Friday, August 12, 2011

500 Point Rally and Market Recap

Wow!!! Trading Algorithm's sell signal saved the followers more than 17% in just 2 weeks. 

Last week turned out to be a very volatile week in both financial and political worlds. Before going on vacation, UST stated on August 6, 2011:

"Next few days will be very interesting with considerably choppy market action. Therefore, the best strategy will be to stay on the sidelines, continue to analyse the market, define risk and trade based on Trading Algorithm signals."

In the hindsight, it seems like a very good advice. 

Yesterday's 400+ point rally, followed by today's 100 point advance, might have forced several analysts to proclaim that the market has bottomed. However, last week's precipitous decline has extensively damaged the technical health of the financial markets. In fact, according the UST's proprietary indicators we are now officially in bear market territory. This means that the best approach will be to sell rallies, instead of buying dips. Because in a down trend, good news are sold and rallies are short-lived.

Market Matrix is also not yet indicating a strong buy point. Furthermore, last few days have seen a rise in optimism among the investors. Optimism in the face of such week price action, does not bode well for the overall market. Moreover, recent decline was very extreme in nature. Extreme declines are often followed by price retests. This technical behaviour, when combined with current sentiment backdrop and turn window of August 17 to August 26, leads to the conclusion that we will further decline before putting in a bottom.  

Although picking the bottom in a down trend is not a good trading strategy, we will keep a sharp eye on the market structure and Inflection Point Model. Overall, current market structure leads to two possible market scenarios:

1- We have entered a new bear market, and will end up in a depression
2- Market will soon bottom and lead to a significant rally. 

Each scenario can be demarcated by certain price levels. And in both cases we will experience extreme price movements. Therefore, it will dramatically pay-off to be aware of the pulse of the market, and trade accordingly.

In next issue of Pick the Turn Point series, we will analyse different market structures, price levels and Trading Algorithm's signal level.


  1. Hi Naqvi, are we now still in the turn point period?? What are your models showing? Thanks

  2. I have just posted an update. Please review:


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