August 18, 2011 (Fascinating, Said Spock)

I've been wondering the last few days how the market was going to turn back down with so much negativity. I couldn't quite see just turning down and going down little by little with the numbers as negative as they are in the S&P 500. So I was thinking we might have a rally for a while to get things less negative. Another possibility was a giant down day. I've mentioned in the past how that can freeze the people who might go short because, hey, it could turn right back up and your short money would get killed. But to have a giant down day, I figured KJ (Knee-Jerk) would have to throw his money on the positive side. And I figured with all the negative talk lately, people talking about the death cross in the S&P 500, where it crosses below the 200-day moving average, European markets tanking, KJ wouldn't be throwing his money on the positive side, would he?? The numbers in the S&P 500 for this week:

Monday: 71.80/252.54

Tuesday: 71.64/158.49

Wednesday: 68.44/166.09

Today, Thursday: 68.48/173.49

He didn't jump in on the positive side!! I'm stunned. Knowing what the market did today, I would have bet $1,000 that he had. I really mean that, not just for effect, I really would have bet someone $1,000. Glad I didn't. So what the heck is going on?

I've also mentioned previously that when you get a big up or down day and KJ isn't involved, and/or it goes down when things are very negative, or vice versa, something is up, like a low or a high of some sort. Here are the Nasdaq 100 numbers for this week, just showing the result of dividing the positive number by the smaller negative number:

Monday: 2.16

Tuesday: 2.78

Wednesday: 3.05

Today, Thursday: 1.57

No, we haven't gone negative, but that is a much less positive number than we've had for a long time. So again, what's up?

I've been staring at the charting for this year lately, thinking it might not be the head and shoulders that I was assuming it was, that it could possibly be the three peaks of "three peaks and a domed house" fame, from Jerry Favors, that I used to talk about a lot. Below is the charting for this year so far. And below that is the basic three peaks and domed house pattern. More blogging below ...

Could it be that we're only at point 10, which you see falls below the lows of the three peaks? Or maybe the smaller three peaks at 15 through 20? Either way, it would imply a long period of rallying before we reach the final high and head down big time.

If KJ had gotten in on the positive side, I'd be saying we're going to continue down. But because he didn't, and because things were so negative and yet we still went down, and since the Nasdaq 100 number got down below where it was at the lows back in June, which was I believe 1.71, I'm really thinking right now an extended rally is in the making, probably starting tomorrow. I could easily be wrong. Like I said, when the shorts win, something is up. And that's what I think is up.

Just to argue with myself a little though, we did get up to a never-before-seen number of around 7.5 at the high back in April. How could that not resolve by going down to negative numbers? I've got to believe it will resolve eventually, but we could go even higher first. I've had some money on the short side for a while. I'm covering my shorts tomorrow. If I'm wrong and we continue to plummet, sorry about that. If we do go marching upward, be on the lookout for a head-and-shoulders pattern, otherwise known as the domed house.

Rob