Detailed Market Analysis (Mid 02/11) - Part 4

Stock Market Analysis - February 13, 2011

Stock Market Recap

Last time - January 30, 2011, I said that "it seems like market can still continue higher for the next couple of weeks." Well, we are now at the end of the two week period and we should re-evaluate the situation 

Stock Market Analysis

Based on current sentiment readings, historical perspective, indicator's analysis and Elliott Wave structure, it seems that we are approaching an inflection point. Therefore, one should be very careful. This observation is in agreement with the new inflection point model. Market Matrix is given below. 

Conclusion

There are many flashing cautionary signals. It appears that we are nearing a top. However, we are still in an uptrend and the top will not be confirmed until a break below 1310 (closing). With cycles topping, technicals deteriorating, sentiment elevated and waves complete, the risk-reward ratio is very high. In any case, until unless the trading model is not violated, I will not short the market. If market closes below 1275 then market could see further selling into 1100s.

I have already discussed various supporting wave structures in the last few updates on this blog. These supporting wave structures include: Treasuries, US Dollar, SP500, Nasdaq and Financials. At the same time, there has been a continuous discussion of the Inflection Point Model on this blog: Mid February 2011 - Be Careful

One important development to keep in mind is that we are seeing elevated optimism along with a very mature wave structure. This high-level of optimism means that there are very few short-sellers in the market. Under these circumstances, if the market tops it can result in a sharp decline. For a detailed overview of the sentiment data please visit: Trader's Narrative

Even with all of this analysis, one should always remember that price pays. Therefore, one should always trade in the direction of the primary trend and have a comprehensive risk-management strategy. I will discuss risk-management scenarios next week.