If you've been reading this blog for a while you know I began to "look for the exits" several months ago. I was bullish coming out of the October low. But as soon as an upmove was signalled as confirmed, I felt that it would top out by year end. This conviction was based upon fundamentals (see earlier  articles) as well as technical and sentiment findings.

George Slezak http://www.cot1.com/ has a "way with words". He recently rather colorfully summarized  the fundamental outlook this way:

"My thoughts on the market for the coming year, in light of the crushing consumer debt, failing real estate market, crippling energy prices, inverted yield curve, and soaring Gold price, and second year of a Presidential term is

NO PROBLEM FOR THE COMING YEAR!

No problem, as long as you are short!"

The problem for me at this point is that nearly everyone of any analytical stature, including George, expects a down year to one degree or another. About the most optimistic outlook I see around in public spots is that we will bottom in January or February for the four year or presidential cycle plus the 77 week and 11 week cycles, and then go back up. This past week everyone was spooked by the yield curve inversion, measured by the two year treasury yield going above the ten year yield.

It is so easy to get committed to a fundamental market opinion which then takes over like an evil spirit and dooms you to ignoring reality if the market goes against you. We all see that a lot in internet chat sites and everyday "real life". It's a good idea to have two (or more) market scenarios in mind which you can choose from to represent you as technical conditions warrant. As this is generally what I do anyway, I think it's a brilliant approach!

As I see it, the evidence still points to at  least an intermediate term one to two month swing down. With Santa's rally being front run by the Grinch, the pullback has most likely already started. The December 23 time line (at blue down arrow on the second chart below) that I mentioned many months ago seems to have been nearly exactly on the money for a final turn down.

I'll give you three ways to see these longer term and shorter term charts: click on the small images to get a somewhat larger pop-up image and/or click on the URL's for full-sized versions:

http://img315.imageshack.us/img315/8339/sp998mk.gif

http://img315.imageshack.us/img315/9038/sp037qy.gif

The first chart contains the  longer term bullish scenario which remains viable unless and until the October lows are exceeded on the downside. Ill go into the bullish fundamentals another time as right now the big chore is to get the down move confirmed (or not) as really underway.

The second chart runs from the 2003 low to present. It details the SP futures on-balance volume warning of the past year along with the Twocents Sentimeter (2CS, in red numerals) which has reached all-time lows of bearish sentiment, and which is therefore market bearish.

If you are relatively new to my work, or want to refresh your view of  it, many SP500 charts of the past few years are posted  MyCharts: http://www.ttrader.com/mycharts/display_album.php?id=928

So in the end, I am taking a conservative approach at this time. I am calling for a down move but am not committed to a "CRASH NOW" with foot stamping and screaming. Crashes are always possible but with very low probability unless odd externals come into play. My best guess is a pullback which might even be scary into February cycle times. If the Elliott Wave  count from 2003 is wrong, then we could go below October's low.

My investment positon is nearly completely hedged on stocks and stock  funds, with  lots of cash (nearly 40%),   and with the US dollar partially hedged via gold and other inflation protections. I have virtually no bonds since money market rates in Vanguard's Prime Money Market  Fund  at 4.01% currently (7 day yield annualized) make bonds hyper-risky for no greater yield. If stocks go down and a recession fear takes hold, then I would reverse the gold and bond positions.