THOUGHTS

1. Deeply oversold cycles. Going back to the August low, we achieved some of the most oversold conditions that we've seen this decade. Considering we've had quite a few intermediate term pullbacks, that's saying a lot. When we get the kind of oversold readings that materialized last summer, its going to take some time to work them off. This is important because there are those out there with extremely bearish agendas will tell you it is precisely these oversold readings that are necessary to 'kickoff' the great new bear market.

Nothing could be further from the truth.

The lesson here is the more oversold the readings, the more they are going to have to be worked off. That's why our big pivot on the weekly scale didn't kick in until the very last high probability date. I'm bringing this up now because there were a lot of emails at the time wondering why the market wasn't dropping in September.

2. Don't assume a long term bear market. I know some of you will dispute this and you do it at your peril. You did it at your peril in 2002. This happens to be part of my background not to trust the ultra bearish agenda. I've come to look at these markets more from a supply/demand equation that anything else. I'm not talking about number symmetries here. But the simple fact of the matter is the smart money likes to buy support and sell resistance. As it turns out, there was a lot of buying interest in the middle of August. The way I understand it, money managers with lots of clout were buying after the market turned in August. These are the kind of people (at least they say they are) who have 5 year horizons and can wait out intermediate term corrections. Well, good for them. That doesn't apply to most of us. What does apply to us is whether or not these people have the courage of their convictions to hold on at times like this week. If they start fleeing, (which they are) the NASDAQ is going to drop 300-500 points and the Dow possibly a couple thousand. If they hold the line, you can say they at least are true to their word. Our job, as short to intermediate term players is to piggyback along with the trend. You can see the way this has played out but my point is until we got to this level, nobody who is telling the truth knew exactly what was going to happen.

3. Be patient. In the middle of all this mess came the Christmas holiday season. The bears had a very decent November but there comes a point in time where things are going to line up the other way. Traditionally, December is a seasonably favorable month for the stock market. Why is that? If you believe the stock market is nothing more than the true scoreboard for a rising or declining social mood, than Christmas should be a time of euphoria. People are not usually in the mood to sell stocks over Christmas. This year we had some added importance. Those of you who believe in things like the PPT, we had a low and a bailout plan just as the holiday shopping season was picking up steam. Why bet against it? Even in a hurricane, there will be the calm of the storm. That's what December was all about. I think there is a lot to be said for seasonal factors.

4. Some things are inevitable. This could be called be patient part 2. After the vicious November, it was a high probability the August lows were going to be retested. In some cases, like the SOX, taking out the August low was only the end of the beginning. Markets really don't like hanging out in the middle of trading ranges. Why? Remember, these charts are nothing more than technical representations of our hopes, dreams and desires. We, don't like uncertainty. Given the fact that highs came in on some really definitive time calculations, the markets had no where to go but down.

5. Everything is a process. Things usually take longer than we think they will. One thing I've learned is money is attracted to good ideas. It also doesn't like being lonely. This is why the very best setups are C or 3rd waves. What is a 3rd wave? Technically its nothing more than what comes after a secondary pivot. A secondary pivot is usually right near important support or resistance and sometimes a double top/bottom.

A good idea in terms of technical analysis is a setup that confirms technical evidence. It could also be a positive or negative divergence. If smart money gets the idea prices won't go lower, they'll take the relative safety of a low risk entry. But the point is you rarely will see smart traders as the first one in off the bottom.. This is something I learned from Joe DiNapoli. Its the 'wash and rinse' cycle. The smart traders wait for that SECOND thrust, no matter the time frame before pulling the trigger. Getting there requires time and patience. Its a process. Act impulsively and its like flushing money down the drain. IF you happened to be a person waiting patiently on the sidelines wanting to go long, you had to wait this week out to see if the positive divergence was going to work. Obviously it hasn't. That's not the point. The point is those who are waiting with a strong discipline know what they are looking for and will jump on it when the pattern is recognized. It will happen at some point.

6. Cycles are king. Markets are going to turn on time windows. They did so 100 years ago and are likely to do so in another 100 years. We see it time and again in all degrees of trend. Markets will react to our windows even if an outright reversal doesn't materialize. Case in point: last week. Those of you who are new to the time element should not come to the conclusion the cycles don't work because last week's 62/47 day cluster faded. Time support/resistance works the same as its price cousin and a failure is an important bit of new information. Another thing, many of the MACD divergences also tend to pay off around support/resistance at some time frame.

7. This methodology is better than I think. As Yelnick stated last week, my book and the methodology involved is still evolving. I'll just go back to what was simply stated as far back as April 2007. I believed the pivot in the fall had the potential to be the "most important of the decade." I already said that I didn't want to assume what would happen beyond a test of the August low. Part of the reason for that is for the number of times bear phases ended earlier than many anticipated. Another way to look at it is since 2002, none of them have really lived up to bearish expectations. But, with the coverage we gave the 261 week cycle last year, we are finally getting the kind of price action that is living up to the hype. Personally, I think its happening because of the way the cycles lined up last year and I don't see any other methodology out there that comes close to explaining why these things happen. I have a lot of confidence in this work but every time we come to an important turn and get the expected results we learn from the experience and helps make it better for the next time. These markets are very tricky and certainly not the tooth fairy. But I think there are times when all of us, especially me, should trust in what we are seeing even more than we do.