Whitmore’s Weekly Super Chart Calls Every Market Turn Since 1965

There is a famous fairytale about a chicken that ran about the countryside yelling for all to hear "The sky is falling! The sky is falling!" Of course, the story proved to be all wrong, the sky was not falling — just a few nuts here and there. But let me tell you something. The animals that heard it believed it and there was all sorts of misery to pay for them.

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Now, I bring up this story to make a point, of course. (And what, pray tell, is that? They all said in unison.) Yes, Chicken Little did feel something hit him on the head. But, no, it was not the sky. When he looked up all he saw was sky, so the conclusion was, in the chicken's estimation, a good one. The sky was there, so it must have been a piece of it that hit him. But, first impressions, while often right, are not the whole story by a long shot!

This week we witnessed a drop in the stock market to be sure. But, the measure of huge is a very, very relative thing. The average loss or gain we are used to is in the 50-150 range usually. A drop of over 416 points is clearly out of the ordinary, but it is hardly a seminal moment in the stock market's history — unless of course we see another 416+ drop today. Then folks, it will be a seminal moment! But we are not there yet!!

I know your portfolio took a hit. But, after nearly eight months of straight up from the Dow 11,000 level in July 2006, 416 points is only a 23 percent drop. That is a long way from a major reversal of the stock market's direction.

I watch the S&P more closely than I do the Dow, only because it is a far broader representation of the market and much more indicative of what is really happening. Yes, it too says we had over a 23 percent drop yesterday, but the key support on the S&P is at 1375. We closed at 1396 on the S&P Tuesday, down -56 1/2 points from June 2006. That's still a long way from this support.

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And even more important to me is my Weekly Super Chart support at S&P 1330. A pullback down to this level would be what I would call a truly significant event. Back in July 2006, we pulled down to and touched the Super Chart "keyline" and that event set off the huge eight-month rally we just corrected a bit. Will we again repeat the process? My guess is we will, however, we may NOT go all the way to the keyline this time.

Let me explain how the Weekly Super Chart works. Let me call your attention to my Weekly S&P Super Chart shown below. I developed this chart over many years in this business and it has treated me very well. Its present form fell into a computer format in 1987, over 20 years ago, but my primary work on it started in the mid-1970s.

Basically, I developed a fail-safe line on a chart. Above the line is bullish. Below the line is bearish. This line has called every market turn since 1977. I have even taken it back to 1965 on what is called a "back-test" and found it called all the major turns since that time.

But, all that is ancient history. More recently and more importantly, it called the market reverse in November 2000 at S&P 1370 (calculated on cash basis, not a futures basis). It held a sell position until June 2003 and gave a buy signal at 995 (again on a cash basis). It gave me a "target" of 1550 as the likely level on the upside before we would see another reversal (or cross below the keyline again — reliability factor is 85 percent to 90 percent on this prediction from the chart). So far, we have NOT crossed the S&P 1550 target level. I expect we will before this market really suffers a major and meaningful decline.

At the moment, you can see the Super Chart is showing a support line at 1375 on the S&P and the keyline at S&P 1330. So, until we reach the support at 1375, we only have a correction. If we break the support, then a move to the keyline at 1330 will, of course, be a crucial test. If we break the keyline, then, folks, we very likely will have a true, rip-roaring, stupendous, white-knuckle selloff. But until then, keep it all in perspective.

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This is a correction, not a market reversal. In corrections, you wait for a bottom area to develop and then buy, buy, buy! And if you are an options nut, you buy the longest call leaps you can find. But, we need to build a bottom first. Keep in mind the two levels of importance I have mentioned here. Be patient. But, when the bottom is formed, be ready to jump on quickly. The big money is waiting for the bottom too and when they think it is time — it will be time!

So, assuming we hold 1375 S&P for the next few days or the next few weeks, sleep soundly, listen to all the Chicken Little predictions (smile occasionally as it makes everyone around you wonder why you can be so calm when the sky is falling) and just be patient. The potential rewards of the next round of buying could be quite handsome. (But, once again just to emphasize it, be alert to the two key numbers.) See you when the bottom looks like it is in — or when (may the heavens forbid) the market really does reverse!

You keep in touch. I do! See you soon.

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