Tuesday, December 11, 2012

New Emerging Markets' Bull !!

today market rallied above 13250, suggesting that the deep retracement scenario is now out of question. The primary reason behind 13250 level was that according to the Elliott Wave guideline 3rd wave cannot be the shortest wave in a 5-wave pattern. By rising above 13250, 3rd wave became the shortest wave. Since this is not possible, it means that some other pattern is being carved out.

Over the years, I have learnt that Elliott Waves are dynamic and evolve over time. Therefore, one should be flexible and look for other market clues to narrow down the wave pattern. That is exactly what was being done at this blog i.e. look for clues in the sentiment, IPM data (Market Matrix) to identify the degree of the market turn.

When we combined the Elliott Wave analysis with Sentiment data, it was obvious that market needed another decline to bring back pessimism. Generally, markets bottom when pessimism is pervasive. Although the sentiment measures were very negative at Nov 16 bottom, they were not negative enough to suggest a big bottom was at hand in the U.S. markets. But when we compare U.S. markets with global markets, it was obvious that contrary to the American markets, the Global Stock Market index and Emerging Markets were about to break out of a 1.6+ year bear market.

Over the past year and a half, negative news related to Europe and China had really disturbed global investors. This kind of pessimism fueled the market to break above the critical resistance average (shown below). A comprehensive market analysis for the long-term market trend was sent to UST subscribers on Dec 4, 2012.

Predicted                                                                                 Actual

Above charts show the comparison between Emerging Markets ETF (EEM) before and after the report was sent to subscribers.

As can be seen, market has just broken above the resistance line, which has acted as support and resistance for several years. This break means that Emerging Markets are now entering a new Bull Phase. In the beginning of a Bull Market, markets rally sharply even with extreme sentiment i.e. indicators can become even more overbought. Moreover, 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.

In the event, IPM Model is still scheduled to signal a bottom over the next 2 weeks. Based on the latest market development and as mentioned in the IPM Decoder Library, it is highly likely that we will see a higher low. This higher low should not break below 1400 (SP500). Therefore, 1400 can now act as a stop area.

Next few weeks will be interesting. Fed will be announcing its policy tomorrow, which might correspond to a short-term top. Investors will be selling their positions to book profits before the fiscal cliff takes place. We will also be looking towards the fiscal cliff resolution. From a contrarion perspective, a  failure in fiscal cliff discussion should be followed by a sharp 2-day decline in the markets. This decline would mark the bottom, as main-stream media starts to talk about the negative repercussions.

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


  1. Thanks Naqvi, I changed strategy from waiting for US markets to going into an overseas fund I have access to. It has been productive over the last year and with this emerging market bullish breakout, probably a better place to put my money for the time being. The fund replicates the EFA ticker symbol or iShares MSCI EAFE Index Fund (ETF). Be careful out there.... Brad

  2. I am about to do the same. Waiting on a market pullback is hurting...Starting to hurt bad.

  3. Please see my blog :

  4. I am busy with finals this week. Next update will be posted on Sunday night or Monday. FYI: market is coming close to a buy point.



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