Sunday, November 18, 2012

Market Analysis - Thanksgiving Rally

Since the elections the market has declined from 1442 to 1342 i.e. a decline of 100 points (~7%) in little more than 1 week. And from the IPM Market top prediction on October 18, market has decline 120 points. This is very significant in terms of magnitude, but the sad part is that we are not seeing excessive pessimism. This suggests that we have not yet seen the final bottom. However, in the near term, market might have bottomed and could go up for about a week.

Several contributing reasons behind this short-term bottom call is highlighted in this post. However, the biggest reason is that the IPM model is showing a potential market turn. The exact IPM turn dates and the exact turn window was e-mailed to subscribers last week, and so far we are on track for the market to bottoming within the turn window. On Friday, a comment was posted as a part of Emerging Markets post to highlight the fact that on Friday market might have bottomed.

This analysis is supported by current Elliott Wave market structure. The following chart clearly shows that the market has completed the 3rd wave. In the last Elliott Wave structure analysis post, it was mentioned that either we are in the 3rd wave and have completed 1,2/i, ii sequence or we have completed a 5-wave decline. Long-behold the market decided to complete its 3rd wave by declining till the end of the IPM model turn window.

The market structure is very clear right now. It flows well with the IPM model turn window and the upcoming potential top date (already emailed to subscribers). Furthermore, this structure allows us to clearly define risk. For example, the upcoming rally should not rise above 1400 b/c that would mean that the market has entered the region of pervious 2nd wave and 4th wave cannot enter into the 2nd wave region. The most appropriate stopping places for the current rally is from 1370-1380.

Based on this information one can define his long/short/stand-aside trades, as per risk appetite. In any case, next 2 weeks will be very choppy.

Although the market sentiment is not fully pessimistic, with Vix not showing panic selling and there has not been a panic sell day in the recent decline in terms of sell/buy volume,  we have seen two sentiment surveys of individual investors showing significant pessimism. This might not be enough for a sustainable bottom as newsletter and Institutional Investors are showing excessive pessimism but it might be enough to signal a short term bottom. 

Now looking at the leading markets for clues of the upcoming market action, it is evident that Euro is holding its Nov 13 low, while Copper is holding its Nov 9th low. Therefore, we are seeing some positive divergences developing in the market. These positive divergence can result in a market rally in the near-term.

In short, we have the setup for the market to start rallying or go sideways for the next week or so. After that, we will see how the market will act around the upcoming IPM turn date.


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Consulting Assignment

Few weeks ago, UST carried out a consulting project to generate a report on the housing market. There were two goals of this assignment:

  1. Analyze the feasibility of an investment in the housing market and the potential gains from the perspective of the stock charts.
  2. Analyze the feasibility of buying a property in terms of R.O.I. in comparison with stock market and bond market returns, when the following information is taken into account: Cost, downpayment, renovation expense, mortgage, maintenance, mortgage insurance, house insurance, rentability, location attractiveness, future sale value, taxes and misc cost.
Over the next 2 weeks, I will be sharing the results of this project. This information might help some of the readers to understand the current market situation. Since every situation is different UST analysis on this particular property might not be applicable to your situation, but it will provide you with a way to analyze the investments. We will also be willing to help you in your analysis.


  1. Thanks Naqvi. I'm wanting to think that the medium term will change to an uptrend. I know i should be a friend to the medium trend going down. But, we have been in a long term uptrend and so the medium trend may change to an uptrend. I'm just gonna cross my finger and call it a bottom from here til the next IPM.

    My Holdings:

    Still keeping Emerging Markets and will sell them if we S&P breaks lower than 1320-1340.
    Mortgage and Bonds


    US equities and hope S&P breaks over 1400 if not sell them and get even before they break down.

    Thanks for the housing market analysis. I am planning to buy a property.


  2. The level that needs to be broken in order to nullify the immediate decline potential is 1422. With regards to strong resistance level, we are eying 1380-1400. It will interesting to see how the market behaves over the next 3/4 days.


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