"If we ever get out of this alive, let's go back to New York on the train together, all right?" (North by Northwest, 1959)

All market indices appear to be on a northbound journey toward higher highs. In Elliott's land of gloom, the consensus remains that last year's swoon marks the resumption of the bear market. In fact, speculators have just been advised by the 'utmost authority' to move to a maximum-leveraged short position, citing the end of the countertrend rally that emanated from the October 4th wreckage. To steadfast bears and end-of-world theorists, Elliott Wave Theory (EWT) could very well be foretelling what conventional technical analysis isn't. To me, however, EWT is actually shining a bright light. (for the record, I'm a proponent of Ian Copsey's Harmonic Elliott Wave, an enhanced version of the classic theory originally established by R. N. Elliott)

My bullish outlook is best conveyed through the price pattern of the Dow Transportation Index (DJTA).  Chart 1 below depicts a picture-perfect 5-wave decline (wave A) that was followed by a countertrend rally (wave B) and a final down leg (wave C) that unfolded as an ending diagonal, bringing the entire correction to a conclusion on October 4th. 


Chart 1. A corrective decline pattern reminiscent of the 2010 Flash Crash.

Compared to 2010, the rally that unfolded from October 4th through 27th is akin to that of July 2010. Likewise, the November decline, which was responsible for the first half of the Head-and-Shoulders pattern, is strikingly similar to the precipitous sell-off that unfolded throughout August 2010. Finally, the rally that began on December 20th is not unlike the multi-month megatrend that ignited in late August 2010 and didn't exhaust until May 2nd.

Looking ahead, my forecast is calling for higher highs in 2012, despite all of the uncertainty and never-ending stream of gloomy headlines. The bull cycle that began in March 2009 appears to be unfolding in five waves; the third wave came to an end on May 2nd of last year, and the fifth and final wave began on the afternoon of October 4th upon the conclusion of the fourth wave. 

In terms of the S&P, chart 2 below depicts my long-term forecast on the weekly timeframe. While I do intend on dissecting the S&P in a separate writing, I couldn't help but to offer a glimpse, emphasizing the stiff resistance hurdle that will likely be encountered near in the [1430-1450] range by April 2012. Should the index manage a miraculous break-through, it will likely continue to trudge along toward the low 1500's.  


Chart 2. Technically, the S&P is currently in the fifth and final wave of a monster five-wave up leg that began
on March 2009. 

Yes, it's premature and even unreasonable to begin to think of the 1400's and 1500's, given that the S&P hasn't yet managed to recapture 1300, let alone last year's high of 1370. However, reasoning can only get you from point A to point B, while imagination can get you just about anywhere.

Trade Well,

Peter