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TA Moment Of Truth

Trend Watch --

Trends: semis +, transports +, small caps +, energy -, China -, gold -, UK +, financials +, copper +, high yield +, munis +, US bonds +, emerging markets -, Yen carry trade +

The trend momentum power rating has slipped a notch to a 70% bull.

Energy joined gold, China, and emerging markets in sell mode this week, with many other indexes breaking down ahead of potential change in trend.

Next week should answer the question of whether the top is in, or near the corrective low that proves to be a great buy the dip moment.

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High risk blow off phases are like this - quick rallies that soon falter, resulting in a corrective swoon, that takes off again just when the bears think are about to feed, until the bulls fail to prevent the bears feeding, then the top is in and all hell breaks lose.

Next week should provide the answer to the new bear versus buy the dip! conundrum.

The first chart below - which is my forecast for 2014 - shows the bear potential, as the Dow Industrials are reversing hard after struggling at the upper trend-line of an expanding triangle, with the dotted red line my expectation of what happens once the stock market starts to reverse for real.

This is based on the rules of triangle analysis, as well as the position of the bull/bear cycle.

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The next chart shows the current S&P500 performance to start 2014 (black line) matched against the orange line expected in high risk blow of risk phases. The position of that black line is subject to change, as it uses monthly data.

Currently the S&P500 is tracking between the yellow line of moderate churn years and the maroon one of extreme risk - new MAJOR bear market underway - one.

How January closes out - next week! - should set the S&P500 on the path it is likely to take for the remainder of 2014.

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The next chart shows the trend - up - confirmed with a new sell from the hedging indicator - I am buying TZA as a hedge (10% of total portfolio value,) with the trend trading indicator at the bottom of the chart moving into the low risk - enter (longs) - zone.

Low risk in this regards means losses are likely to be very modest if the trend turns south for real, rather than any bet on probability of stocks heading higher from here.

And to top this situation off where next week answers the question of whether the stock market heads on its next rally phase from this position, versus the bear starting with red ink for January as the month closes, the FED have a two day meeting - when taper versus no taper is warred over (again) - all landing with $16 of FED QE bond buying to help sooth the pain of their decision.

Needless to say, we have the fuel for next week to be quite spectacular and volatile, though the direction of the fireworks is very much in question, with the fate of 2014 in the hands of eager bears and nervous though greedy bulls, as well as a clueless FED who have put their heads in a tight noose and asking, "shall we pull the lever, Janet?"

Have a great weekend!

-Kevin

(click to enlarge)Click to enlarge

Disclosure: I am long SSO, TZA, .