For Sunday, December 18, 2011                                        Go to Website
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Last week we wrote:

"Another week of extreme volatility as the stock market (global and U.S. markets) fell after there were signs of problems in a potential European monetary agreement. But when the agreement was finally put together, the markets rallied and by the close on Friday there were almost no changes in either the S&P 500 Index (- 0.4%) or the Nasdaq 100 Index (no change)."

This week:

The current volatile stock market is, in our opinion, as bad as we have ever experienced. Extreme volatility and so far no trend. In fact, there has been no real trend since mid-year.

The charts show lots of up and down, but extreme moves made in a fast market do not bode well for investors, and we suspect many investors are pulling out until the markets settle down.

Our timing is based on long term trends. We have done a great deal of historical research and going back all the way to the beginning of our financial markets, trends have dominated some 80% of the time. The other 20% is where we are now.

Interestingly the conservative strategies have not been affected by the volatility, holding cash positions for months.

We again point to our Diversified Timing Strategy which spreads risk out over five sectors with 20% in each. Any one sector is unable to adversely affect the strategy. We have mentioned this strategy and have pointed out the benefits of diversification in most every analysis of the past half year. We do hope you have been paying attention.

The daily chart of the S&P 500 Index - SPX, below, shows a spread out, but rising trend support line, by connecting the October and November lows.

Though the trend line is rising, the actual market action has been much more difficult as you would have to accept single losses higher than 10% in order to have stayed with the trend. Few have any interest in accepting such losses without moving to cash to protect capital.

This is why the stock market is so difficult at this time. The violent up and down moves are too extreme and too fast.

Currently the SPX is below its 50-day moving average as well as the 50% retracement resistance level.

The 200-day moving average is becoming very important as the SPX has reached it several times over the past months only to be turned back. This may be the level that becomes a breakout for a bull rally, assuming it is eventually and decisively surpassed.

The stock market will eventually launch its next trend. To the upside is our guess but either way, the 80% factor will before long win control and we will be in a long term trend and will profit from it.

Our expectation is that it will happen soon as we already have been in a trendless market for over half a year. This is a very, very long time for the financial markets to be without a trend.

We again mention that this is an aggressive strategy and those following the Bull & Bear Timer should recognize this fact. If you are not an aggressive trader stay with the S&P Conservative Strategy which has been safely in cash for some four months.

Or, at least diversify and spread your timed funds among several strategies to reduce risk.

Our Diversified Portfolio does this for you and it should be easy for subscribers to reduce risk by using several of our strategies.

The markets now have had five days with better than 9 to 1 up volume vs. down volume on the NYSE. One was all the way up at 37 to 1. This would appear to be pointing to a huge bull market soon.

On the flip side possibly the big program traders are skewing the numbers so badly that this indicator will be useless in the future. Only time will tell if these FIVE very bullish days are correctly forecasting a new bull market.

One bullish interpretation of the current daily chart is that we have seen wave 1 of a new bullish 5 wave pattern, and wave 2 ended at the lows three weeks ago. Note that those lows were at a much higher level than the October correction lows.

If this is the case, we have a big move (wave 3) to the upside ahead. This is not a forecast, just a potential chart interpretation.

Conclusion:

The SPX is below its 50-day moving average and also below its 200-day moving average.

The SPX declined 17.6% at its lows for this decline. On a closing basis it did not reach bear market status (20% loss).

The SPX appears to have put in a double bottom and panic low.

After a strong rally in early December the SPX is again pulling back, resulting in a lack of follow-through.

The SPX portion of this strategy is BULLISH and in the Rydex Nova S&P 500 Fund - RYNVX
(or other bullish S&P index fund). The Exchange Traded Fund (SPY) can be used instead.

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 sold off early this week and by the close on Friday had erased all of its losses and closed basically unchanged. Thursday's selloff put the NDX back below both its 50-day moving average as well as its 200-day moving average. Friday's rally pulled the index right back up above them again."

This week:

The Nasdaq 100 Index - NDX is back down below both its 50-day moving average as well as its 200-day moving average.

Interestingly, the 50-day average has now crossed above the 200-day average. This is a bullish indicator though in the current volatility we hesitate to get too excited.

The daily chart shows another failed rally but the bullish crossover of the 50 and 200 day averages holds out some hope of an eventual advance.

We have drawn a declining trend resistance line on the below daily chart. This line shows the lower highs of each rally attempt but it also would be a bullish indicator if it is surpassed next week. It is something to keep an eye on.

The NDX has a very well defined double bottom in place. It may even be a triple bottom based on the daily chart (below). This bottom occurred right at the 61.8% retracement support level for the entire previous bull market advance.

The bottom could still be one that will hold.

Conclusion:

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

There is a bullish crossover of the 50-day moving average line and the 200-day moving average line.

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