Thursday, October 3, 2013

Another Decline But Why Such Disorder??

So today markets declined yet again, it can be attributed to president's panic button or to relentless bickering in D.C. In any case, market was down sharply in the morning. Although it recouped some of the losses by the end of the day, it still ended sharply in red.

There are two interesting aspects of this decline:

1- Except for DJIA, there is no order in the decline.  Market is going up and down, with some indices near the highs while others near the bottom of the range. This kind of behavior is not consistent with a start of a strong down trend.

DJIA is showing a sharp decline since September 18 peak.

Russell 2000 is showing sideways market action since September 18.

SP500 is showing a sideways to down action since Sept 18 peak. 

Cumulatively there is nothing impulsive about these three markets and their declines, which suggests that we should consider this decline as a correction within a primary up-trend.

2- Over the last 2-3 days, we have seen panic coming back into the market. Sentiment surveys have started to show less optimism. Moreover, we have also received 2 buy signals from VIX and NYMO indicators. Therefore, this is suggesting that market correction is approaching an end.

Based on this analysis in conjunction with the IPM turn window, it is possible that market might be setting up for a stronger rally than what we had anticipated 1 week ago. If DJIA breaks below August lows then rally scenario will take a back seat. 

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