Detailed Market Analysis (Mid 03/11) - Part 2

"Inability is disaster; patience is bravery; abstinence is a treasure, self-restrain is a shield; and the best companion is submission to the Divine Will" - Hazrat Ali

Stock Market Analysis - March 21, 2011

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 ready to buy the market. This observation is in agreement with the new inflection point model. Market Matrix is given below. 

Conclusion

There are many flashing green lights. It appears that we are nearing a bottom and are still in an uptrend. This bottom will be confirmed by a break above 1294 (closing) in SP500. With cycles bottoming, technicals improving, sentiment pessimistic and waves complete, the risk-reward ratio is very low. This suggests that we are witnessing a good buying opportunity. In any case, we will wait until we get a verification from our trading model before going long. This model will give a buy signal, if market closes above 1294. However, if SP500 breaks below 1240 then market could see further selling into high 1100s. 

Various supporting wave structures and cycle turn dates have already been discussed in the last few updates on this blog. These supporting wave structures include: Emerging Markets, Nasdaq Index and Real Estate Index. At the same time, there has been a continuous discussion of the Inflection Point Model on this blog.

One important development to keep in mind is that we have witnessed a sharp decline in the optimism towards the market. This behavior along with widespread uncertainty related to the Emerging Markets, military action in Libya, Japanese Earthquake and the following Nuclear Issue, can prove to be a catalyst for a significant rally to new highs. Further, wave structure is in its early development stages. For a detailed overview of the sentiment data please visit: Trader's Narrative

Even with all of this analysis, one should always remember that only 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 and possible Elliott Wave scenarios next week.