10/2 Weekly Commentary

Thursday was I1 low.  Although I went flat I am keen to re-enter short on a break of critical support, currently at DJI 10,675.  I don't expect the stock market to hold up until 10/7-10/8, the peak of the tepid recovery in I1. The peak will be at a low 2.16 on the 8th with a rise of only .29, very weak.  These conditions allow me to hold very small short positions during this rise according to I1 trading rule #4:

b) stay short as long as next peak <3.0.
c) ignore I1 moves lasting less than 1 week or with a swing < .5.
The rules are laid out in Intro and Concepts.

While the market went flat the past 2 weeks the critical support M/A has been rising and is now close enough to current price that there is little sacrifice in waiting for the break to occur.  This was decidely not the case when I1 topped 9/10-9/13.  The only reason that I enter positions on I1 turn dates, regardless how small, is that there is typically a chasm between critical support and the price at that time.   If critical support remains unbroken then I'll short on either the 7th or 8th as conditions warrant.

The Daily Technical Composite hit a low this week of -16.  In a bull market this would not be a sell signal, but in a recovery within a bear market this is consistent with an end to rally.
The following is the technical composite before, during, and after the 2007 top.  Notice that after the top the rallies ending May, 2008 and January, 2009 registered technical readings of -16 and -20 respectively. 

This places the current environment in an unfavorable light (if you happen to be a bull).

The dollar decline continued in it's final wave.  I hold 5% UUP, long the dollar index. 

One of the reasons that I want to trade the Euro is that price is approaching Minute4, which was part of an extended Minor1.  This is a hard target that I will want to short.  Cash Euro Minute4 peaked at 138.18.

I will also increase shorts on a break of moving average DX +.5: