This past week was very volatile and a dangerous place to be. It didn't matter if you were long or short, there is a good chance you felt some pain.  We were fortunate enough to anticipate the turn coming on Thursday and warned our subscribers to cover their shorts early in the day on Friday. We did not play it perfectly but we avoided any serious pain and are now long one position.

The big moves down on Thursday and early Friday caused us to change our short term analysis. We could not help but feel the panic in the selling during the first couple of hours on Friday.  Like they say if there is blood in the streets it must be time to buy.  The trend is down and we expect this trend to continue for a few weeks.  However the down moves we have seen so far have been big and fast so we have to expect that the retracements or bounces will also be big and fast. Fridays reversal was also strong so we are expecting the markets to move up this week.

The bears were loading up on the way down so we can expect them to cover their positions on the way up causing the move up to go higher than it probably should.  We believe that if this bounce is confirmed on Monday, the markets will very likely test their 80 day sma's and depending on the speed of the move they may also test their 50 day sma's.

There is a battle going on between those that think the market is ready to crash and those that are still trying to buy the dips.  It is very possible that we are in the early stages of creating a new channel that the markets will trade in for the remainder of the year.

This past week we saw the market make a sorry attempt at a bounce on Monday and Tuesday then on Wednesday it dropped but came back fairly strong to close the day up. So we got three days of an attempted bounce but on Thursday the jobless claims report came out and that was enough to turn the market back down for the week.

The markets closed near their lows for the week and below their daily support levels. Support levels are often penetrated then quickly recovered on the following day. It is this back and fourth that gives us a clue as to the strength or weakness of the move. Once a key support level has been broken it is just a matter of time before it is broken again. The second time with a close across it is usually the safest opportunity to open new positions with the trend.

The SPX and the NASDAQ Composite did close on weekly support levels so there is a chance that they bounce on Monday especially since Mondays have proven to be bullish the past three months. However all moves up remain good selling opportunities.

This past week we saw a top in the markets just as we expected and mentioned here and in our daily comments for our subscribers during the past two weeks. Last week we said the markets were on the verge of breaking down. Our timing analysis showed us a top would be hit on the 18th of January.  The markets were closed on Monday so that top was hit on the 19th.  We had a target price of 1221 for the SPX and that was not hit so there is a slight chance that the market will make another run up sometime this year before breaking down.

The move down was strong and fast.  The markets rarely go straight down,  just as they don't go straight up, so a bounce should be expected and could start early this coming week but by Thursday at the latest.

All moves up in this market are now selling opportunities. The short interest is very high so a little bounce could easily become a panic to get out of short positions and cause the move to go higher than it would have otherwise.  The SPX and other indexes are now back in the channels that they were in for most of November and December so there is a good chance that they will trade back and fourth in this area before breaking lower.   A break of the 1084 area on SPX will be a first sign of much lower prices to come.

(Editors Note 1/22 This weeks forecast comments from 1/17 were accidently deleted on 1/22 - the following is a summary).

In the text for 1/17 to 1/22, we did call for a high in the stock market on the 18th but as the market was closed that high came on the 19th. We also suggested another restest of the trendlines we have been mentioning here for a while. And we said as long as the trendline holds we will stay long.  Worryingly though, the DJ-30 broke its trend intraday on Friday and closed just above. We were still bulllish on the Dollar and bearish on Gold and Oil

This week we'd like to start with our usual market comment/forecast and end with a simple but useful Q&A session.

This past week we saw the markets continue higher but volume has not been as strong as we like to see on break outs. The markets are overbought, but as as we have seen in the past they can easily get more overbought before turning back down. We have a target of 1228 for the SPX which is about 7% higher from where we are now.

There are three ways that the market can get to our target price: one - is we continue moving higher in an orderly fashion moving down to a near support area then moving higher, making higher highs and higher lows; two - is we move sideways and base for a few weeks or months then start the next leg up, and; three - the market moves up in a very fast exhaustion move to our target price or slightly above or below.   All three scenarios are very possible and of course so is the possibility that we are wrong and the market goes down immediately, or goes sideways for the next few months then breaks down instead of up.  However, for now our charts are pointing up, so we will continue to trade in the direction of the trend and stay long until proven wrong.

We had a great start to the new year closing out 7 trades with gains of 9.97%, 7.04%, 5.19%, 14.21%, 2.23%, 4.95% and 8.53% our average hold time is 5 days. We will be starting this week with 4 open positions, with unbooked gains of 6.63%, 3.79% and 2.93%. We have one position showing a small 0.44% loss.

Finally, this being the beginning of the year we want those of you who are fairly new to trading to read the following common questions and answers.  We think it will help you in your quest to make money in the market.

This past week the markets did move slightly higher on Monday then traded flat until the last 30 minutes of trading on Thursday 31st when they turned down. The US capital gains tax laws will be changing and taxes will be significantly higher in 2010 so there was some last minute selling in order to avoid the higher taxes. We expect volatility to be high on Monday and Tuesday due to portfolio realignments and additional selling from those that wanted to avoid paying taxes until 2011.

The daily indicators have turned down but have not confirmed a change in trend. The long term indicators are all bullish so until they turn bearish 'the trend is your friend' and dips should be bought. The markets may start the week off by moving down quickly but we are looking for a quick bounce to follow any short term weakness.

This being the first weekend of the new year we couldn't help watching, listening or reading the market analysts on tv, on the radio and on various blogs. Most of the commentators on tv and on the radio appear to be very bullish and are pushing the usual 'buy, buy, buy, the market is going up' and many of the blogs are at the other extreme telling you to 'sell, sell, sell, the market is going to drop like a rock'. Exaggeration sells; no one will tune in to these people day after day if they say the market is going sideways and will close the year where it started. What good does it do you if a commentator predicts that the market is going to go up 20% or go down 20% if on the way there it drops 50% or goes up 50%? Most traders will sell when they can no longer take the pain, so even if these commentators guess correctly, they are the only people that benefit as they can brag about it for the next 5 years.

We seriously believe that the only way to be a consistently successful trader is to create a trading plan and stick to it. Our trading plan calls for us to trade with the trend, to use good money management rules and to always have an entry and stop plan prior to entering any trade. We use support lines, resistance lines, trend lines and patterns to select the stocks that offer the best risk to reward potential in the shortest amount of time. We also analyse long term charts to get a big picture of the market we are trading in order to create different scenarios of what we will do if this happens or if that happens. These scenarios are not predictions they are simply part of the planing process so that we are not trying to make decisions after the fact. We mentioned one possible scenario in the SPX index area for our subscribers this weekend.

The compounding of consistent profits is the best way to increase the value of a portfolio, but it does not happen over night. It takes time, experience, education and the discipline to follow a plan. Trading the markets is a business where 85% of traders give up or go broke because they don't create or could not follow a plan. It takes 21 days to make something a habit, most people will quit by the 17th day. Using an easy to follow trading plan makes embedding good practice easier.

This past week  the most critical thing to watch was the low trading volume.  Whenever there is low volume such as this past week, and we expect again this coming week, stops are taken out prematurely as it is easy to enter low bids prior to the open.  The markets did make new highs last week as we'd also expected.  Returning to read some of our recent commentaries we noticed that on our Nov. 1 weekly commentary we wrote the following in which we could not have been more correct: