. Sector Funds, ETF and Stock positions are not included above.

Last week we wrote:

"The S&P 500 Index - SPX was hit hard in the last two trading days of this week. The selling was of such magnitude that the likelihood of further losses must be considered. We go into details, of actions to be taken, later in this analysis."

This week:

The S&P 500 Index - SPX was again hit with a substantial loss, but this strategy is now on the sidelines and was unaffected.

The first two days of this week were mostly unchanged, but by the close on Tuesday, our trend indicators flipped to bearish and we exited to cash on Wednesday. Wednesday had a solid rally so we exited on the high point of this week.

Why did we exit to cash instead of bear funds?

It is the only discretionary call we make. The choice between bear funds and going to cash. Unlike market bottoms which typically have a V shape, market tops are not as distinct and have failed rallies, double tops, and all sorts of volatility.

This can result in whipsaws and if you are in bear funds such whipsaws can result in losses. So when exiting so close to market highs, and remember only two weeks ago we were at new rally highs, the best choice to avoid being caught in whipsaws is to go to cash.

We will see how this choice plays out over coming weeks. Regardless, we are not losing capital in the declines and certainly there are more declines ahead.

Even if this turns out to be nothing more than a normal correction, the market usually declines in three waves. At best, we are in Wave A. That means a rally Wave B and then a declining Wave C to "new lows" in coming weeks.

If this is the start of a new trend to the downside, as many Elliott Wave analysts are forecasting, there will be more complex patterns in coming weeks and months, but all of them resolving to the downside.

A new closing high at any time voids all of these bearish patterns, but that is very unlikely in the near term.

The stock market is hugely oversold now. When such oversold conditions exist there is the potential for a snap back rally at any time. Yet oversold conditions can get worse.

The CBOE Volatility Index - VIX is now at 24.62. This is not as high as last week's reading of 27.31, but it is still far above the 17.0 levels reached only a few weeks ago. It still means almost everyone is looking for more selling and is taking bearish positions to compensate for it.

Last week we wrote: "If we do continue lower early next week, this aggressive strategy will take defensive positions by moving to money market funds. The odds that this is the start of a non-stop move down are extremely slim. A reversal would cause whipsaw losses and we avoid them as much as possible. If we are really headed for a new leg down that will test the March lows, as some have forecast, we will pick up much of those declines as profits in bear funds, but not when we are only 3.9% from rally highs. Bear funds are too risky here. But moving to cash to avoid losses may be the path taken, assuming we do continue lower."

The SPX is now below its 50-day moving average, which is considered by many as a short term indicator. The 50-day average is acting as support for this advance and had only been broken twice since March. Now we are below it for the third time.

The SPX has closed below 1075.63 support. This was the 61.6% Fib retracement for the November to January advance. This forecasts further weakness ahead.

The SPX has also closed below its rising trend support line that has held all declines since back in August 2009.

The likely supports for this decline are at SPX 1008.64 and then critical support at SPX 975.75. If the SPX breaks below 1000 there is also the emotional factor that will have a bearish effect on prices.

Conclusion:

The early March close below the November 2008 lows, as well as below the 2000-2002 bear market lows, completed a bearish Elliott Wave (5 Wave) pattern.

We have an Elliott Wave confirmation of a new bull market for the SPX. This occurred when the SPX closed above its prior bear market Wave 4 rally high at 934.70 on Monday, June 1st. Accordingly, we are now in the midst 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 below its 50-day moving average but still above its 200-day moving average. The 200-day moving average is at the SPX 1008.64 support level, offering a very strong support level that will be difficult to break. If it is broken, it would likely result in a tidal wave of selling.

Looking back to the beginning of this advance, there have been a total of nine breadth surges of better than 9 to 1 up volume vs. down volume which have occurred during the early weeks or at the start of each new rally. These predictive days have already been proven correct. They have no upside limit though so higher highs can still be ahead.

On November 9 we had another breadth surge. This time it was a 16 to 1 up vs. down volume rally on the NYSE. We are watching for a second such day to confirm a bullish signal based on this indicator but that day must occur before February 9 (three months from initial surge).

The sell off this week likely has further to go on the downside. It has resulted in a grossly oversold stock market, but such conditions can last awhile.

The SPX portion of this strategy is in a CASH (money market funds) position.

S&P 500 Index (SPX) Daily Chart

S&P 500 Index (SPX), Weekly Chart

Nasdaq 100 Index (NDX) Chart Analysis

Last week we wrote:

"The Nasdaq 100 Index - NDX lost some 5.2% this week in heavy trading. Most of the loss occurred on Friday. As discussed above, the selling was the result of a news event with the current administration announcing new regulations that will limit the ability of the banking industry to continue growing and it gives some companies huge advantages over others."

This week:

The Nasdaq 100 Index - NDX continued lower this week but the losses were after a solid rally on Wednesday and that is the day we exited to cash.

The NDX is now well below its 50-day moving average and it has also closed below its prior resistance level (now support) at 1772.07.

Such a close below support points to the next support level at NDX 1643.36 and then 1584.39. These are the retracement support levels for the July to January advance.

We have labeled the decline so far as a Wave A. Typically a normal correction will have three waves down, so there would still be a Wave B rally and then a Wave C decline to lower lows ahead.

If this turns into a new bearish trend to the downside, there will be more complex waves ahead, but all resolving to the downside.

The selling is way overdone and we should see some buying next week. We could also just continue this Wave A lower. There is a lot of bearish sentiment right now.

The NDX 1900 level stopped the advance and will likely be a problem for some time. If we can close above 1900 the advance should resume, but with this week's sell off it could be weeks or months before we make up lost ground and retest 1900.

Conclusion:

The NDX has a Wave 5 Elliott Wave low in place at its November 2008 lows. The NDX has closed above NDX 1378.40, the Wave 4 high, which confirms this as a bear market bottom based on Elliott Wave theory. The SPX has also confirmed this as a bear market bottom.

The NDX is now below its 50-day moving average. The NDX is above its 200-day moving average.

The NDX "had" closed decisively above the critical 61.8% retracement resistance level at 1772.03 and also the 1800 level. Both of these levels have now been broken to the downside.

We discuss the reasons for a cash position in the SPX analysis above. We do not yet see this as the start of a new bear market. If it is, there will be several opportunities to take advantage of the declines.

The NDX portion of this strategy is in a CASH (money market funds) position.