3/15 Daily Commentary

The I1 top date 3/5 stopped market momentum dead in its tracks.  The speculative segments continued their push (tech, financial, small-cap) but blue-chips immediately became range-bound.  The market is still making this top even with an expected short-term rally to 10,700 to flush out shorts.  I1 is not on a formal sell signal but on a decline to 3.50, which is above the sell signal trigger.  Therefore what we are experiencing is a momentum event,  which is building the top for the larger move. I have updated the 2010 Forecast to indicate which tops are associated with formal sell signals (lows below 3.25).
We have now had 6 days of topping activity since the I1 top on 3/5 (chart shown with the DJI):

The bear market is intact as long as DJI 10,730 does not fall.  3/19 is the bottom date and a succession of formal sell signals will generate target bottoms 4/2, 6/8, and 7/5.  These sell signals are the real momentum declines.

Tops can be spiked or rounded.  My initial small positions on the short side were in case the market was going to go into decline mode right away.  XMI breakout above 1172 indicated that the market required more topping activity.  We are almost through with it at this point.  A small upside opening followed by a 1-hour decline or trading range then a rally to DJI 10,700 is what I expect.  

The decline into the close Friday will set my expectation as to what will follow up until 4/2.  If the blue chips decline sharply into 3/19 and DJI goes beneath 10,400 especially on a closing basis then I will only sell half my short positions into the 3/19 bottom.  If the decline is not sharp then I will expect yet more chop to finish the distribution process by 4/2. 

Gold was up $5 today and has another $5-$8 of upside.  This will benefit the stock market tomorrow.  Then gold should resume its decline.