Looking Ahead to 2010...

In Tuesday's post, I gave the following short term projection...

Here's the updated chart...

Not too shabby, eh? I know, I know... even a broken clock is right twice a day! :)

Looking ahead to next week, I'll offer up this...

I can envision two scenarios unfolding next week as we kick off 2010 with expected downside price action. In both scenarios, the 5 day moving average will begin to roll over and act as resistance to any rally attempts. Much depends on how the market opens Monday morning, but either scenario leads to a continued move lower.

Green - If 1115 provides a bounce, I expect a declining 5dma to reject prices and send them below 1115 to test trendline support. This scenario would allow me an opportunity to unload longs and possibly add to or establish new bearish positions at the 5dma test. I actually prefer this scenario given the way my portfolio is currently positioned.

Red - If the selling continues Monday morning, I'd expect the trendline to provide support and perhaps a retest of 1115 from the underside. Depending on how ugly the action is, if that retest coincides with a meeting of the declining 5 dma, we'd have an excellent entry to add to short positions in the expectation of trendline failure. I'm thinking way ahead here, but that 1086 level would then be my next target for downside price action.

Remember, I expect this correction to eventually be another buying opportunity. I would keep some cash on the sidelines ready to be put to work for when the long opportunity arrives and it may not take long. The cycles suggest mid to late January, but I wouldn't bet the house on that. It's simply a guide.

Of note, I'm thinking out loud here and providing my plan for how I intend to trade and manage my portfolio into next week. Any and all of these variables can change, and likely will, but without a plan there's no idea of when to attack, when to re-evaluate, and when to know you're flat out wrong. I never expect prices to take the exact path as I predict, but when they do, I get rewarded nicely. This method served me very well in 2009 and I only wish I had posted trades on MarketGuru earlier in the year. Instead, I'll close the last third of the year with nearly 20% gains and look forward to starting 2010 with a clean slate and a green January!

I'll have much more over the weekend, including a new Pattern Watch post. In the meantime, I want to wish you all a very Happy and Healthy New Year!!