Terry Laundry's T Theory™ Observations

Update January 27 2005

The correction begun as we entered the new year looks to be over for the short term based on the Volume Oscillator pattern in the daily chart below. Click on the chart for a larger image.

Note the Volume Oscillator has started a rising bottoms pattern in an obvious oversold condition as indicated by the rising red arrowed line. This rising bottoms, while the S&P was making a token lower low on the second bottom, is a normal sign of accumulation which in time will produce an upturn off the 55 Day MA support. This is bullish for the next few weeks.

As the upturn progresses we should see a strong upside break out of the green descending tops cash build up line I have sketched. This will bring in any sideline buying power and should push the S&P back to its old highs or more depending on the overall strength of the market.

Once we have seen the extent of the rally it may be possible to estimate the next step. Terry Laundry

January 20 Comments

Since my last update we have seen the S&P trying to bounce off the 55 Day MA on the S&P 500 in the 1176-ish area as noted in the chart that accompanies my January 14th 2005 update. As of the January 20 close (1175) it appears we we could be seeing a close on a key short term support level. Under normal bullish circumstances a confirmed bottom on the 55 day MA would call for a rally to the old highs as part of the big A-D T that forecasts a general rising trend into a early 2007 final peak. This needs to be confirmed in the days ahead.

If this support should fail the forecast will normally call for a deeper correction back to the 39 week MA discussed in my January 6 update so it is important for the current lows to hold Friday and Monday. The reason we need to keep this this mind is that a long term bullish forecast allows for many kinds of corrections however my research shows that in most cases the support is either at the 55 Day MA (1176) or the 39 week MA (1128). This greatly simplifies the analysis.

In the absence of a clear breakdown below 1176 I would try to be favorably impressed with what appears to be a rising bottoms pattern in the volume oscillator which is the normal hallmark for good short term lows. However we need a few more days data.

Update January 14 2005

As noted in the short term chart below the expected correction back to the 55 day MA (S&P 1176-ish) has occurred. Click on the chart for a larger image. Working from a strictly T Theory point of view and referring back to my prior 39 week adaptive channels summary we would conclude that the market has completed or is completing a needed short term correction and can therefore return to the longer term A-D Ts forecast which projects ongoing strength via a bull market trend into early 2007. Basically this continues to be my forecast.

Of course the technical picture looks terrible and people are saying bad things about the outlook, all of which is normal at this oversold stage. But note the volume oscillator is deeply oversold and has started to make a rising bottoms pattern. If the market stabilizes around the 55 day MA and begins a rebound that cuts the short term oscillator's green down trend line, then the S&P would be expected to rise back to its old highs as part of the bullish long term picture. Terry Laundry

Gold Update

In the past I have shown the Gold T projection for the very long term. To Summarize; Gold had suffered a 20 year bear market from its 1980 peak before bottoming in the year 2000 at about the time stocks made their important 2000 peak in their dot-com bubble. A reasonable conclusion from T Theory is that Gold embarked on a 20 bull market from 2000 to an eventual (20 year time symmetrical) year 2020 peak. This has been my forecast, subject to a few technical confirmations. See my prior updates on this issue for the details.

One of the technical confirmations needed in 2004 was a price breakout over gold’s $435 prior multiyear resistance highs. This was needed to confirm the presence of the T on general T Theory principles. It was accomplished earlier this Fall. Looking ahead to the tracking of this projected uptrend and its further confirmation, I noted the Aden Sisters, long time respected Gold analysts had presented a study of the Gold price as it related to its 65 week MA. Their conclusion, which I am adopting, is that a bullish trend finds support at its 65 week moving average. Most important, is that this criteria worked well in the bear market years and the bull market years. That is, any trend that holds above its 65 week MA is bullish, any trend that holds below its 65 week MA is bearish.

This means that one helpful tool is to plot the price of Gold, as is done above in the chart compliments of BigCharts.com, along with its 65 week MA. Click on image for a larger chart. Currently the 65 week MA is near $405 and weakness in Gold within a bull market has had a tendency to bottom in the general area of the 65 week MA. So a reasonable conclusion is that the current weakness in Gold might carry down to the low 405-ish area but that would be a buy as long as the general area holds as part of the general bullish picture. More on Gold as the trend unfolds. Terry Laundry

January6 2005 Channel Update

The chart below summarizes the Advance-Decline T picture within the 39 week Adaptive Channels for the recent period. Here I am using the same nomenclature as in my prior update for the 1932 example. The principles are all the same and the conclusion, as previous noted, is that the prices for stocks ( the S&P 500) should not peak until the projected right end of the current T, early 2007. Click on the image for a larger view.

This conclusion is statistic correct for most situations since the 1930's provded one handle the interpretation of the double bottoms B and C correctly. However there remain unanswered questions regarding the location of the T centerpost low in real time and the nature of the corrections that periodically see the S&P 500 come back to the mid channel back line. I have labeled these with the red letter R for "reactions". The Reactions are two sided since market volatilaty is two sided, that is reactions can be bullish in a bear market or bearish in a bull market.

A key to understanding these reactions is to recognize the don't happen every six months, they occur at relatively widely spaced intervals. I have expanded the scope of this chart to provide the better prespective of the frequency of these reactions back to the midchannel line. One conclusion for now is that the low last August was a perfectly normal reaction within an uptrend and we probably don't need to worry about a full reaction back to the midchannel level near term.

This leaves the downside objective for the current early 2005 reaction to a much lesser decline to the 55 day MA, now roughly 1176 on the S&P. As soon as we see that sort of number the conclusion will that a small reaction low has formed and the normal outcome is a return to the upper channel envelope. When this occurs I will update the daily chart and comment further. Terry Laundry