McHugh called the top today and stared a bear position via the Rydex 2X Dow RYCWX fund.  We'll see if he's right and the Jury is still out as the index charts have yet to break their uptrend supports.  However I have to say that this is a much more logical area for a top than Prechter's calls. 

Have a great weekend guys! long weekend!!!

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We believe the top is in for the rally from March 2009. We believe that top occurred yesterday, January 14th, 2010, amazingly precisely ten years from the inflation adjusted all-time top in the Industrials 1/14/2000, and amazingly 1,000 points lower. Here's why we believe this:

If you go to the short-term charts we showed in last night's newsletter, Thursday's newsletter, on page 11 of that report, we showed you a Rising Parallel trend-channel for the S&P 500 and a Rising Bearish Wedge in the Industrials. The Wedge looked complete last night. Well, it was. Today, prices have dropped decisively below the bottom boundary of that Rising Bearish Wedge, and below the bottom boundary of the S&P 500's Rising Parallel Trend-channel. We believe catastrophic wave (C )down has started.

There are no guarantees in this business, and there is nothing to stop the Central Planners from throwing a trillion dollars at the stock market Tuesday, sending stock prices 20 percent higher, however, in dealing with probabilities, standard technical analysis, fundamentals, and the concept of a generally free market, the odds are higher than at any time since March 2009 that a top of significance is in.

Therefore, we have conducted the following trades today in the Market Timing segment of our Conservative Portfolio:

We closed out (sold) our open position in DIA, selling 40 shares at 105.55. DIA shares approximate the movement of the Dow Industrials. This position was added almost two years ago. We held onto it to milk as much of this rally from March as possible and prudent, and now we are uncomfortable with that position. So it is gone.

We also closed out (sold) our open position in SPY, selling 40 shares at 113.23. SPY approximates the movement of the S&P 500. This position was also added two years ago.

We have purchased today, Friday, January 15th, 2010, 1,200 shares of the Rydex Inverse Dow 2x Strategy H (symbol RYCWX) mutual fund, which should produce gains as the Industrials fall, hopefully in a two times ratio. In other words, should the Industrials fall 10 percent, hopefully this fund will rise 20 percent. We are playing the Industrials to decline. The price of a share in the fund will likely be around $25 at tonight's close, which is the price we will be buying these shares at. This represents an investment of about 5 percent of our Conservative Portfolio's value.

As this decline gets legs, we will increase bearish investments, perhaps even doing an options trade (which is higher risk) when the situation looks right for our comfort level. The purpose of the Market Timing segment of our portfolio is to trade in and out, so we expect to do just that as time progresses.