Stock Market Analysis - January 02, 2011 - Happy New Year

Recap

Last month, I stated that the analysis is pointing towards a dull holiday trading. Since that time, the market (SP500) has only risen 25 points in low volume trading. This time-off from the stock market enabled me to concentrate on finals and observe Moharram. Now I am back, and hopefully will be posting regularly.  

Stock Market Analysis

Based on recent sentiment readings, historical perspective, indicator's analysis and Elliott Wave structure, it seems like market is getting ready for a near term upward thrust followed by a correction. This observation is in agreement with the new inflection point model that I worked on over the holidays. Detailed analysis is given below.

Market Matrix:

This Matrix gives a pictorial representation of the internal market strength, indicators and suggested turns. Based on the current picture, we have many neutral to bearish signal, as evident from Red and Yellow colors. These color codes are based on my historical analysis and market scores. This Matrix is used to come up with market related trading conclusions.

Conclusion

There are certain cycle tops in the first and second weeks of January 2011. The above analysis points out to a possibility that this market might be getting ready for a rise into a top during that time frame. Furthermore, corporate earnings will be released in the second week of January. Typically, if the market rises into the earnings season then it corrects during the earnings season. 

High Probability: Rise to a top in the 1280-1300 (SP500) area during the first or second week of January. This area has certain active Fibonacci ratios. This rise can result in a correction, correcting the rise from July 2010 and probably even more. Therefore, it can be a significant correction. 

Low Probability: Market continues to rise above 1330 level, with only a shallow decline.

Risk Management: First indication of trend reversal will be a break below 1243. Based on current optimistic extremes and wave structure, a break below 1175 will suggest deeper decline in stock market is possible.  

Future Topics:

1- An Interesting pattern in Nasdaq 100

2- Has Real Estate really bottomed or are we about to see a Double Dip?