For Sunday, May 30, 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 + 59.5 % S&P 500 Index  + 24.7 % 2010 to May 28  Fibtimer Timing  + 5.2 %  S&P 500 Index    - 2.4 % FibTimer currently has 12 successful strategies   S&P 500 Position -        BEARISH   Nasdaq 100 Position - BEARISH   Gold Stocks Position -  BULLISH   SmallCaps Position -   BEARISH   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:

"After the mini-crash three weeks ago, the extremes reached intra-day were such that it did not seem likely they would be reached again anytime soon. Sure enough those extremes were reached this week and surpassed with even "lower" intra-day lows plus a close substantially lower than reached during the mini-crash week."

This week:

Two weeks ago we began to consider that the lows of three weeks ago might need to be tested before this correction, assuming it is just a correction, is over. But on both Thursday and Friday of last week the S&P 500 Index - SPX exceeded the intra-day lows of four weeks ago and also made a new closing low.

This creates a three wave (abc) corrective pattern for the SPX (marked on the daily chart below) with the lowest wave (c) having tested the February correction lows at SPX 1044.50. The SPX reversed from those lows on Tuesday of this week.

Everything is in place for a new advance, but this week there was no confirmation that a bottom is in place.

Thursday's rally was, historically, a very unusual event. The NYSE had up volume beating down volume by 36 to 1. This is part 1 (of 2) of a bullish indicator we watch for. The second part being another breadth explosion day within the next two months (better than 9 to 1 up/down volume).

Such breadth explosion days are usually seen only near the beginning of a new bull market. Of course we still need the second one so the indicator is not yet complete.

The following day was also not what we would expect to see after such a huge rally. Instead of follow-through for the rally, the stock market declined and by the end of the day had sold off over 1%. Almost half of the previous day's gains. This is not the action expected after a breadth explosion day.

Another bullish indicator is the CBOE Volatility Index - VIX, also known as the Fear Index. When VIX trades at levels of 40.0 or higher, it marks extremes of fear that point to a stock market bottom. Such levels (40.0 or higher) are typically followed by a stock market advance.

VIX reached the 50.0 level a few weeks back and has since traded at elevated levels. We did have a bounce after VIX reached 50.0 but now the stock market is considerably lower.

The bounce failed and the SPX is now at much lower lows than on the day VIX reached that 50.0 mark. We have to consider that VIX could still reach higher fear levels in the weeks ahead, as it did at the lows of the 2008-2009 bear market.

This week the SPX reached new intra-day lows as well as a new closing low. The worst days occurred after good news had been announced. For example, better-than-expected jump in home sales on Tuesday were announced, and the stock market tanked.

When good news cannot pull buyers into the stock market, it is a sign that potentially lower-lows remain ahead.

Something to consider. At the lows this week the SPX was 20% below where it was ten years ago. This is a terrible figure. Ten years of buy-and-hold investing in 500 of the world's largest companies and you would be down 20%.

Such news does not encourage new buyers. In fact, we would expect many to be headed for the exits and putting their savings into fixed income markets which have been in the midst of a rally these past weeks.

There is a growing feeling that the markets are rigged to create wealth for the big guys, institutions like Goldman Sachs, but at the expense of individual investors.

What better reason to consider market timing to avoid the bear markets that seem to be arriving at a steady pace of late? Not the market timing that "forecasts" the future. Not the fake hocus-pocus timing with fake gurus and reading by the stars.

We mean trend timing (trend following) as we practice here at Fibtimer. Identifying and trading trends that has avoided every bear market for us since the 1980's, profited in bear funds in most of them, and resulted in substantial profits over the past ten years instead of the 20% loss for buy-and-hold investors of the S&P 500 Index.

There is nothing wrong with investing in the S&P 500. But blindly following it is incredibly risky when all it takes is a trend following strategy to "avoid" all the big market declines that regularly decimate the index.

Back to the charts:

The SPX is trading below its 50-day and 200-day moving averages. Many investors watch the 200-day moving average as an indicator of bull market vs. bear market. Even the huge rally on Thursday was unable to pull the SPX back above this long-term average and Friday's decline puts the SPX well below.

So far the SPX 1044.50 level has held. Should we close below it in coming days it would be a strong indication we are in for considerably lower lows. As long as we stay above 1044.50, the markets have a chance at moving higher.

There is only one strong support level left should we break 1044.50 and it is at SPX 1002.24. This is the 61.8% retracement support level for the entire July to May advance.

The SPX 1002.24 level is critical for another reason too. It is right at the SPX 1000 level. Such a round number will get a lot of attention. Should we close below SPX 1000 it will be on every TV news program and every newspaper's front page. If SPX 1000 is broken it could bring in a new wave of sellers who will have given up hope.

SPX 1000 is 8.9% lower than Friday's close so there is plenty of opportunity for the stock market to find a bottom and reverse higher before it is reached. But if we get there, it is a do-or-die level. Break it and we are headed for a new bear market.

The bias is now to the downside for the stock market, but volatility works both ways. As we experienced this week, the stock market can have substantial rallies in the midst of a decline. Thursday's rally was historically a bullish indicator. But it was followed by Friday's decline that erased half of the gains.

The huge volatility is one of two reasons we are in cash instead of bear funds. First the volatility could very quickly result in bear fund losses if the markets rally. Second the declines came out of the blue and directly followed new 2010 highs. Trend timers do not trade reversals, they trade trends.

The trend may very well be down at this time but most of the initial losses occurred in just a few days a month ago. Since the mini-crash day there has been huge volatility. Lower lows, but also huge rallies along the way. Not the kind of playing field we want to risk our capital on.

Protecting capital is crucial here. Trying to gamble for some quick profits that may, or may not be achieved, is not what we do at Fibtimer. There are three positions in market timing. Bullish, bearish and cash. Each has its place. Right now the correct position is cash.

Note: We have on many occasions recommended diversification. When some strategies decline, usually others are advancing. Look at the Diversified Timing Portfolio for ideas. This strategy has done quite well this year. It may not be as exciting, but diversification does have its advantages.

Conclusion:

The SPX is currently below its 50-day moving average and its 200-day moving average. The 50-day average has now turned lower.

The markets have received a very powerful shock after the mini-crash occurred and after a fast three day rally, has been consistently losing ground. A great deal of technical damage has been done, not to mention the substantial losses many investors have now realized, and it will take some time for the markets to work through this.

We remain hopeful this will be a short lived correction, but there is no way to tell yet. We will protect capital and enter with either a bullish or bearish position once we have verified the trend, as well as how long we expect that trend to last.

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:

"When the stock market sells off, typically the Nasdaq indexes are hit harder than big-cap indexes like the SPX. This week was no exception with the Nasdaq 100 Index - NDX, followed in this strategy, taking a loss close to 5%. And that is after Friday's rally."

This week:

The Nasdaq 100 Index - NDX managed to close above its long-term 200-day moving average this week.

The intra-day lows reached on Tuesday did not break below the lows reached during the mini-crash of a month ago.

These are both indications that this index is successfully testing support.

But, the SPX includes many of the NDX stocks and if it continues lower, certainly the NDX will roll-over and follow.

The NDX again broke below its 200-day moving average this week but Thursday's rally pull the index back above it and Friday's declines were not enough to push the NDX back below. So the NDX remains above this do-or-die average.

The 50-day average is now moving lower.

The NDX has strong resistance levels at 1905 and then 1942 should we rally. It is unlikely that any rally would push above these levels without a great deal of effort. This means even a solid rally is likely to have strong sell-offs as it approaches these levels.

And that assumes such rallies are ahead. There is little to indicate we have higher highs in coming weeks. As summer vacations begin the markets often pull back. Considering the charts, that normal pull-back could be made considerably worse.

The stock market is obviously weak, but any trader who was watching on Thursday knows, the volatility is extreme and this is not a good place for anyone, including aggressive timers.

There is one support level left for the NDX. It has already been broken by the SPX, but the Wave 4 correction low reached in February, 2010 at NDX 1712.89, remains as support for the NDX.

In the below chart we have labeled this as a three wave (abc) decline and for the NDX we have placed the labels at the closing prices instead of the intra-day lows. Depending on the analyst, some use the lows and some use only the close for labeling Elliott Waves.

If you compare the NDX chart below to the SPX chart above, you can see that we can use either method to create a potentially completed three wave correction.

The big question remains though. Is this just the start of a larger corrective pattern or is the selling almost finished? We may get some answers next week, but we suspect it will be weeks before we can truly point to where all this will end.

Because of the potential for both extreme one-day advances as well as declines, cash is the preferred place for now.

Conclusion:

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

The NDX has reached to just above it February correction lows. This is support that, if broken, would point to a prolonged decline and possibly a new bear market. So far we remain in a correction, but continued selling and a close below those February lows at NDX 1712.89 would point to much lower lows ahead.

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