Tuesday, December 18, 2012

Market Strength & IPM Model

Thank You!
First of all, I would like to thank God who helped me through the last two years of market analysis and Graduate School. Then I would like to thank all my readers and family members who encouraged me to continue writing while going to Graduate School. Yesterday, I finished my M.S. in Financial Engineering/Engineering Management Systems. I hope that from now on I will be able to fully concentrate on the blog, and bring to you very original market analysis.

One very interesting aspect of current market is that it held up in the face of looming 'Fiscal Cliff' uncertainty. If you know that an agreement is hard to reach, which will result in tax increases, will you not sell your assets to incur lower taxes? This is a logical conclusion for anyone who wants to play safe. at the same time, a lot of investors are also hesitant to put new money to work in an uncertain environment. Therefore, most investors would prefer to stay out of this uncertain environment and keep cash in bank. 

Under such circumstance and taking the contrarion perspective i.e. if everyone is happy to hold cash vs stock significant stock market decline seems very unlikely. 

With Global Stock Market Index and Emerging Markets entering new bull markets, we are in the phase of fastest returns. Uncertainty during this rally phase can prevent new investors from joining the party, while markets generate handsome returns. Moreover, IPM Model turn date is also signalling a bottom (exact dates were e-mailed to subscribers 1.5 weeks ago). This turn date gives credence to the argument that the intermediate term sideways market correction, which started on November 27, 2012, has ended. 

On Nov 27, it was stated that the market has topped for the near term and should bottom during the next turn window. It was also stated that this correction should be sideways in nature, as per IPM Decoder Library

Nov 27
IPM Top Window
Dec XX
IPM Bottom Window
Delta (%)

In other words, market did exactly what was predicted (Thanks to God). In the next post, we will show some charts to further highlight this observation, and analyze the market in relationship with Euro. 

To summarize, it is apparent through the market action over the last few weeks that emerging markets are zooming highers. Europe is setting up for a nice break-out. U.S. indices have completed a 4 week correction, and can rally at any time (markets might have already bottomed on Friday). Fiscal Cliff is keeping investors on the edge, which might turn out to be good for the markets, as many investors might miss the initial rally phase and then start chasing the market to even higher levels.

As far as the sentiment is considered, there is optimism in the market surveys. But a hall mark of strong rally is persistent market rise in the face of elevated optimism. If we are in a real Bull market (which I think we are in), optimism will not impact the rally until unless it becomes very lopsided.

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


  1. Firstly congratulations on completing your education. That being said, your opinion and consensus on 11/29/2012 blog reflect a completely different outlook than what you're stating today. Quoting your 11/29/2012 blog as follows:

    "Market has been rising since Nov 16 bottom, into the Current Turn Window
    Current Turn window is supposed to be a Top
    Next Turn window is supposed to be a Bottom
    Options: Either market rises now for another week and then declines into the turn window. Or the market immediately starts to decline sharply into the next Turn Window."

    I'm not pointing this out to be rude or confrontational, I just thing it brings the IPM model that you employ into question. What you had said on 11/29 was essentially that the market was going to decline and the only question was, how severe the decline would be. The only question was whether it was immediate or in a weeks time, as reflected by a portion of your statement above, where you state the following:

    "Either market rises now for another week and then declines into the turn window. Or the market immediately starts to decline sharply into the next."

    So the problem I'm having is that we know now that the market never did decline after 11/29 and has been up-trending sine the low on 11/16/2012. Maybe I'm missing something here, as I have no knowledge of this IPM method and it's parameters. If so, please give me a brief synopsis on said method. Thanks and again congrats on the graduation.

  2. I agree with the reader on his comments. Naqvi u are now 0 for 3 on steep market declines. U mentioned for weeks of steep decline. Only recently changing opinion due to huge market upswiing.

  3. Dear readers lets dissect the statement quoted above from Nov 29:

    Market has been rising since Nov 16 bottom, into the Current Turn Window ==> TRUE
    Current Turn window is supposed to be a Top ==> TRUE (market went sideways and did not continue its rise i.e. market rose from 1340 to 1410 in 7 days, and went from 1410 to 1411 for next 4 weeks. Do we call that a top or bottom? I think it was a top, which was followed by 4 weeks of consolidation)
    Next Turn window is supposed to be a Bottom ==> TRUE (Bottom can occur after a sharp decline or after sideways correction is complete)
    1- Either market rises now for another week and then declines into the turn window. ==> Did happen as market rose from 1410 to 1440 over the next 2 weeks, just to come back to test the top level. A classic example of sideways correction.
    2- Market immediately starts to decline sharply into the next Turn Window ==> Did not happen. At that point it time, EW analysis and Sentiment suggested for a sharper decline but due to reasons explained in the special report sent to subscribers i.e. big Bull market, market went sideways to complete the correction.

    Market analysis is probabilistic. IPM model allows up to stay aligned with potential turn dates. How we reach the turn date, depends on the nature of prior market action.

    I hope it helps.

  4. Naqvi, Congratulations on your educational accomplishments. The bases of my concern is that the market didn't pull back as far as intended, but no one thought the thanksgiving week rally would rip the face off the market either. I think we all throught that the market would decline to ~1400ish or lower and it didn't. You are correct, and folks must realize that charting is not an exact science and that charting and IPM are probalistic and intended to give traders an advantage instead of just "guessing" at the market, even though that is what happens sometimes anyways.

    That being said, I'm under the impression that this is still a good entry point for the SP500 for the long term (long term being a few weeks and maybe deep into January) by your comments. Am I reading this correctly? Thanks and be careful out there. Brad

  5. I agree with you Brad a 100%. I anticipated a deeper pullback based on the sentiment and the deeper pull back had the greater probability of materializing. But market showed a lot more resilience and this is due to the rally in emerging markets. Although playing the markets is never out of risk, but current market conditions suggest that market will remain in an up trend For the near future. Appropriate strategy would be to define risk, enter in under valued names or areas which are starting a new uptrend.


  6. Hey Naqvi, just stopped by to see your reply. My input earlier was purely to gain some understanding as to your particular method and what the parameters and accuracy of this IPM method were. Personally, I am a proprietary trader and I employ primarily Fibs, and use support/resistance gaps, higher highs, lower lows, tops, bottoms, etc. to confirm or not. I'm not sure you're aware, but whether you employ Fibs or not you should now that they are in a good portion of the Algos that are trading 70% of daily volume. Even if there was no substance to the Fibonacci percentage sequences, at a bare minimum, they become a self full-filling prophecy because they are used in the majority of thee black boxes. Just wanted to give you a heads up and good luck with your endeavors.

  7. Hi anonymous. I do agree with you regarding the use of fibs. There are 2 reasons for this:

    1- computers are programmed by humans and humans tend to think alike. Therefore, use of fibs kind of becomes a self fulfilling prophecy I.e. Everyone acts at the same setup.

    2- fib numbers really mean something to the inherent market nature. We know that fibs do appear regularly in the universe, so it is possible that fibs do play an active role in the markets. Fibs when combined with Elliott wave analysis can indicate good entry/exit points. I use them often to analyze the markets.

    IN the near future,I will share my thinking methodology. However, the goal of this blog is to provide information to the reader so that he/she can make an informed trading decision.



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