Sunday Evening Post: Welcome to 2011

Good Evening All,

Hopefully everyone had a good and safe Holidays. While the "Season "is fun and enjoyable, it's nice to have it all over now. I'm ready to work again!

The first update of the year will be limited to the S&P500. For me, 2010 was a year of "waiting" on the S&P500. The larger wave count suggests, as it has all year, that this current rally is merely a "correction" in a larger pattern that will eventually take the markets much lower--the S&P500 at 850-900 is a higher probability outcome given the wave model.

The S&P 500 started 2010 at 1,115 and finished at 1,257, for a 13% gain. While a 13% gain seems "ok," it was actually a punk performance relative to various commodities and metals, which saw 15-180% gains. Here's a sampling of a few things you might find around your house:

Silver: Up 183%

Lumber: Up 49%

Copper: Up 33%

Gold: Up 33%

Oil: Up 15%

Throughout the year the S&P 500 was essentially range-bound between 1040 and 1220. There were a few decent moves intra-year that provided some opportunities. Indeed, in April we became extremely bearish the S&P500 at 1200 and caught the bulk of the move down to 1040. Though, we held at least 20% of our Max. Short position throughout the ensuing rally, thus eliminating some of that profit. All in all, we probably did as well as those that just bought and held at the beginning of the year.

I remain firmly convinced that the S&P 500 will experience a pronounced trend change which should occur within the first half of 2011. There is certainly room for the market to move a little higher into the 1290 area, but at 1,257 to begin 2011, most of the risk remains to the downside.

So, my official "high and low" for the S&P 500 for 2011, a silly thing to project for sure, will be:

HIGH: 1,291

LOW: 1,010

The market will trade lower than 1,000 sometime in the next two years, but the ultimate low will probably be a 2012 phenomenon.

Best Wishes to Everyone in 2011.

SP500 Update 2 Jan 11