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To try and get a perspective of what market we might see in the coming year we need to start with the leading indicator market. And that is still the DOW.
We see a market which has reached that magical 12,000 and heading for a 78% retracement of the high low:
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And for mine at around this level of retracement it is ‘Burton’ for a pullback:
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On the surface maybe not a big pullback but we will wait and see on that one. You might also note that the market has been hugging the upper Bollinger Band for some time now and we know that does not go on forever. Why would you buy now after this run since July? Some do, as you always need a buyer but the strength of buying will peter out and volumes will dwindle and we will see a classic battle of bulls and bear as one always does at the top of market runs.
The weekly Elliott tells us the market has reached a first wave five:
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There could be another – but the probability wanes. Simply because buyers run out of gusto.
The Monthly suggests the market is relatively in balance – an ‘a b c’ sideways pattern:
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This does not mean we will not see further movement. In fact when one says a monthly chart is in balance we could still see range trading over a 2000-4000 range. So there could still be plenty of volatility!
So the hallmark for 2011 is firstly not a trending market. And by definition this means range trading. If you want to work the market hard there is money to be made. But you will need to watch your positions carefully. If you want the easy pickings one gets in strongly trading markets then this is probably not the year.
Enjoy the ride
Tom Scollon
Chief Analyst |