Trust only movement. Life happens at the level of
events, not of words. Trust movement... Alfred Adler

After a sharp correction on Monday and a repeat and reversal on Wednesday (aided by a rumor that the Fed is ready to cut discount rates again) the markets now look poised to go higher. It appears that the leading sectors, specifically the EEM and the NASDAQ are now poised for a 5th wave up. Near term targets for these are 166 and 2,900, respectively. Although I am bullish on the DJIA and the SPX, these may more than likely hit but not exceed their prior highs. Thus, you know where to look for the biggest "bang for your buck"-- EEM and NASDAQ. A rising tide will lift most boats, so we are likely good to go from here. There will be setbacks. Remember-- nothing goes straight up or straight down. ALWAYS remember to look for opportunity in panic and to take something off the table in euphoria. This is the essence of counterintuitive thinking---the hallmark of a master trader. Trend traders will do well in this environment if they just get on and ride the wave. Never try to get in an exact bottom or out at an exact top. (John Bollinger and many others have said that you only get one chance in a lifetime to do this---if you are lucky!) That is a recipe for disaster. Take 60-70% out of the middle, and then tip your hat in gratitude to the Market Mistress. Don't overstay your welcome either because you know what happens to piggies.  

When and if the targets above for EEM and NASDAQ are hit, it is likely that there will be an extended period of consolidation prior to the next up move. This is where the countertrend trading --buying support and selling resistance will work best. We shall cross that bridge when we come to it. Now we look for uppage so get on board and trend traders---don't be afraid to buy new highs. This will work until it doesn't. Once you see it stop working, look for a top and then sideways movement and either get out or transition into countertrend trading.

Remember- you rat brain is always out to get you. You will feel greedy when you should feel fearful and fearful when you should feel greedy. That is the one single reason most people lose money. I should know! That is how I got my Ph.D. in losses in 1994-1997! Keep your skates on the ice and your eye on the prize and don't get too greedy or fearful. What would Mr. Spock do?

This is also a “No Sniveling” alert for those of you who are waiting for the semis to get off their butts and do something.

What I am seeing at this time (and remember this is what I see--my reality--and doesn't have to be yours. In fact, it might not be what you see and that, dear students, is what makes markets purr or growl) is this:

Something smells not so fresh with the semis and it feels like deception. The SMH peaked in July and been lagging since then. The main reason for this appears to be weakness in the big three components of the SMH, namely AMAT, TXN and MU. You can see the composition of the SMH here: http://www.nasdaq.com/structuredeq/holdrs_smh.stm

AMAT 13.7%
MU 3.7%
TXN 15.73%

The only stock that has a higher percentage in SMH is INTC ( 22.05%). Second and third are TXN and AMAT.

Why is this important? For a behavioral trading it is important to look where others are not looking. While people are watching and despairing over the condition of the semis, behavioral traders are looking inside the box in order to be able to see outside the box.

"OK--what does this mean anyway, Doctor Janice and please don't try to "blind me with science!!"

The best methods of deception in the markets are to hold down an ETF is by depressing its major components, thus giving the impression that the entire group is underperforming. What this does is get all the weak sisters and brothers out of the sector. Once that is done, and everyone thinks semis are going nowhere but down---bingo---they "out of nowhere" rally. Some catalyst magically appears and the semis start to look good again. Of course, those who had been watching since July and couldn't take the downage or "misery" anymore have just sold. Now, the plane can take off with the lightest load possible. Those who sold--after enduring months of agony are now standing like little children with their noses to the window of the candy store. They sold their candy to the candy man and the candy man is now on a sugar high because he got that candy at a bargain price and can afford to eat some it and sell the rest at much higher prices.

This is how it has been since the markets started trading several hundred years ago. Human behavior does not change. The deception has always been there, but now it is much more difficult to see unless you look where others are not looking.

So behavioral traders unite! Now you know what I see. Do you see it? If you don't see it, then pull up a two year chart of the SMH and tell me where you see support? Also, remember our lesson on internal rotation? How do you see that applying to the SMH here? Send answers and the first person to get both questions correct wins free extra 15 minutes with me in a live trade.

So- watch the support level to see how to holds over the next days to weeks in preparation for the rally into November and December. Watch particularly on down days to see how the support will likely try to break or hover around but won't have a solid break. Remember, this support goes back to 2005 and you know what we know about time and strength. The longer a support holds, the more energy it builds for a move, etc and we have talked about this more than I care to remember and will likely keep talking about it more than I care to envision!