By Rodrigo Campos
NEW YORK (Reuters) - January has turned out strong for equities with just two trading days to go. If you're afraid to miss the ride, there's still time to jump in. You just might want to wear a neck brace.
Bullish write ups like this are what tops are made of. The S&P is up 14% last 9 weeks. VectorVest universe of 8000 stocks now trades well north of 43xs P/E. (Very expensive)
On Dec 23rd SPY update, I reiterated my price targets set in early December by stating:
Conclusion: My forecast for 1290 to 1320, although many times in December looked improbable, remains. The forecast remains not because stocks should be going up, they should not be (Look at ORCL earnings miss, 1st in 10 years), the forecast remains because the technicals have not changed.
Lets look at where we are now
SPY weekly chart I have marked potential Elliott Wave counts. The 1st 5 waves up, followed by irregular a-b-c correction are easy.
The next 5 waves are yet to be determined, but this is the count I am going with for now, which has the SPY uptrend completion between the current close of Friday 133 and the 1st R1 area of 138.
The next two charts are to validate the above chart; indicating that the 5th wave is completed.
If we take on the weekly chart the bottom of Wave 1, to the top of Wave 3, its 31points. 5th waves tend to equal .61 of other waves. If we take the bottom of the 5 wave, add in 18 points we come to a price target of 133.
Lets take the daily chart to try and get a price target. The daily chart has an inverted head n shoulders pattern. Calculations for IHS patterns are head to neckline added to neckline. Using this formula, same price target of 133.
Next lets look at length of time. Counting from October low, we are coming into the 180 time frame from the low. The divisible numbers by 3 are strong point and time areas to look for tops and bottoms. So anytime between now and Feb 8th is a strong place for market turn.
Current evidence of price and time, both on weekly and daily charts point to a 5th wave EW completion between Jan30th and Feb 8th.
Square of 9 calculations using Fridays closing price shows a GANN sell signal at SPY 129.39. A strong close below this price; coupled with increasing volume and within our 180 time frame; should seal the deal.
Until you see these numbers play out, taking down any high leveraged short ETFs other then ones tracing the $VIX is not advised. The reason we average into TVIX down here, AND ONLY TVIX, is because the $VIX tends to have defined lows, no matter how high the market goes.