He's Half In on the Down Side

When I refer to "he" in my titles, I'm referring to the $200 million man. Yes, he did go half in on the down side on Friday, and we went up some more. Things continue to be very negative, relatively speaking, so it would appear there is more to this rally. The Russell 2000 was at its most negative point on Friday, relatively speaking. The Nasdaq 100 continues to be fairly negative. And the S&P 500 continues to be negative, and now even more negative with the $200 million man going half in on the down side. So short term, I would expect us to keep rallying.

But ... below is the picture that I had linked you to in my last post. I was able to copy it in. I'm still in a state of shock from seeing this only a few days ago. To me, seeing this, it seals the market's fate. You laugh. Sorry, but that's what I think. The picture:

The classic head and shoulders pattern, otherwise known as the domed house of "three peaks and domed house" fame, stretching from the year 2000 to the present, is inescapable. Three ways I think this can play out:

We could start down any day. The pattern is there. It can go down now if it wants to.

More likely, although I definitely could be wrong, is that we rally for a while here as the market tries to punish the shorts for being right and piling on on the down side. And then the crash commences, after many of the shorts give up and get out of their down positions.

I think a third possibility is that we have an incredibly strong rally here and rally up to higher all-time highs, above 14,000 whatever it was. I say that's a possibility because the market will do whatever it takes to get rid of the shorts before going down, even sometimes breaking out of a classic head and shoulders pattern to go to a higher high on what would be the right shoulder. There is so much negativity right now. Lots and lots of people are looking at that head and shoulders and know what it signifies. So they're saying, hey, I'm going to stay out until we go to higher highs and break up this head and shoulders pattern. And so that's exactly what the market might do, then they all pile on, and that's the final high. Not a likely possibility, but a possibility.

I tried to copy in a couple pictures here, but they ended up at the very top. Just what I thought is an interestingly similar picture. The second picture from the top is this year, 2010, so far. You can see the pattern I have circled, kind of a triple low with the lowest point in the middle. I was thinking that sure looked familiar. So I looked back in my charting, and there it was. That's the picture at the top. That picture at the top is from 2007, and the pattern I have circled came right before the final rise to the final all-time high. So our final high here in 2010 might be coming sooner rather than later, after we finish out this final rally.

But I don't know. All this is just things I'm wondering about. We'll see what happens.

Rob