Sunday, March 4, 2012

Market Structural Overview - Another Perspective!!

Over the weekend, I decided to look into the case of potential market top with in the current IPM turn window. UST has always believed that it is always prudent to analyze the market from a holistic perspective i.e. both Bull and Bear aspects of the market. And for that reason, Market Matrix and other unique market analysis techniques were introduced.

From a structural point of view small caps, financials and Dow transports showed that the market topped at the early February turn date, and have corrected since then. However, when I researched multiple market indicators via Market Matrix (Sentiment, Technicals and supporting indices), it seemed like there was not a lot of fuel left in the market to launch a sharp rally.

As a result, I closely analyzed the EW pattern of SP500 & Nasdaq because these two indices did not correct during February. Instead, they continued their slow ascent during the last month. And the findings were pretty much in contrast to what was being depicted by other indices i.e. These indices are much closer to a top than to a bottom!!

The following charts (SP500 & Nasdaq) show a possible ending diagonal pattern. The significant aspect of this pattern is that it is a terminating pattern i.e. markets decline once this pattern is completed. At this point, it seems like this pattern is almost complete. Moreover, since over the past few weeks US indices have slowly grinded higher in a sequence of 3 overlapping waves, it further amplifies the possibility of an impending Ending Diagonal in SP500 and Nasdaq.

This chart pattern has taken place in parallel with a sharp decline in Euro (after the LTRO by ECB). If this decline turns into something significant then we will be more cautious. However, right now we are not bearish. We will just stay on the sidelines till the next buy signal is generated by the Trading Algorithm. We will be looking forward to buying again at the next turn date or when a buy signal in generated by the Trading Algorithm.  

The above observation in conjunction with persistent bullishness in sentiment surveys and warning signals from the Market Matrix, is suggesting that the bullish trend is approaching a road block within the IPM turn window (at least for the next couple of weeks).

For long-term investors this is not a reason to exit the market, but it would be prudent to lighten up on a close below 1360 (SP500). This will give you the opportunity to buy at a lower price or after the risk of correction has been reduced i.e. we are out of the turn window.


  1. Thanks. This is why i'm waiting for the next decline. From my point of view, it's hard to believe markets will keep going up for now. They have to have a correction = decline somewhere. It is impossible for the market to steadily keep going higher for the next 10 months.

  2. Thanks Naqvi and Joseph. I'm sure a decline/pullback is coming, but I don't think this next one (the one probable in this turn window) will be too severe (2-5%). I think that if investors are looking for a 8-10% pullback, it won't happen until mid-late spring to summer at the earliest. In the last several months, whenever pundits chant pullback, the market continues to grind sideways and gradually increases as it consolidates. I think this trend will continue. March is a long month and I think by the end of the month, I think the DOW and SP500 will be higher than where they are now. There may be a pullback of sorts, but not a huge one, and I still think these indices will be higher. Thanks, Brad

  3. I agree Brad. The first pullback may not be very significant. I'm hoping it will be. And i agree with a major pullback later in spring too.

  4. If you look at the POMO schedule:

    ...there is about 11 Billion being pumped in over the next three days via purchases before any more selling on Friday. I stepped in a bit today near SP1360 with possible stop if it closes below plan is to exit sometime March 8th.
    The Russell 2000 is interesting here as that is supposedly what the Fed looks at to judge how they are's held nicely all day and is starting to make a move higher...if this is truly market manipulation by the Fed, we will have a front row seat the next few days. -Mike

  5. Ok here we go. We are pulling back. Need a little more pullback to do some buying!

  6. Well guys, you're getting the pullback. Between 02/29/12 to today, the DOW has dropped almost 2% and the SP500 almost 2.6%. Does anyone think the jobs report, assuming it is relatively good, will ease the pullback? I'm long-term and 60% in equities already. I can't use stops with the clunky retirement system I have to use, so I'm waiting for a bottom and dollar cost average down. Best, Brad

  7. Well, I am back on the sidelines....that was some heavy selling yesterday, but likely due to stops being hit. All I know is that there is a ton of money via the Fed and ECB ready to do something. I wish I knew when and where!....haha...if we could drop down towards SP1320, that would be a nice entry I'd imagine. At current levels, I have absolutely no idea....I would think a close above SP1355 is what the bulls are looking for. -Mike

  8. this trading thing looks fun to keep you busy, but if you want extra time for other stuff besides screens all day:


    +44.3% since 14.11.11.
    +2.7% today(JIVE added as a CHRISTMAS IPOgift :)

    GOD bless the pump!


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