The official forecast for the trading week ending Jan
30, 2009 is now posted.

There are no changes to the forecast.  Per the forecast, we see the market
topping early in the week and then declining from there.

Virtually every day in the last week has large gaps on the chart making
cyclical forecasting difficult.  This is also the market’s statement that
it is not happy with the current circumstances, and the market does not
like this kind of uncertainty-  The Overall Market Rating remains bearish,
which supports the case for safer trading on the short side.

I have been conducting a study this morning looking at the percentage of
the time the market makes a high or low in the first N minutes of the day
based on the last 90 days (in New York time).  The results are as follows;
By 10AM a high for the day is made 29% of the time and a low for the day is
made 22% of the time. For the times 10:30 and 11:00 (and before), they are
33% and 29% for highs and lows and 37% and 34% respectively.  This means a
high or low for the day is made by 10AM, 10:30AM or 11AM,  51%, 62% and 71%
of the time respectively.  Note that over the last 90 days, there is a much
higher occurrence of  the high coming first in the day (consistent with a
bear market).

This study is very interesting because if we combine it with one other
concept, it tells us a lot about potentially catching big moves during the
day.  That other concept is one I have discussed here before; range or
volatility.  We can get measures of range from either the VIX (volatility
index) and dividing by 16 (see Sheldon Natenberg’s new book for more detail
on this and other interesting computations) and then multiplying by the
index.  At this time, that gives us a daily range of approximately 25
points.  The other way is to look at Average True range computations.  Over
the last 10 days, the range has averaged about 30 points.  Combining these
ideas together, this tells us, as we depart from high or low prices early
in the day, we are likely to make a 25-30 point move off that high or low.
Used strategically, this information can have a huge positive impact on
your trading.

Let us know if the study above is helpful to you.

Key levels for this week are a bit tricky because of all the gaps we are
seeing in the forecast. We might see 840-850 and 856-866 on the upside. The
market attempted to test the December lows in Globex on Friday and rallied
off that low.  It started to try for it again when the Obama administration
released a “bail-out” news story.  This drove the market higher consistent
with our forecast.  It is not unlikely that governmental attempts to keep
the market at or above current levels will be made, so use caution and
expect volatility.  On the downside 797.50 is key.  Below this is the 740
area on the cash index (this corresponds to November, 2008).  Because of
the key levels being in ranges, this week, the levels written here should
carry precedence over the support and resistance lines on the forecast.

It is interesting to note that the S&P futures are trading at a discount
to cash.  This indicates negative interest rates and carrying charges on
the contracts.  At this time, the market is closed and the futures are
quoted about 9 points below cash (substantially more than it should be
based on fair valuation).

Above all, use caution in this market.  There are forces working the
market violently in both directions through economic conditions and
manipulation.  It is best to keep risk parameters reasonably tight for your
account size and trading more on the near term.

Wishing you the very best,

Rob, Vadim & Staff