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About All This Top Calling

These little tidbits from another in the series of “top calls” that we have been seeing lately were passed along to us by “Thorass” a poster on Capitalstool.com’s Mark to Market forum.

…it should not surprise us if the market has already made an important high but it should also not surprise us to see a final high occur as late as March 2007.

….we should be prepared at any market downturn to concede the possibility the market has registered a very important high.

How hard is it to say that we shouldn’t be surprised that the market may have a significant top at some point over the current four months, or behind us? In any four month period it’s a virtual lock that the market is going to have an intermediate high.

As for “we should be prepared at any market downturn to concede the possibility the market has registered a very important high,” my oft stated position in the WSE Pro is and has been exactly the opposite. Of course there’s a “possibility at any market downturn ….that the market has registered a very important high”. That’s true any time. Notwithstanding the past five months, it’s approximately 92% true in any four month period. But he didn’t say “probability”, he said “possibility”, which expands the odds to 100%.

I don’t want to give away the store here, but I know that many of you are subscribers and have seen this from me ad nauseum over the past couple of months. “Until we see clear sell signals trigger on 10-12 month and 18 month cycle indicators, any downturn is likely to be no more than a short term correction.” –which is about the opposite of the analysis quoted above. And I didn’t say “possible”, I said “likely”. When the data points in a certain direction, then I will use the terms “likely” or “probably”, to denote that I think there’s a greater chance that something will happen than it won’t. I assiduously attempt to avoid using the word “possible” when stating the conclusions of my observations and analysis. I mean, what good is it to say that something is “possible.” Anything is “possible”! It doesn’t make me right later if I said something was “possible.” It doesn’t give me the right to say “See, I told you so!” I don’t do that anyway, but these statements of what is “possible” are patently ridiculous.

I don’t read other people’s work, (I don’t have time) and I don’t know what these top-calling analysts see that I don’t, but I find all this top calling lately to be patently silly, even though I am a bear at heart. Paraphrasing from my own reports: Longer term indicators tend to form negative divergences months before a final high in the market. While some minor negative divergences have formed on some long term indicators over the last six weeks, others are still strengthening. These are not the kinds of configurations that precede “a very significant top” in the market.

I don’t even know what a “very significant top” is. One man’s “significant” is another man’s molehill. Is an intermediate top followed by a 6% correction “very significant?” To some, yes; to others, no.

So, while I am quite willing to buy some QIDs on the evidence of any short term top, either as an outright speculation on a decline, or as a hedge against a long portfolio, I am sure as hell going to take the profit on the first sign of a MINOR low, because I do not agree that the next downturn is likely to signal a major high. “Possible?” Of course, anything is “possible.” But if it is a “major” high, we should know it on the first reaction. It’s not necessary to load the boat short on the first high of a major turn.

Nor is it necessary to dump all your longs at the first sign of a top. It’s a case by case situation. Each position must be evaluated in terms of its own technical structure. Have price projections been met? What does the trend look like on the chart? Where is support? Where is resistance? What is the shape of the indicators for each position?

This market is not, and has never been a monolith. Some groups underperform, some outperform, and some run counter to the trend. There is almost never a time when it is appropriate to say, “sell everything,” at least while the market is still clearly in a sweeping uptrend. Whenever the market has had a broad major breakdown, it has always been preceded by weeks or months of clear signs of technical weakening. In the absence of that, if there are signs of a short term selloff, and you have a broad based long term portfolio, buy a little hedge. You don’t have to sell everything at the first sign of a correction.

As for short and hold, it’s a non issue. The way to make money shorting is to sell the rally, buy the plunge, and compound on the way down. There are always big, sharp rallies in every major downtrend. And there are always indicators that catch the intermediate turns in a bear trend quite well. Unlike bull markets, which often do run in extended trends with indicators pinned to the highs, bear markets never go down for 6 months straight without a reaction. So I see no need to be in any rush to catch that first “very significant top.” Because unless there are clear and broad technical warning signs, the chances are that it won’t be all that significant.

I’ll be posting an analysis of the longer term structures in the WSE Pro a little later today. Regular updates of the market’s long term technical structures are just one of the many features of “the Pro.” I invite you to try it risk free for 30 days. If during that time, you don’t find the information and analysis in the Pro helpful, I’ll give your money back. It’s that simple.

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