The SP 500 index is approaching a likely top of wave 5 of Primary wave 1 up from the Jul 1st 2010 lows of 1010 on the Index.

The predicted top was 1285-1315, with 1285 likely by Mid-January 2011.  Currently, sentiment is running at extreme highs as last seen in Mid April when I forecasted a wave 1 top of a 13 month rally was ending.  Also, as high as January 2010 where I forecasted a correction before a 900 point Dow drop.

5th waves are very difficult to assess because they can truncate (Shorten) or Extend and run higher than planned.  My best advice is for investors to begin raising cash and only holding the best quality stocks, or certainly be careful with new positions.  If you own positions with a strong capital gain built in and you can stomach some corrective action, then you can hold on.  However, initiating brand new positions begins to carry bigger risk as we approach the top of this near 6 month pattern.

Below is an SP 500 chart showing the rally off the 1040 pivot wave 2 lows.  We forecasted a run to 1220 way ahead of everyone else, and the high was 1227.  Then I forecasted a top at 1225 with a likely drop of 40-70 points in the SP 500.  We dropped 54 points and pivoted up and rallied.  I then forecasted a 1285 likely high by Mid January

Right now the market is going sideways a bit as you can see on the chart attached.  We could get one more rally, but just be careful.  Over at the ATP service, we have whittled down our core long positions to only 5 from a high of 13 a few months back.  We have initiated a lot of “Active” short term trades, and we are preparing to begin trading ETF’s soon as well (likely bearish ETFs).

I expect the SP 500 to correct over 100 points from the final highs.

David Banister

The Market Trend Forecast

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