Tuesday, December 18, 2012

Market & IPM Chart Analysis

First of all, Thanks You all for the comments. Comments improve our analysis and make me accountable to readers. There were some comments on the blog today about the effectiveness of the IPM Model. I would like to share a couple of charts to show how things materialized over the past few weeks.


First set of charts show both Nasdaq and SP500 from IPM Turn Window (Top) to IPM Turn Window (Bottom). As you can see the market went net sideways. This market behavior conforms to the potential market trajectory presented in the IPM Decoder Library. According to the library, if the prior market rally is strong, it has a higher potential of undergoing sideways market correction (shown below).

After going sideways for 3-4 weeks, markets have started breaking out. A detailed Special Market report was sent to subscribers, which highlighted this potential, in early December. The report gave reasons why we are about to enter a new Bull market in Emerging Markets and why we could see a sharp rally.

Now as far as the question about potential sharp decline is concerned, I have answered it before in the following words:

“I believe that EEM's rally over the past week was the primary reason behind SP500 staying elevated. Emerging and European markets enabled the SP500 to correct by going sideways and to not decline sharply even with an optimistic sentiment.

At that time, a deeper pull-back was predicted because sentiment was not pessimistic. Typically, sentiment should be pessimistic at market bottoms. However, due to new Bull market rally in the global indices, U.S. indices stayed elevated. At the same time, Fiscal Cliff scare also pushed investors away from taking on big bets in the market., which allowed the market to move sideways and then breakout without experiencing a sharp decline.

As of now, the market is accelerating its uptrend. This is a classic Bull Market case because many investors are selling assets to reduce Fiscal Cliff Tax impact, however by doing so they might miss this sharp rally. 

Elliott Wave Interpretations:
Based on my 4+ years of market analysis experience in Elliott Waves, technical analysis, trend trading, and stock market modeling, I have come to realize that no market analysis technique provides analyst with the Holy Grail. Instead one should analyze the market holistically, define risk and undertake high probability trades. Elliott Waves are great at doing these three tasks. They are a good measure of probabilistic market analysis and tell us where to place stops in case our hypothesis is wrong. Therefore, E/W analysis should be used in conjunction with Trend, Sentiment, Technical Indicators, Leading Indicators and IPM Model.

IPM Model highlights the high probability trend change areas. This information enables the investor to position for an upcoming market shift. There are many ways to incorporate IPM data in one's trading. For example:

  1. Some readers went long near 1340. They stayed long throughout this correction, as they knew that we are in an uptrend and knew the next IPM Turn Window date.
  2. One could also have exited his/her long positions near the IPM Top date, stayed in cash for 3-weeks and then re-entered long near the IPM Bottom date in tranches to mitigate risk.
  3. Another approach is to wait for a trigger (technical/fundamental) to justify that the IPM Turn has taken place, and then go long. In this case, IPM data provides the reader with an area to look for.

In the next post, we will analyze the current Elliott Wave market structure, and its implication for the broader market. 

For IPM Model Subscription, please fill out the following form, and find out when is the market supposed to bottom in December:

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