From last week’s crystal ball reading - [choppy trading next week possibly with more downside probing. A bottoming process should be in the works. This should lead to a decent multi-week rally]. Guess I should have said CHOPPY trading, with DOWNSIDE probing, lol! Certainly a lot wilder than I expected.

Clearly, all trend lines from the Mar 09 bottom have finally broken - so for now, instead of buying dips, it is best to sell rallies. From here, we should have a decent rebound rally probably until the end of August. On the next downswing, we will either have a successful test of the recent low, or an ABC correction. I’m leaning towards ABC (combination of extreme technical damage paired with less than extreme bearish sentiment). Regardless, my strategy is the same. I will sell individual stocks that move up to resistance points but hold the ones that do nothing (most of my stocks were washed out when I bought them). When I think a firm bottom is in place, I will reinvest whatever cash I have to take advantage of what I think will be a nice year end rally.

Despite Monday’s thrashing, I actually had an up week. Spent 3 days in the red wilderness, but now back in the black for 2011. Nevertheless, my early venture into the Venture was obviously a mistake. So for now, I can minimize losses by lightening up during periods of strength. There will be another opportunity to reload, methinks.

The recent plunge has a lot of market pundits calling for the resumption of the bear market. I’m amazed that people can say these things with such certitude. It’s certainly possible, but far too early to call - as Spanish matadors know, bulls do not die easily. And there is still plenty of Fed-based liquidity to support the market - 2 years of guaranteed zero interest rates. You have to put your money somewhere - the mattress or the markets. During the 08 crash, liquidity dried up and every asset class had to be sold - gold stocks got smashed and even gold lost 30%. This time, gold stocks held up well and gold had a nice run. So right now the problem is sentiment, and that can turn on a dime.

Many of these same pundits call the move from Mar 09 a bear market rally. I find that incredible - a near 100% gain in 2 years is NOT a bear market rally. At worst, it’s a powerful cyclical bull within a secular bear. At best, it’s the beginning of a secular bull. I actually think it’s the latter, but it will take years to prove it one way or another, so there isn’t much point in debating it. I’ll play the intermediate moves and worry about whether it’s a bull or bear market when the evidence becomes clearer.

Crystal ball reading for next week: Calmer markets (how could it not be?), still a little choppiness, but should be a positive week overall.