The State Of The Markets (TZA)

I’ve been forecasting a Mid January top in the S&P 500 (Us Markets) for multiple weeks now well in advance. My work had looked for 1285 as a minimal upside rally from the 1173 4th wave lows. The range was 1285-1315, we have been to 1296 but that pretty much should have capped off the rally. Here are some further thoughts:

Copper, Gold, Silver- All topping and rolling over for now. A few weeks ago I began to go bearish on Gold (And with it of course Silver), and the Elliott Wave patterns became very muddy and unclear. This was a warning signal. Also, the inability of Gold to pierce through the 1425-30 highs for a 3rd attempt indicated a triple top failure which I eluded to in an Email bulletin a few weeks back. The Gold, Copper, Silver topping and rollover movements are warning signals to be more cautious. Gold should work down to 1270-1280 eventually, and Silver to 25-26.50 ranges likely.

Small Cap Index- The Direxion Daily Small Cap Bear 3X Shares ETF (NYSE:TZA) I suggested on TMTF recently had a huge 2 day reversal rally on Thursday and Friday of this trading week. (TZA) Closed just over 16 and I see it moving to 19-20. We are long also in my ATP advisory service for insurance and gains potential. The Russell 2000 is rolling over first, which makes sense because the sentiment and strong economic rebound from the summer lows has peaked out. Small Caps are likely to correct the hardest in this wave pattern down, and so we shorted them instead of shorting the large caps or S&P 500. To wit, this week the small caps dropped 3.5% and the SP 500 only 0.8%.

IBD 100- The Investors Business Daily top 100 fell 5.4% this week collectively. A quick scan of the charts on those 100 reveals a lot of topping and weakness patterns to me. These would be considered leader small cap and mid cap growth stocks, and suggests further evidence of continuing correction in the markets.

Elliott Wave theory is scoffed at by many investors because they have been led to believe that Robert Prechter is apparently the only person on earth who has a license to use them. I’ll reserve my comments on his abilities, but you can gather that I tend to often disagree with his views and leave it at that. EWT works extremely well in the right hands, and that is why I launched TMTF last year, to share my views and my methods. This has allowed me to confirm summer bottoms at 1040 this year based on the movement from 1120 to 1040 (Which we also forecast). This allowed me to call a top on November 5th at 1225 after going just over my 1220 predictions made weeks in advance. This allowed me to call a bottom 4th wave at 1173-75 and a resulting rally to 1285 in advance. Not to mention April 2010 and January 2010 tops within days. Still think EWT is bunk? Try ignoring those who are biased and trade their biases. I dont trade Gold, Silver, or the SP 500 futures or indexes… that allows me to remain 100% objective and not force wave counts into my personal opinions.

EWT is not perfect, but nor is any forecasting methodology or technical analysis strategy. They all have their flaws. However, I try to blend in a few elements to back up my EW forecasts, so as to eliminate too many mistakes. Sentiment readings for one, and Fibonacci sequences for another.

Bottom line: I continue to be cautious on the markets and believe the S&P 500 will drop to 1170-1180 on the LOW END, with 1210-1229 possible as the shallower end of a correction. The Russell 2000 will take the hardest hit, and probably has another 8-9% downside left before a bottom pivot. We remain long TZA to short that index at 3x multiple over at my ATP service. I have not shorted the SP 500 or large Caps on purpose, because I think the best place to short is small caps. I continue to recommend high cash positions for now (Im about 40%) so that you have money to buy into an oversold wave 2 bottom in the markets when it occurs. Gold will continue to correct with a bounce at 1310-1320 areas likely. I see it getting to 1270-1280 though as most likely.

Large Caps are likely to outperform small caps in 2011, as the bulk of the economic trough and rebound have now occurred and been priced in. Gold may struggle for several months but has a shot at hitting $1500-$1515 by years end, but one month at a time. That said, selective stock picking will always have the ability to trounce the index averages, and that is what I do over at ATP (ActiveTradingPartners.com).

Stay tuned.

If you would like to benefit from learning more about my methods, which have been historically accurate, please check us out at www.activetradingpartner.com There is a coupon available if you’d like to subscribe and save $150 just email me at [email protected] or you can sign up for free occasional reports.

Written By David A. Banister From The Market Trend Forecast

David Banister – We believe that markets move largely based on important swings in sentiment, crowd behavioral patterns, Fibonacci Re-tracements, Cycles, and other ephemeral catalysts.  The headlines explain what just happened in the market, but they do not predict the next moves up or down in the indices, sectors, or commodities.  As an investor, you need to be armed with tools in advance of major moves that are accurate, and TMTF will assist you in being prepared as an investor for volatile markets both on the upside and downside. We have a wealth of technical analysis experience to take advantage of the crowd behavior in the markets.  Our Chief Strategist, David Banister,  has been quoted and or written articles on CBS Marketwatch.com, 321gold.com, TheStreet.Com, SafeHaven.com, Kitco.com, Stockhouse.com, Theaureport.com, along with other well known investment sites.  David has been a past guest on the national radio show “Money Matter$”.  Chris Vermeulen of Thegoldandoilguy.com met David in 2008 as the financial crisis was unfolding.  After numerous months of following the forecasts and trading abilities of Mr. Banister, Chris suggested that a joint venture be formed and we offer a trading service to a finite and select group of partners (subscribers).  ActiveTradingPartners.Com was formed in July of 2009, and with the success of that service, we now launch The Market Trend Forecast in March of 2010.

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