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Three Days Until Armageddon

By Jeff Clark
Tuesday, July 14, 2009

Two weeks ago, I warned you about the bearish "head and shoulders pattern" developing in the S&P 500. This was when the pattern was still incomplete and well before the masses – including the talking heads on CNBC – got excited about it.
 
Last week, though, as the pattern threatened to break, I told my Short Report subscribers it wasn't going to happen. Not yet.
 
The more likely scenario was for a rally back up to between 893 and 908 in the S&P 500. This would shake out all the newly confirmed bears and get the talking heads crowing about how the head-and-shoulders pattern had failed.
 
Yesterday, the S&P closed above 901.
 
Lots of folks are now saying that last week's breakdown has failed. The head-and-shoulders pattern is invalidated. And now stocks are off to the races.
 
Get ready for Armageddon.
 
The stock market never does what the majority expects it to do. In fact, the real purpose of the market is to separate the public from its money. Yes, I know, that's a cynical view. But decades of evidence proves my point.
 
Too many people were looking for the market to collapse last week. So a rally was inevitable.
 
Yesterday, we got that rally, and now we have enough people declaring the worst is over to make financial Armageddon a high-probability event.
 
Here's an updated chart of the S&P 500...
 
 
The bearish pattern is still intact.
 
The negative slope of the volume (middle chart) and MACD (bottom chart) confirm the path of least resistance is lower. Many of the folks who took on bearish trades last week in anticipation of a widely expected breakdown are now out of the trades (at a loss). And the talking heads are, once again, preaching about the potential for an economic recovery and the return of the Great Bull Market.
 
My guess is the head and shoulders pattern breaks down by this Friday (or earlier) and the S&P 500 runs toward my downside target of between 810 and 820 by next week.
 
Or sooner.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%