Wednesday, June 27, 2012

EU Summit and Market Behavior

We are coming very close to the IPM turn window. If we have correctly identified the current EW market pattern (diagonal), the market (SP500) should not rise above 1365. This area holds various resistances, ranging from MAs to 61.8% fib retracement. Above all, according to the Elliott Wave theory, current rise cannot exceed 1365 or something much more bullish will be unfolding.

The second (extreme bullish) alternative is a very low probability because we are in an overall downtrend and are approaching a top date.

As a conjecture, we might see a rally till Friday when the EU announces its plans and then the market could sell-off for 1-2 weeks (till the earnings start). This is just a hypothetical scenario, but it would be similar to what happened in October 2011 i.e. market started rallying in early October and topped out when the actual EU summit took place (Do you remember when Greek Prime Minister wanted to hold a referendum??)

Finally, there were some comments about the model and the possibility of a sharper decline starting. These comments were completely rational, as Mike said, it was a tough 40 point ride.

But you might remember that on June 17, 2012, it was stated that it would be interesting to see how the market reaches the end of June/early July top. At that point the rally was so strong that if the market had continued its rise for the next 2 weeks, it would have eclipsed April highs. Since the market had completed the 8/4 test to the downside, new highs were a very low possibility. At that point, I wondered if the market was going to trace-out a diagonal pattern (it was just a guess to align market structure with the probable topping time frame along with sentiment data).

At this point, it does seem like that we are witnessing a diagonal pattern. One important aspect of the diagonal patterns is that no one identifies them until the very end. In current situation, I have not read anywhere on the financial websites that we are in a diagonal pattern, so it is possible that we might really be in one. In any case, next few days are very important. The nature of the current rise and the subsequent decline will tell us about the future direction of the broader market.

-- Critical Level: 1307. Break below this level would mean that the broader downtrend has again exerted itself.

Personal Note:
Believe me, trading is a tough/stressful job. Whoever felt anxiety during the last decline is in the same boat as me. I was stressed even with model and algorithms. I can only imagine being in the shoes of people who have thousands of dollars in 401Ks and who watch the market decline 100s of points.

Friday, June 22, 2012

Potential Market Bottom

Ok!! So the market declined 256 points in DJIA. A bad day! A very bad day! But does this mean that the rally is over? Tonight, I am seeing a lot of people suggesting that the rally is over and the market will start declining sharply. However, the technical indicators along with the sentiment indicators are not suggesting this. Based on the following analytic reasons and the IPM turn date, which is end of June, market could have put in a bottom yesterday. For this forecast to hold, market should not decline below 1305 (Sp500).

1- 2nd wave personality and Current Sentiment: 2nd Wave should show optimism but right now we are not seeing optimism

2- Technical Indicators: Market has internal strength

3- EW structure and EWI contrarion signal: EW structure suggests a potential for rise

4- Crucial Levels 1305

Note: If you want detailed analysis on these topics please let me know and I will try to make a detailed document. 

Thursday, June 21, 2012

Market & VPSBM Update

Based on the latest EW count analysis, market can head up to 1380s by the end of June. The rise to this level will require one more up-down-up sequence.

We are currently at:
          |-> 1 2  i   ii  iii  iv
                                    |-> Next: v/3  4  5/C

1385 will also mark the 78.6% retracement of the 2 month decline from April to June 1, 2012. Furthermore, the global stock market proxy, will also test critical resistance level at the same time. Therefore, it amplifies the potential of market topping out in 1380 area.

Note: Vix based sell signal is close at hand. Therefore, caution is warranted.

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Sunday, June 17, 2012

IPM Model Update

IPM Turn window: July 6, 2012 (+/- 4 days)
MFI Turn date: June 29, 2012 or July 3, 2012

Therefore, market could rally till the end of the month (next 2 weeks). It makes so much sense, when one sees the time analysis from the perspective of economic uncertainty relating to Greek elections and negative market sentiment among Newsletter writers. This rally will be sharp and will bring back much optimism into the market.

Please note that market might top, as Q2 earnings start in July!!

Update June 20, 2012
Currently, VIX is undergoing a sell signal setup. Although this signal is very important because it conforms to the overall downtrend thesis, it forces us to think that how can the market continue higher for the 7-10 days.

Few reasons for possible rally continuation are:
1- Overall bearishness among the newsletter writers has to be worked off
2- VIX sell signals result in market declines after 5-7 days.

In short, this will be an interesting test for the market. One scenario might be that we go up in a choppy sideways (diagnol) pattern, which could take a few days to carve out but will also give the impression that the market is still rising. Lets see what happens....

Thursday, June 7, 2012

Stock Market Story Line - June 2012

As predicted by the IPM Model, the market bottomed within the turn window on Monday and has started a 3-4 weeks rally. I have laid out a tentative market path for June 2012. Details will be discussed later.

Wednesday, June 6, 2012

Bottom Picking Update

People might sell short or sell their longs on the upcoming decline. If the market can hold onto the lows put in on Monday, this decline might be a good buying opportunity in the near-term.

Note that markets might not rise enough to go up to 1400, so be careful if you are a long-term investor.

Tuesday, June 5, 2012

This is the Week to Watch!!!

Following are the reasons why bottom is near and should happen soon:

Time Target:

  1. IPM Turn Window: June 8, 2012 (+/- 4 days)
  2. MFI based time signal: June 7, 2012
  3. Cyclical turn: 2nd week of June

Decline Price Target:
1250-1260 (SP500)

Buy Signals:

  1. Euro Bottom
  2. Gold bottom
  3. Vix based buy signal

Reaching pessimistic extremes

EW Structure:
One more decline to test or break today's lows by the end of the week.

We are very close to a near term bottom, but that does not mean that the bear market has ended. In fact, it has just begun. Upcoming rally can last for 3-4 weeks, but will be followed by further decline.