"according to trader vic book1 written by victor sperandeo on his studies of dow theory:

1)"my own research bears out Rheas observation that most secondary corrections retrace from 1/3 to 2/3 of the previous primary swing(a primary swing is the leg of the of the primary movement between secondary reactions) and last from 3 weeks to 3 months.Of all the corrections in history 61% retraced between 30 and 70% of the previous primary swing. 65%last between 3 weeks and 3 months, and 98%last from 2 weeks to 8 months. Another distinguishing characteristic is that the rate of change of price movements in secondary reactions are typically swifter and sharper than the movement of the primary trend.

2)intermediate bear market rallies are usually inverted "V" patterns where the low is made on high volume and the high is made on low volume 3)in bear markets secondary reactions are usually marked by sudden and rapid advances followed by decreasing activity and the formation of a "line" which ultimately leads to slower declines to new lows."

"my opinion is this according to trader vics observations 1)has not the market retraced roughly 66% of the primary swing 2)was it not a sharp "V" pattern on the march lows 3)was not a line made between november /december all of these observations are made on the S and P 500 index could the upside recent failure be a bear trap? 4)this rally has lasted 9months roughly in line with point1

"your service provided is second to none and your knowledge of the markets has certainly made me a more patient and rational investor/trader all the best to the fullermoney collective"

David Fuller's view Thank you for your analytical thoughts, your views on the current market situation and also for the feedback on the Fullermoney Global Strategy Service.

I have long felt that those of us who prefer to make our own investment and trading decisions, also regard ourselves as students of the markets. Learning is a lifelong process, as you no doubt realise. I commend you and many other subscribers for your efforts in this respect. Over the course of time and being individuals we usually develop our own market methodology, based on the work of others, but not least our own observations, experiences, skills, temperament and personality.

Speaking for myself only, I function better without lots of detailed analysis of statistics, ratios and percentages. Instead, I personally focus on trend consistency characteristics, and have written about them on many occasions. Incidentally, they are an integral part of The Chart Seminar (TCS), which has been training analysts, investors and traders since 1970 and has been conducted by Eoin since I retired from this two-day workshop in 2007.

Using the TCS approach today, in addition to what Eoin and I said yesterday and in other recent commentary, the medium-term uptrend phase for most stock market indices since mid-July has lost its consistency. Considering the influential S&P 500 Index, cited in the email above, we can see that the March to June 2009 phase of the stock market recovery also lost consistency, as every trend eventually will. At the time, many people felt that a bear market rally had ended at that point and that the March low would soon be exceeded on the downside.

Fortunately, that was not the Fullermoney view as the Archive will show. Briefly, as upside momentum waned in June and July 2009, we were looking for a partial retracement of sharp gains during a temporary corrective phase; we were more influenced by the climactic nature of the sell-off in Q3 andQ4 2008; we have long preferred to focus on relative strength following a collapse; we were impressed by the fact that Fullermoney themes had bottomed in October, built bases and mostly completed them as the March 2009 rally commenced, and we were favourably impressed by the monetary stimulus as that is usually bullish for equities.

Could the S&P's bear market resume, as the email above appears to suggest, now that the short to medium-term uptrend has lost momentum once again? Theoretically, yes, as anything is possible in markets and bearish sentiment increases during a setback. However Fullermoney is looking for a further correction towards the mean, represented by the rising 200-day moving averages. Meanwhile, the recent technical action has been bearish and we have yet to see this change, other than noting that a short-term overbought reading has been replaced by a short-term oversold condition, as you can see from this daily chart of the S&P, plus stochastics. You will also note that while these momentum indicators will often pinpoint a short-term high or low in a ranging market environment, the overbought or oversold reading will persist for weeks during a persistent trend.

Interestingly, recent selling pressure seems to have been triggered by a policy change in the world's second largest economy which is now China, and political developments in the world's largest economy, which of course remains the USA. Chinese officials have increased bank reserve requirements and in my opinion, been refreshingly candid about having injected more liquidity last year than proved necessary. US politicians have worried Wall Street by actually proposing real regulations for the banking industry which most other people have called for. There is also some point scoring over Fed Chairman Bernanke's reappointment, if only to ensure that he is not deified in the manner of his predecessor during his first two terms.

While these developments are not trivial for nervous markets, I assume that they are not of equal importance to a property bubble, bank credit and insolvency debacle and the sudden withdrawal of support for Lehman Brothers. My own view is that China's incremental changes in monetary policy, while unnerving in the short term, will help to keep economic growth on track in that country for longer than otherwise might have occurred. As for the USA's banking reforms, I maintain that while the acrimonious debate and uncertainty is bearish in the short term, Paul Volcker's proposals will be better for the US economic stability and therefore the stock market in the longer term.