Yeah, baby, yeaah!

Contrary to popular opinion today’s tape turned out to be very productive. I bet the weekend bears were already lining up at the will-call counter for the expected joy ride into the abyss. I have to admit, even I was sweating yesterday afternoon when I saw the NDX only one point away from thrashing the entire wave count (the December 12 low). I don’t think I have ever been so happy to watch those black boxes kick into gear and hold the 855 support line which is now firmly established. Those cheeky monkeys – at least they had the courtesy to program their trading bots to ‘hold the fort’ so to speak while they’re out of town blowing their taxpayer funded year end bonuses on strippers and Cristal.

So this evening we find ourselves 35 points to the upside, which puts my favorite two scenarios firmly back into reach. There’s really not much to add as to how this scenario is expected to play out. As we made it into Level II of the ‘House of Whipsaw’ today (light green area) I expect us to chop chop chop around here for a while. Don’t expect much of fireworks based on what you saw today. There is a buyer lurking around 855 which simply turned out to be a catalyst for driving the tape up to 890. Several high probability retracement levels were taken out today and I never saw the Zero signal above 2.2 – that usually does not happen and I chalk it off to Post-X-Mas-Pre-New-Year-Limbo. I also think that 890 will take some real momentum to overcome – if we fail to push past that tomorrow morning then it’s back to Level I again.

Note that the blue scenario remains to be my favorite – despite the overbought conditions. The orange scenario shares its path with the blue one until the separation point around 920 (E). But in order to see any of that happen we need to start climbing up, either now or when the big boys return on January 5th.

As for the downside scenario – obviously after yesterday’s scare it’s a probability I want to entertain once I see 855 taken out – until that happens it’s not worth wasting any bits on it. Why do I call it a ‘scare’? Because I am hell bent on loading up on April/May puts if we are so blessed to reach the 920 level. That was on my wish list for Santa and so far I have been cheated out of my well deserved (and evil) Christmas present. I have the means to melt that damn North Pole into a steamy sauna, so Santa better cough that up before I lose my composure. That would happen at below 855 which would force Berk and I to load up on puts at vastly inflated prices. How about that ‘going out of business’ clearance sale? Make my day!

Something really strange happened last week – the CPC dropped to the floor for apparently no reason. This was a great cause of concern for Berk and myself as those extreme levels usually precipitate massive drops in the averages. Didn’t happen though – all we got was chop chop and pop. Serves me fine right now (see above) but the CPC is on notice for now. For the record – it’s almost impossible to trust any blasted correlation or indicator since early December.

Lest you forget the strange environment we are in currently here is the NYSE Bullish Percent Index which is still stuck at very overbought levels. But it seems that as the market was able to entertain extreme bearish conditions for a while it can now remain overbought. Frankly – I think we’ve overstayed our welcome but I also reckon we might touch 60 and thus 900+ on the SPX before we drop. Maybe that’s wishful thinking talking but hey – we rallied today, right?

However I want to point out that the spread between the Moody’s BAA Corporate Yield and the 30-year T-Bond Yield is still around -5.7. As some of your remember – that particular spread has done a great job of signaling the medium term trend for equities throughout 2008. During the entire November/December rally that spread has remained at record highs – a harbinger of bad things to come for equities and that probably sooner than later.

Sometimes, my dear ladies and leeches, we find ourselves at an inflection point without knowing it. Only the high priests of the Elliott Wave cult are sometimes able to see the tea leafs and realize their significance. Seriously – the Dollar is at a very important fork in the road here. IF we would see another leg down below the 76.2 low it would have significant implications. This would constitute a motive wave to the downside and the short to medium term impact on commodities as well as equities would be significant. If we hold above that level the count is a bit different and the medium term probabilities continue to indicate further upside potential for the ole’ buck.

I rarely talk about bonds but this is a special occasion. For the unintiated amongst you leeches – the TLT is an ETF that tracks the Barclay’s (used to be Lehman) 20+ Year Treasury Bond Fund. For more info point your browser here. The reason why I’m bringing it to your attention is that Berk and I think that a major drop is imminent for several reasons – wave count being the primary one – the second one being that the daily sentiment index for the TLT is now around 97 and rising. Frankly, my dear rats, it doesn’t get much better than this. Based on my stochastics and some other indicators I expect a tiny bit more upside or at least sideways tape here. But bonds are about to deflate and the downside potential is quite magnificent. Keep an eye on this guys – this is huge – and I don’t say that very often.

Let’s finish with Gold – as usual. I think the precious metal has a few more upside points in it and I also believe that it’s possible it’ll overshoot that diagonal resistance line by a few points just to reel in the last remaining gold bug. Similar to the TLT the DSI is at record levels right now – a very bearish sign for us contrarians. I’m patiently waiting for this opportunity to load up on puts. Again, we’d know very quickly (and cheaply) if we’re wrong. Doesn’t get much better than this – something to look forward to.

I think this ought to keep you guys busy for a day or two. I strongly encourage all of you leeches to make use of this precious opportunity to gather intelligence on future victims. Starting January 5th the party is going to blast off with our without you.

Cheers!