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Tuesday, February 21, 2012

IPM Turn Date


Based on the IPM turn point analysis, market could continue to rise till the end of this month. This observation takes on even more importance when viewed in context with the broader over-bought condition, decreasing market breadth and investor optimism. This kind of sentiment backdrop typically foreshadows price declines. Although the upcoming decline will most probably not result in a new bear market (at least not right away), it could present a good buying opportunity.

After re-running the Inflection Point Model over the weekend, following outcome was achieved.

According to this analysis the next IPM turn date is scheduled for March 1, 2012. This turn date coincides with a momentum based market timing indicator turn date. Therefore, we have more confidence in this turn date. 

Since many investors might have stops near the 2011 highs, markets could rally during the next week as their stops are hit. This rally would result in a breakout, attracting more people back into the market, just in time for a major pull-back in March (per IPM turn date). 

In the long-term (4-8 months) it seems like DJIA could rise to a new all-time high (~15000) before starting the next down leg. The best way to strategically play this kind of rally would be to wait for the March pull-back (if not already in the market), and then ride the market till the next 8/4 test to the downside has been completed.   

10 comments:

  1. Thanks Naqvi! Brad

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  2. This video is interesting. This professor says DOW will hit 15000's http://video.cnbc.com/gallery/?video=3000074387

    And Cramer's Tuesday's MadMoney shows says the same. Interesting! Just hard to believe and not believe!

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  3. Thanks Naqvi appreciate the analysis

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  4. I agree with Joseph, it is hard to believe and not believe at the same time. There are good things occurring in the market, but there are warning signs too. One of the bigger warning signs for me is not the rally into the "Golden Cross" or any of the more fundamental signs because those are skewed (in my view) from the unprecedented actions of the Fed and other governmental policy Band Aids/changes. For me, the biggest warning sign is the retail investor coming back into the market (which could start off good under the extraordinary conditions of the last couple of years [bullish trend], but could end up very bad [return of the bear]) coupled with insiders continuing to sell their own companies.

    Good:
    1. The US Markets continue to be separate themselves from Europe;
    2. The market is shunning bad news which shows an incredible amount resilience and momentum to the upside for a bullish trend;
    3. The retail investor trickling money into the market which could literally shock the DOW to ~15,000 (and I mean SHOCK!) and the SP500 past ~1550 or so;
    4. Good economic news, jobs report, gas prices from the lack of Iranian oil won’t crush middleclass spending (at least for now); and
    5. The overall warm fuzzy feeling that the world won’t end tomorrow so it is best to ride the trend and not fight it.

    Bad:
    1. The retail investor is trickling money into the market (usually means that the market has become overbought and at least a pullback is due – but when?);
    2. The market has been on an incredible run since October, but for me, it has been a very unconvincing or tepid rally – yet the markets still went up;
    3. Over optimism in the markets is starting to show cracks and seems to be sliding into complacency. With that said, it seems to me that the market rally since October has been driven by over optimism and complacency which gives the rally’s “tepid” feeling. Let me put it another way. There is minimal growth in the economy yet the market increased by ~20% since October. Now, was the market overly cheap and needed to adjust to these new levels or was it driven by emotion? I think the latter.
    4. Insiders continue to sell their own stocks; and
    5. We are in an Asset Bubble because of Fed intervention and government policy changes. Bubbles pop, when will this one pop?

    This is not an easy market to be in or on the sidelines. Be careful out there. Brad

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  5. Brad - you are correct on both sides. However, without knowing where the money ("printed", "created out of thin air") is coming from (Fed, Europe/ECB, Asia/Japan/China....all of them?) it's hard to have any idea how much money is actually out there, and they can literally keep this going on low volume to Dow 15000 with no problem...everyone then gets to win their elections since the market is up...and then at some point down the road we revisit SP 1080 and Dow 10000 based upon whatever bad news they want to pull from ....call it a bubble, but no one knows how big of a bubble with printed money can actually grow to, as this is all unprecedented. I am afraid of this turn date towards the downside as we know the LTRO next week will push in at least another $500,000,000 and possibly up to trillion. Those loans are for three years at 1%....so why not slowly push things higher for as long as they want while oil, copper, gold and silver all rise along with it. If inflation rises slowly, it doesn't seem as big of a problem...and who knows, maybe the bubble never pops as this money is eventually paid back and we just find ourselves at a new normal with Dow 15000 and SP 1500 as a bottom base for years to come. Economists out there have no real answer as to what the endgame really is. I have never been a gold bug, but it may not be a bad idea as it's the one thing they cannot just "print". Having said all of that, it's been great for 401K's and anyone that has anything tied to equities. Bears and others talking about how fundamentals should push things lower will just be ignored, like they usually are.

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  6. Great comments guys. I agree with the concept of the government pushing the entire thing up for a little while longer. However, it will not be logical for the market to rise above 2007 highs, in conjunction with 8% unemployment. It just does not make sense for the market to reach all time high, with fundamentals being much worse. This means that the next top could be followed by a very sharp decline to bring equilibrium back to the equation of fundamental economic developments and the stock market. I have recently seen a very interesting long-term pattern in the markets, and will share that with you guys over the next few days. This pattern might give us the answer to the technical and fundamental disparity and the liquidity based market bubble.

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  7. I think we are overall on the same page with a relatively same view. I’m not 100% on anything (as 100% in equities OR opinion) but I do lean towards the view that the markets will continue to slide up for a bit longer on low volume. If volume increases, I think the probability of a relatively sizeable pullback increases. Anonymous is correct in the view that we don’t really know where the money for the bailouts is coming from and because of that, it is hard to determine how much money has actually been spent. All of this is unprecedented in the markets and like Anonymous said, no one knows the “end game” - the liquidity bubble could even itself out and the markets find themselves at new levels, but I’m not too confident of that view, but stranger things have happened in the market and I’ve been more wrong in the last three years than right. I don’t think I’m so much worried about this turn date (March 1; 25% worried, 75% not) because I think it will be relatively meek and will probably guide us into the pullback.

    Naqvi has a very good point that it is difficult to see 2007 highs surpassed with 8% unemployment. Are we going to see a large drop in the unemployment rate to help the DOW attain the ~15,000 or are we going to see a continued divergence of market fundamentals and technicals? I don’t know, but if I were to guess, I think a combination will occur. I think we will see a continued easing of the unemployment rate and continued divergences of market fundamentals and technicals. I think that is the only way to get to the ~15,000. I also think that this pathway to ~15,000 won’t be a straight line – there will be pullbacks along the way and these pull back could be painful.

    It would be interesting to see the long-term pattern that could potentially shed light on the market’s dilemma – that it can only go so far unless it becomes more fundamentally and technically unstable. In my view, this continued or increased instability couple with the liquidity bubble present on corporate balance sheets points towards trouble on the horizon.

    Good luck out here! Brad

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  8. If you wanted to follow Operation Twist, here ya go:

    http://www.newyorkfed.org/markets/tot_operation_schedule.html

    It's no coincidence that the market recovers nicely after any sell off during heavy POMO days...yesterday and today watched $5Billion be added each day. This is all market manipulation, but it's sort of predictable as well. They will publish the new schedule tomorrow I believe...with LTRO coming, how in the world can this market go down?

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  9. same as when last year Obama took until the last moment to approve and raise our debt. AFter that day the market when down.

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