TFT Critical Interim Update for December 26, 2010

Hello Traders

Below is the latest TFT Critical Interim Update for December 26, 2010.

An end of the year Blog will be coming shortly but since the markets are testing critical areas of resistance I want to notify you about the existing conditions for trading.

Over bought is an understatement yet we know that bulls have no meter when it comes to bubbles and since this is not your Louis Rukeyser “Wall Street Week” market of long ago we have learned to extend our sense of over bought to accommodate market manias driven by excessive greed and fear that are the by-products of bubblehead conditioning developed over the last 30 years.

The target areas of resistance (1252.35) on the E-mini S&P shown on the chart is a  normal target that comes about as a projection from classical bar charting patterns. In this case it is an inverted Head and Shoulders Bottom.

Any fund manager or trader who has had even a small amount of experience in this area would target this area as the Minimum Price Objective for this pattern. The trader will draw a vertical line from the very lowest point of the pattern up to the neckline and then project that same distance from the neckline up to what becomes the target. In many cases these targets become self fulfilling objectives as more and more participants “see it” and stay glued to long positions until the target is hit.

There is usually a reaction once the target area is hit. The reaction to the downside can be limited or quite extensive. This depends again on how much “pricing to perfection” has been built into the bull run.   

Along with this H&S target there is a coincidental down channel line called an NTM Projection Channel Line that is drawn from Monthly charts that has long term implications. Currently the line is cutting downwards in the low 1260s on the E-mini S&P. This is a broad area of resistance and it is untested in that this is the first time the market is coming up to this long term down line. We can watch to see if it holds the bulls back for December 2010 and whether that resistance holds for 2011.

Again, the market can go higher on this QE2 bubble but risk is beginning to pile up on this low volume December rally along with many overbought indicators including complacency and omnipotence. A little caution in here might be the ticket.   More detail will be coming forth in the end of the year Blog.

Click on Chart to enlarge and Click again for larger version

Leonard Novy

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This information is for educational purposes only.  Trading with this information is done at your own risk. All concepts and writings including the Novy Training/Trading Method NTM© are proprietary and the sole ownership of Leonard A. Novy and may not be reproduced for profits without expressed written permission. Copyright1995-2010