Reply #1: Today's WrapUp by Ike Iossif

[UpInArms]

<snipping weekly charts>

Summary

Last week (1-27-06) we said, "We got the bounce and it carried throughout the entire week. Going forward the question is whether last week's action was the start of a new leg to the upside, or was it just a retracement of the previous week's decline? We suspect it was the latter, and here are reasons for thinking that way:

1) Our short-term probability models are indicating that the odds are nearly even between a decline with a magnitude of 4.5% (-/+1%) and an advance of the same magnitude (see charts below). 2) The trend indicators indicate that the intermediate trend is neutral. 3) Two of the short-term models are on a buy signal, but the suggested exposure to the long side is only 5%.

At the start of intermediate term rallies usually we observe the following:

a) The short-term probability models indicate that the odds favoring higher prices over the next 10-15 trading days are 2.5:1 -at minimum. b) The trend indicators turn positive. c) All of the short-term models go on a buy signal, and they indicate a minimum of 20% exposure to the long side.

In other words, we are not seeing--at least not yet--the things that we ought to be seeing if the market was starting an intermediate term rally. Consequently, our conclusion based upon the current facts is this: there is a chance that the SP may rally to the 1295-1300 zone over the next 5-10 trading days, but if the underlying dynamics do not improve, the rally will fail at that level, and it will be followed by a decline back down to the 1240-1220 area.

Commentary for the Current Week

Last week we presented you with two possible scenarios for the next 5-10 trading days. In comparing the actual price action to the one forecasted by our probability models, it certainly looks that scenario #1 is unfolding. However, we want to caution that it would take a daily close below 2240 by NASDAQ, and a daily close below 1258 by the SP500, for confirmation. Unless we get confirmation, scenario #2 is still alive. Therefore, I urge both bulls and bears to exercise restraint. This is one of those times that experience can go a long way! Speaking about experience, I highly recommend that you examine the current market views of Mr. Alan Newman and Mr. Sherman McClellan.

http://www.financialsense.com/Market/daily/tuesday.htm