For one thing,
she cites “the broadening top” on the $BPSPX chart at 90 (meaning 90% of
stocks are “buys” on the Point & Figure Charts) as a certain sign that the index will
resolve down to 10 (meaning that only 10% of S&P stocks will be buys by the time the market bottoms).

(Chart above from Abigail Doolittle’s website, PeakTheories.com)

The
fallacy of this statement is that the $BPSPX is a CLOSED END CHART. The
maximum it can reach, in theory and practice, is 100...it’s a percentage chart with 100% being maximum. In reality, once the SPX gets
to about the 90 level, it cannot go much higher because even in a very
bullish market, there will always be a few stocks out of favor and thus
comprising the other 10% of the index. The main point here is that 90
is ALWAYS GOING TO BE THE TOP on this chart, give or take a couple
points….so, for her to say this is a broadening top is a
mis-application of that concept with a chart like this!!!

OK, let’s look at another point she makes….

She
talks of a large symmetrical triangle on the US $ chart formed over the
last few years and a rounding bottom and a target ot 100….for one
thing, I think the symmetrical triangle is weak–it doesn’t have clear
rising and falling trend lines–to me, the pattern is more of a sideways
channel pattern, meaning its been in a trading range for a long time.

(Chart above from Abigail Doolittle’s website, PeakTheories.com)

Moreover,
let’s step back for a moment and think about what’s going on with the
US $–the Fed and the banks have printed trillions of dollars and
flooded the world financial system with them. This has led to a glut of
dollars, but in the current risk off market, where panicked investors
are fleeing the world’s other reserve currency (the Euro), they are all
seeking the perceived safety of US treasuries (priced in dollars). We
have a TEMPORARY situation where demand for dollars is out-pacing the
supply. I predict that this demand will subside in the not too distant
future, and when supply and demand are more equalized, the US $ will
resume its long term pattern of weakness. That’s not to say that in the
near term, the $ will continue to show strength due to this temporary
high demand situation, but once that demand subsides, the $ bubble will
be exposed for what it is. IMHO!

The rest of her arguments,
including the dollar one, are built upon past patterns that resolved in
certain ways as predicted by those patterns. She relies greatly (as do
many technicians) on
expecting the same patterns to lead to the same outcomes over and over
again.

However, one of the brightest minds in technical analysis history,
a gent named Wyckoff who made millions in the stock market , said that there were
two major rules about TA….one of those rules was to keep an open mind
and NOT TO EXPECT that the same pattern as in years past will lead to
the same results. In other words, the market is a very shrewd animal
made up of many different views, and so not every participant in the
markets will react the same way as they did in previous periods….

So,
I’m not saying that Abigail is wrong in her final conclusion, but I am
saying that the arguments she uses to support her analysis are not as
firm as she or others may believe.

So, what say I then? Well, I’m not about to go out on a limb and predict that we have just found a bottom…my charting clearly tells me that things are in a bad way, just as most technicians see. No disagreement there!

However, let me take the angel’s advocate position for a moment (devils pull for bear markets and angels pull for bull markets, right?)….

So, what is the
potential direction for the upcoming week? … and I will say on this point,
I am probably a bit more optimistic than most.