Gaps

Gaps are points in the price progression that are skipped over. An example of a gap is included in the Apple chart from the beginning of the year. Price often returns to "fill a gap" as it did in the Apple example. On Friday of last week, many stocks and indices gapped lower, so expect many of them to come back up to fill the gap before resuming downward. There is a chart of Abbott Labs attached that shows a nice filling of the gap in the short term. It is done is such a way that there is a high probability Abbott will not go to a new high in the near future. Short term trade (high risk) for ABT - December 55 puts selling for $1.50 should go to $3.20 in a week or two.

Is it Real?

Well, today's Dubai crisis could just be a short term correction or a turn for a new down direction in the markets. I propose that it is the latter based on several long term factors including:

1. Dow Industrials has completed a 50% retracement from the March low

2. All markets are reacting negatively including metals and stock markets with no exposure to Dubai

3. The long term dollar chart has completed a pattern that indicates it will have a dramatic turn upward (chart attached)

4. Numerous individual stock patterns suggest complete ABC retracements from the 2007 highs as well as having reached strong resistance levels

However, having said all of that, confirmation will not be complete until the S&P 500 closes significantly below 1070

My recent previous calls:

AXP almost hit my target of 42.50, reaching up to about 42.20.

MCD hit 64.50, much lower than my low 70's target, but I believe it may still have strength to get there but that depends on its pattern in the coming downturn.

S&P 500 went beyond 1080, up to 1110.

retracement

Summary:

1. AXP heading up to 42.50.

2. A few more up and down days in the indices with S&P500 working it's way to 1080.

3. MCD continues higher but reaching short term resistance. Buy more if it goes to 60.

I made a call a while back suggesting that American Express (AXP) was ready to turn down at the 50% retracement from the all time high. However, it has now decisively broken above the 37 mark and looks to be heading to 42.50 which is in the region of the 61.8% retracement and the 200 week moving average. McDonalds continues on its way to 73 though is reaching short term resistance in the 62 area. The major indices appear to be in a retracement mode as stated recently. This pattern must be watched carefully because of the potential for numerous stocks to break to new highs. Some indices could follow. There is significant resistance for the S&P 500 at 1080. Breaking above that level significantly would bring into doubt the 1100 recent peak as a long term peak. For the time being, the S&P 500 is hitting retracement targets as recently noted. In the short term (several days) I am expecting some down days then a few up days and that is when we will reassess to see if an upward retracement is completing or stocks are moving to new highs.

BNI and retracement

Let me make an adjustment to my comment on BNI from the last post.... BNI is not likely to go above 83 unless Warren Buffet decides to buy it.

Overall I think there is still some retracement action going on in the markets, although the S&P did hit 1050 which is technically adequate for an entire retracement in a hard selling market. If there is an indication that the next leg down is underway, I will repost. One of those indications would be an S&P 500 close below 1025.

Short Term Update

It looks as though the major indices may have completed an initial leg down and are due for a retracement. It is impossible to tell how high it will go, but the highest expected for the S&P 500 is about 1080. It could be as little as 1050. Below is a chart for the S&P 500 showing a nice Elliott wave pattern. As for individual stocks, the calls on MCD remain. I am also closely watching AXP which looks to have a nice topping pattern completed but might retrace up to 35.5 before the next leg down. The short term pattern on BNI is uncertain but during the current index retracement, it is not likely to go higher than 83.