The markets today got hit below their technical support levels with the S&P closing at 1296 and the Dow closing at 11993, below the important 12000 level. If the market tomorrow shows weakness and is unable to bring the S&P back above 1300, we have our breakdown. If the market does breakdown we will have an elongated corrective trend that can take a couple months and can take the S&P down to about the 1227 level, before resuming the underlying bull market.
I still believe we are in a global recovery but unlike 2009, we need to be more careful about our timing. I think the market will be relatively a large consolidation pattern for all of 2011 with a breakout to the upside closer to the end of the year, creating a strong bull market for 2012. A good strategy for this 2011 market would be to sell when the market feels extended and triggers overbought indicators, and buy when the market has let sell offs take its course and when the market triggers oversold indicators.
In the meantime, I am not buying at extended levels.