Market Factors
Bullish Factors:
1) The market always goes up.

Bearish Factors:
1) DIA has not taken out its rally high from January 19th.
2) SMH left behind an un-filled down-gap Thursday morning.
3) The #2 leading sector XME is still a good distance from its January 11th rally-high.
3) The #1 leading sector XLF has not yet topped its dramatic island-reversal rally-high from October 14th.

The SPX broke out the top of my triangle. However, if the market stays range-bound here, struggling at the rally highs, I will be watching for another triangle to form. If you look back at George’s Triangle, you will see that it formed only after several days of struggle at the highs. The moral of the story is that if the market is going to roll over here, it will likely do so after a more prolonged struggle.

Shall I Create Some Jobs?
I just got a letter from the Census Bureau saying that my Census 2010 form will be arriving soon. If I fill it out and mail it in, I will save the taxpayers some money. But if I throw it away, I will “stimulate” the economy by forcing the Census Bureau to hire somebody to come looking for me. President Obama should give me a medal for that, no?

Back in January, when the market was rallying up to the top of the Box of Beer, I wrote:

“The market never just sails out the top of these boxes; it’s usually a weeks-long ordeal.”

That was at the black arrow on this SPX chart (click to enlarge):

And we certainly had a “week’s long ordeal” with a little help from Greece, right? And now that the market has survived the trial-by-fire, it is free to break into the TARP Box. I’m thinking that it will pull back a bit here, but if it doesn’t, maybe we will get a swing high at the first level in the TARP Box, which is 1170.60.

That’s what happened when the market broke out of the Box of Bulls and into the Box of Beer in October. See the red arrow on the chart. If the market breaks out, and you want to short it, I wouldn’t even entertain the idea until 1170.

Lots of whipsaws today, right? That’s what the market does before it makes a big move. It loves to thrash both longs and shorts until they are both exhausted, and then gap way up or down the next day so that daytraders can’t make any money.

So, which way will it break? While the market has been defying my bearish charts, this is going to be the one to beat it down. This is a 5-minute chart of SPY over the past two days (click to enlarge):

This symmetrical triangle is a neutral pattern, but since it is occurring after an extended buying frenzy, I’m thinking that it will break to the downside. Let’s see if it develops like George’s Triangle did at the swing-high back in October:

The McClellan Oscillator is way up in the clouds. That doesn’t mean that the market will pull back; but it does tell us to be on our toes for a pullback.

On Thursday night in the comments, I said that SPY looked like it was in a bull-flag pattern. Here is what I was talking about (click chart to enlarge):

The Fibonacci price extension projected up to 116, but SPY hit resistance at its January 20th gap. Now look at the big red volume bar from this afternoon’s mini panic. That was a lot of selling, and may be a sign that this pattern is played out. What do you think?

In the first IWM FDI episode on January 11th, I wrote: “The small caps are likely to consolidate or pullback in the near future.” And that’s exactly what happened. See the green arrows on the chart (click to enlarge):

Not bad, huh? And now the IWM’s Fractal Dimension Index is back down in end-of-trend country (purple arrow). So “down” and “sideways” are more likely than “up” in the near future. We might have another scary plunge, or just a mild pullback like we had in August (blue arrows).