For Sunday, September 5, 2010                                             Go to Website
	Current Strategy Positions 10 Year Results all results are realtime Fibtimer Timing + 560.3 % S&P 500 Index    -  23.0 % 3 Year Results  Fibtimer Timing + 82.7 % S&P 500 Index    - 27.5 % 1 Year Results Fibtimer Timing + 13.8 %  S&P 500 Index  -  2.1 % FibTimer currently has 12 successful strategies   S&P 500 Position -        BEARISH   Nasdaq 100 Position - CASH   Gold Stocks Position -  BULLISH   SmallCaps Position -   CASH   U.S. Dollar Position -    BULLISH   Bond Fund Position -    BEARISH 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:

"In last week's report we wrote that there were declines ahead for the stock market. This week we had them, plus a relief rally Friday that did not manage to erase all the week's losses. Friday was different with a better than expected GDP number sparking a relief rally. The revised second quarter GDP was not good by any measure. But it was better than expected, coming in at 1.6% instead of 1.4%. This was a "sell the rumor buy the news" event."

This week:

After starting the week with a triple digit Dow loss, the stock market closed at a new low for the August decline, but then rallied through the rest of the week.

The rally was on some of the lowest volume of the year indicating a lack of conviction. Of course the weeks before Labor Day are always low volume but still, these were days that had up volume exceeding down volume by better than 9 to 1 and without volume they are suspect.

Nevertheless, the rally this week has voided the daily bearish head and shoulders pattern we were watching. It also closed above SPX 1100 on Friday thus breaking above this resistance level.

Next week the stock market will be back to full trading volume and at that time we will get a better picture of what is ahead.

If the SPX can close decisively above 1131 on high volume, we will be looking at a breakout and potential advance to test the rally highs at SPX 1200.

If the SPX fails here and reverses to close below 1080 next week, we will be looking for a return to the correction and a retest of the lows at about SPX 1045.

Next week is key. Full trading volume will give us a read on market direction.

Though economic reports do not factor into our trading, which identifies trends and then follows them, we cannot help but be wary of a rally that appears to be based on better than expected jobs reports that were really quite bad.

It seems to us that a loss of 54,000 jobs in August is bearish, not bullish. Also, a summer loss of 284,000 jobs, during a time when we were told there would be gains "the summer of recovery!" does not feel bullish.

And did anyone notice that the percentage of unemployed rose to 9.6% on Friday, and is expected by most economists to reach 10% soon?

Oh well, maybe it is just us that sees this as a concern.

This week's two big rally days, as mentioned above, were on better than 9 to 1 up vs. down volume on the NYSE. However we have had more than ten of these normally bullish days in the past three months and "all" of those occurring previously have failed to result in a sustained advance.

These previous 9 to 1 days were also on low volume just as the two this week.

If next week is different and we can sustain these gains, move higher and break resistance on high volume, it will point to a new uptrend that will, finally, last.

But a reversal and failure next week, on the expected high volume, will doom the rally and quickly put the stock market back into correction mode.

Pretty much all of our indicators point to the resumption of the declines. We have been doing this a long time and we know that the stock market can at times move against the best technical analysis. That is why we follow trends no matter what our analysis tells us. But this is turning into a very critical time for the markets. Next week or possibly the next two weeks will likely be the key to the next several months.

The huge bearish head and shoulders pattern (see weekly chart below) remains in place. This pattern is an ominous one that we would normally expect to be followed by a breakdown of the markets. But they have not yet broken down. Until they do there is always a chance the pattern is wrong.

The SPX is now above its 50-day moving average, but remains below its 200-day average. The 50-day average is below the 200-day average and this is bearish.

Last week everyone was talking about a double-dip recession, a new depression, an imminent Dow 1000, Dow 4000 or SPX 400. A ten year deflationary period like Japan, or spiking inflation.

By Friday it seemed everyone was talking about the end of the correction and a new advance just ahead. The speed of change from bearishness to bullishness is amazing. But who is correct?

The rally this week, while pushing the SPX 5% higher in only three days, was on half the volume we would expect to see. Next week the traders will be back and then the true test will begin.

Conclusion:

The SPX is now above its 50-day moving average, but remains below its 200-day average. The 50-day average is below the 200-day average and this is bearish.

We have had "eleven" unusual better than 9 to 1 up vs. down volume days on the NYSE in the past several months. Typically two such days within two months marks the beginning of a bullish advance. We have looked back in the charts and we see at least 12 better than 9 to 1 down vs. up volume days (the reverse of the bullish days).

There were two more of these bullish days this week alone, but they occurred on some of the lowest volume of the entire year. All of the previous such days were erased by declines. The ones we had this week will face their test, on full volume trading, in the days ahead.

The weekly chart shows a huge bearish head and shoulders pattern. A close above SPX 1131.23, the right shoulder, would put this pattern in doubt.

A close above SPX 1131.23 is also needed to prove this rally is the real deal. If we get it next week on heavy volume we will be looking for a new advance to test the 2010 highs.

If we reverse and close below the SPX 1080 level, we will be looking for a retest of the SPX 1045 lows.

The SPX portion of this strategy is BEARISH and in the Rydex Inverse S&P 500 Fund (RYURX) or other inverse S&P 500 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:

"The NDX broke out of a rising wedge pattern three weeks ago that, by itself, likely doomed the rally to a test of the early July lows. The NDX has also formed a bearish head and shoulders pattern on the daily chart (see below) and this week that pattern was confirmed as the NDX broke well below the lows of the left shoulder, thus completing the pattern and forecasting considerably lower lows ahead."

This week:

The Nasdaq 100 Index - NDX rallied from a new closing low early this week, to break above congestion around NDX 1862, and finally closed above both its 50-day and 200-day moving averages.

It was quite a display, though the action was on about half the volume needed to be convincing.

Next week the stock market will have everyone back from vacation. The volume will be dramatically higher, and we will see if the rally is for real.

A close above the prior rally high (top of the bearish wedge pattern) at NDX 1915, would confirm the rally and point to a test of the 2010 highs up at NDX 2055.

The NDX has the same bearish head and shoulders pattern as the SPX but a close above 1915 would put this pattern in doubt. It would also break the resistance at this level. Lastly, if it occurs, it would be on stronger volume, hopefully, with all players back from summer vacations.

But a reversal next week and close below about NDX 1830 would kill the rally's potential, and point to a retest of the NDX 1780 lows.

Conclusion:

The NDX is above its 50-day moving average. The NDX is above its 200-day moving average. The 50-day average is below the 200-day average which is bearish.

The NDX broke below its rising wedge pattern which was a bearish indicator looking ahead several weeks. A close above the highs of this pattern would negate it.

The NDX still has a large bearish head and shoulders pattern in place.

This week, after reaching new August closing lows, the NDX rallied and closed the week with significant gains. The rally was on low volume. If we continue to rally next week on high volume that would be a different story.

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