http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=0&mn=6&dy=0&id=p88568909625&a=223624367

http://stockharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=9&dy=0&id=p34555890157&a=214966864c

Last Thursday we thought a bear attack on the market imminent and expected it to take place on the weekend when all our readers would be playing golf or polo.  Tipped off, the bears instead attacked on Friday in full daylight.  They drove the market down 172 points, but it didn’t spook the market.  Instead buyers rushed in and the market closed down only 41 points.  Is this a sign?  Yes.  When the market can withstand that kind of attack the strength of the wave is reaffirmed.

So what we have going on right now is consolidation.  You can see it in both the Dow and the SPX.  All together now, what is the mantra?  Upwaves are followed by down waves –or–by sidewaves.  Sidewaves, obviously, occur in very strong markets.  Buyers wait, hoping for a sell off so they can get better prices.  Sometimes they wait for years — as they have since March 09.  Sidewaves are followed by upwaves or downwaves.  Note the downwaves.  But in this kind of market a sidewave serves as a base for further advance.

The December 13 trendline is uncomfortably close to prices and could still create some discomfort if broken under the right (or the wrong) circumstances.  But the major trend is intact and we are unwinding our hedges.