Expect the market to rise on Tuesday and probably continue this for upwards of a week or so.

S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

• The S&P 500 closed down on the week breaking support at 860. Next strong support can be seen at 815 although clearly we have support here at 840 as well.
• Keeping the index down has been the banks who are all making new lows. The banking system is effectively bankrupt and Bank of America (BAC) looking like it could be the next one to go.
• But the rest of the market continues to make higher lows so overall while the banks are
  very weak the rest of the market is exhibiting strength.
• Monday is a holiday (Martin Luther King Day) and Tuesday is the inauguration. The
  market will be focused elsewhere.
• And the focus elsewhere is positive as the feel good of the inauguration (finally marking
  the end of the Bush era thankfully) will overwhelm the huge negative of the sinking banking system. Expect the market to rise on Tuesday and probably continue this for upwards of a week or so.
• Key is that 840 support continues to hold but more importantly if we do break lower than
  815 is absolutely essential to hold.
• Breaking back above 900 will be positive and above 940 we are on our way higher.
• We also could be forming a huge head and shoulders bottom pattern. Targets on the possible pattern are our own targets of 1050/1100. Remember this is a potential pattern.
• The VIX indicator continues to act well coming down from its double top. It has targets down to close to 20.

TSX INDICES

The TSX Composite closed down 1.8 per cent on the week. We did, however, close above the opening levels so in some respects it felt like an up week. As to the sub indices it was a mixed week. 7 closed up including Consumer Discretionary, Consumer Staples, Information Technology, Gold, Healthcare, Materials and Telecommunications. And of course 7 closed down including Energy, Financials, Industrials, Real Estate, Income Trusts, Utilities, and Metals & Mining. The prime drivers taking the TSX down were the Financials and Energy. The TSX Venture Exchange also closed down on the week losing just over 4 per cent.

We remain positive going forward as we are seeing a number of positives forming on the technicals. Remember we believe this is a tradeable intermediate corrective rally only. We believe we have until into March or April before we should see some topping coming in. Targets for the TSX could be as high as the 4 year MA currently near 12,000. This would be a healthy 53 per cent rebound up from the low weekly close. Rebounds of this strength are not unusual in bear markets. Bear markets must capture as much money as possible so you want to suck as many as possible back in.

We are noting that the MACD indicator is turning up and on the verge of crossing over on a number of the sub indices as well as on the TSX Composite. This is probably while we have stand aside below because our signals are based on the weekly intermediate trend investors who are willing to take the chance should be buying in here for this rebound and responding to the daily short term trend. But always prudent to use stops. [read more...]