Dent's take on the subject:
We wanted to clarify the Friday update. We meant to convey at the end that short term cycles tend to point down into November and then back up into late December or so. We are at a critical point here. Most stock markets are retesting the 9/23 highs. Gold is retesting recent highs and oil is retesting highs back to August. The dollar made a slight new low on Thursday and may have bottomed after a long trend down, but its rally hasn't followed through yet. We may be seeing a major reversal in many markets and a possible top in the bear market rally in stocks. However, our technical indicators are not that overbought here and Lowrys analysis of buying and selling pressure does not argue for a top yet.
So there are now two scenarios here that we will cover more in the November issue and in a video update on our website likely to be posted on Wednesday:
1) The first is that the markets just keep edging up into the end of the year, and could correct to a more minor degree into early to mid November. In this scenario we could even see the reverse head-and-shoulders target of 1,240 on the S&P 500 or roughly 11,300 on the Dow. 11,300 on the Dow would also represent a 62% retracement of the losses from the top and the maximum we would expect this bear market rally could go. This scenario will be more likely if the Nasdaq can break above 2,180 and the Dow above 10,050 near term. The most important resistance is 2,170 - 2,180 on the Nasdaq. The next short term cycle down would be into January of 2010, so such a higher top would likely occur between late December and early January.
2) The second scenario would see a sharp correction from mid to late October into mid to late November and mark a top, even though we would then likely see a rebound into December before the larger downtrend resumed in January and beyond. If this correction is going to occur it should start by October 19th or 20th, and better in the next few days.
Given that the markets could go either way in the coming weeks, it is better to keep a tight rein on any short positions in stocks like the SH that we recommended for the end of the day on Friday, 10/09. Our original advice stands: cover your shorts if the Dow breaks above 10,050 or the Nasdaq breaks above 2,180. If the markets do edge up into year end, then we will have a stronger position to take on the short side.
