What is the most likely pattern for the market in the coming months, with everyone so panic-stricken right now? We believe that the Super Committee has exactly the right composition, and that with the Stock Market Vigilantes holding a gun to their head, their thought process should become more clear as their negotiation deadline of Thanksgiving Day approaches. And we're hoping and ready for a very thankful Thanksgiving Day. That's our fundamental assessment. Yes, it's optimistic, but the pessimistic side never wins in these volatile times.
From our technical side, we see the same story, second verse. As we anlyze the market indices, we see one pattern that is almost universal. Since the NASDAQ Composite is not so influenced by the Big Banks and Big Oil, we believe that it is the best index to study as we search for the message of the "market." Just take a look at the chart below.
Click on image above to view larger chart.
There are a lot of boxes and a lot of support and resistance lines in the chart above, but it sure fits the fundamental/political picture the way I see it. You recognize that the topping formation shown in the upper right-hand side of the chart broke down in the wake of the S&P downgrade of the US debt. You can also see the arrow drawn at the bottom of the panic decline, and we mean PANIC decline, but based on all kinds of evidence, especially the VXO crossing the "magical" 44 level, it is expected that this will be the peak of the volatility (panic) of the correction.
This Super Committee only has until Thanksgiving to come up with their plan, and that 3-month time span looks an awful lot like the period last year after the indicators gave that same signal on May 21st, 2008 (see red arrow on the left bottom side of the chart above). It took three months then as well to build that base that served to support the next rally, and our guess is that we will have to endure this 3-month period of rotating volatility - up and down.
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