Tuesday, March 12, 2013

Market Thoughts - Rally Near Top

This post is in reply to the comments received on the blog over the past few days:

Market has been rising as expected over the last few weeks. DJIA has rose for 8 straight days. This not only shows the strength of this rally, but also highlights the fact that there were so many doubters of this rally when it started. 

However, we are now approaching a point where market is nearing a near term top. In fact yesterday, for the first time in 3 weeks, no one on the Fast Money half time report mentioned a correction. This can be a small contraion signal (Fast Money = Small Signals b/c fast traders). 

In Elliott Wave terms we are in process of forming minor wave 4 (chart will be posted over the weekend). This could result in another decline tomorrow. But once this decline is complete, we could rally for another 2-4 days. Along with EW count, there are few other reasons to support this assertion:

1- We have not received a Sell signal from our indicators
2- IPM Model is calling for a bottm at the next trun date, which would require market to top soon
3- Today's decline has again brought out a good number of bears, who are calling the top. I have made this kind of mistake in the past. Market rarely rewards traders who are early to the topping part in a Bull market.
4- Fed Meets next week

In any case, once we make a new high and possibly a new all time high in SP500 later this week or early next week, we will see a sharper decline. Which will again bring out the Bears.

This market has proven to me why Bull markets keep on rising: Even at new All Time Highs, people and analysts keep on calling for correction!! 

Although I am busy with some stuff till Friday, keep the conversation going and I will try to give my 2 cents.


  1. My comments are on the previous stream from March 7th's installment. Brad

  2. As mentioned in this post, we are now in the last rally loeg. This could lead SP500 to all time highs. Although SP500's All Time Highs will force a lot of investors to enter the market, as they will see divergences disappear, it would be the time to take a break from the market. Market can either go sideways or decline sharply to scare away weaker bulls.

    Once these new bulls are again out of the market and people start shorting the market, we should be ready to buy in at the next IPM Model turn date.

  3. Hi Naqvi, There lies the problem. I have three trades I can do a month. I got into the market late after the last IPM turn date in Feb and got in in March (March 2nd or 3rd). Thats one trade for the month. My second trade, following your plan (which I wish I could do without thinking about it), would be to get out of the market like you are suggesting. That would be two trades for March. Then the IPM turn date occurs and I can only trade equities to bonds for the third monthly trade, I can't allocate bonds back into equities (I know, it sucks). This means I can't go back into equities for my third trade after the IPM turn date in March. So with the upcoming IPM turn window coming, I have to make the decision to either stay in the market (ride it out) and use my second trade to dollar cost average down, or use the second trade now and lock in profits (but I'm only 30% in the market right now so I would lock in about 1.5% profits) and pray the market doesn't move up much or trades sideways until April 1st when I can re-enter the market (equities). But we all know that if the market has a sharp, meaningful decline (say 5%), markets tend do bounce back quickly and by the time April 1 comes and I can trade back into equities again, the market could have very easily bounced back about 2-3% and I'll be back at my original entry point back in March when I entered the market with the SP500 was ~1525ish. Thats the delemma I face. I understand, and I would LOVE to follow your advice if I had unlimited trades, I'd get out now, wait for the IPM to orrur, then get back in, but the trading rules of my retirement fund doesn't allow for that. Thats why I feel compelled to wait until be 3-5% sell off, then increase my equity holdings from 30% to about 60-70% - depending on the information given in the next IPM update. Pretty sucky 'eh? but this is what I'm faced with.

    Thanks for the suggestions, if you think the probability that the market will trade sideways after the decline long enough for me to get back in in April under my entry point in March, that would be great to know and I would get out now and wait it out as suggested, then get back in April one. But I believe the probability of the market going sideways after the IPM turn window is remote. I think the msrket will whipsaw back quickly. Thanks for the suggestions, but I wanted to explain why I'm doing what I'm doing. I wish I had unlimited trades because I would get out now, today, and wait for the buying opportunity with the IPM window! Thanks, Brad

  4. Thanks for the comment. As you might remember that in last IPM model update there were two dates close to each other. 2nd date was not calculated because it was out of model's time spectrum. Over the weekend, we will find out the new date. This will hopefully clarify the possible market trajectory for the next few weeks.


  5. That is very true, there is a second bottom that was out of the model's time frame. Thats why I'm not doing a thing until this weekend's IPM update. Hopefully that will provide some clarity on the direction I should take. Thanks for the comment and great blogging with you all. Brad

  6. I bought some 3x ETF to short the market on the way down on Wed. and then I bought more 3x ETF's to short again on Friday. I'm using 20% to do this. My stop is 1576.


I would love to hear from you! Please leave your comment below!!