Tuesday, November 26, 2013

Happened As Predicted

Like predicted market rallied into low 1800s from 1778. Short-term market correction will be based on the IPM Model turn window, which has already been emailed to subscribers. Market would decline and go sideways till the net IPM Model turn window comes in December.

Detailed analysis will be published later on.

Wednesday, November 20, 2013

Fed Minutes on the Horizon

Divergences continue to roam the land. These are dangerous signs. I have been highlighting these for the past month or so. And now the Weekly IPM Model turn window will soon take effect. Therefore, we are entering troubling timing times.

The only things going for the market are seasonality, unfinished market structure and holidays sales. As for the IPM Model daily turn window, one should use it in conjunction with weekly IPM turn window. Please note that daily dates get skewed near weekly turn dates. In other words, we should develop a risk-management mechanism, keeping in mind that risk has increased.

As far as the market structure is concerned, yesterday's market action has clarified the wave count. We are currently in wave 4. This will be followed by another rally. Rally target will be in the low 1800s. This target will be achieved during the daily IPM Model turn window, and will be followed by another correction.

This scenario will be violated if the market declines below 1763, and risk will increase if the market declines below 1773. We will also get Fed's meeting minutes today. So this might be the catalyst, which pushes the market to new highs. We will see...

Tuesday, November 19, 2013

Market Overview and Elliott Wave Structure

Market declined yesterday, and the reason given by the mainstream media was one of the most absurd reasons I have heard in a long time. Headlines on CNBC suggested that market declined due to some remarks from Carl Icahn. This head line was not only unbelievable, it highlighted the fact that mainstream media really does not know what they are talking about.

My question is, if the markets are to react this much based on an investors comments, is there even any point in analyzing these markets any more? The answer that I have is that Carl Icahn's comments had nothing to do with yesterday's sell-off. His comments were used as a justification for the sell-off because media outlets did not have anything else to cover at that point in time.

As a result, I did an Elliott Wave analysis of the market to understand where we are, and where the market should be heading in the near future. Please keep in mind that IPM Model Top date is suggesting further rally.

Following chart shows SP500's near term wave structure. According to this wave count, yesterday's market decline was a sub-wave 2 decline. It will be followed by a sharp rally. The problem with the sharp rally scenario is extreme optimism in the market, as evident from low Put/Call ratios. In order for the sub-wave 2 scenario to take place, market must start rallying soon. If the market keeps on going sideways, market will be in wave 4, not wave 2.

Critical level for Wave 2 is 1773.
Critical Level for Wave 4 is 1762.

Another reason, why I am leaning towards the wave 2 scenario is because the rally from October low to October end high added more than 100 points. That was the 1st wave of one larger degree. IF we are in the 3rd wave of that degree, rally should be comparable to Wave 1. That leads to a target of 1840 in the market. 1840 target can be attained by the 1,2 - i, ii scenario.

SP500 futures are sporting a similar pattern. 

Only Russell 2000 future's pattern is slightly different i.e. we can count completed 5-wave sequence from the November 9 bottom.  This would mean that market might have a deeper correction and then rally. However, deeper correction should not very long in order for this rally to meet IPM Model top date.

In summary, markets are currently undergoing a classing Elliott Wave correction. 
  • If we are in 1-2, i-ii wave sequence (shown above), this correction should be short lived. 
  • If we are in wave 4 of 3, correction could last for few days. This is a less likely scenario because the October rally (wave 1) was a sharp and long rally. Wave 3's are comparable in length to wave 1 (can be a little shorter in length). 
  • Futures are supporting the same pattern, and are in line with the IPM Model turn date.
  • SP500 Critical levels: 1763 and 1773   
This analysis shows that market analysis is an art, and one should not believe on mainstream media's news reports to make investment decisions.

Note: IPM Model has been e-mailed to subscribers.

Monday, November 18, 2013

IPM Model Update E-mailed to Subscribers

According to IPM Model there is a very high potential that even with all of this bubble talk over the last few weeks, markets will continue to rally for another few weeks. Details timing information has been emailed to subscribers.

By the grace of God, the IPM Model has accurately predicted 95% of the major turns in the past year. Most recent example is at:

IPM Model Readings

Monday, November 11, 2013

In Remembrance of Imam Hussain (Son of Ali)

Understand, Survive and thrive will remain dark till Sunday, November 17, 2013 to commemorate the in-humane slaughter of Hussain in Iraq, 14 centuries ago. Thursday November 14 is the 10th of Moharram.

A Britain based report indicates that skies wept blood for Imam Hussain everywhere:

"685. In this year in Britain it rained blood, and milk and butter were turned into blood." (The Anglo-Saxon Chronicle, Translated, edited by G. N. Garmonsway, Professor of English, King's College - London)

The year 685 AD is the same year in which Imam Hussain was martyred.

Quotes about Imam Hussain by famous people:

Mahatma Gandhi: (Father of the Nation - India)
“I learnt from Hussain how to achieve victory while being oppressed.”
"My faith is that the progress of Islam does not depend on the use of sword by its believers, but the result of the supreme sacrifice of Hussain.”
“If India wants to be a successful country, it must follow in the footsteps of Imam Hussain (R.A)."
“If I had an army like the 72 soldiers of Hussain, I would have won freedom for India in 24 hours.”

Thomas Carlyle (Scottish historian and essayist)
“The best lesson which we get from the tragedy of Karbala is that Husain and his companions were rigid believers in God. They illustrated that the numerical superiority does not count when it comes to the truth and the falsehood. The victory of Husain, despite his minority, marvels me!”

Charles Dickens (English novelist)
“If Husain had fought to quench his worldly desires…then I do not understand why his sister, wife, and children accompanied him. It stands to reason therefore, that he sacrificed purely for Islam.”

Sir William Muir (Scottish orientalist)
“The tragedy of Karbala decided not only the fate of the Caliphate, but also of Mohammadan kingdoms long after the Caliphate had waned and is appeared.” (Annals of the Early Caliphate, London, 1883, p.441-442)

Antoine Bara (Lebanese writer)
“No battle in themodern and past history of mankind has earned more sympathy and admiration as well as provided more lessons than the martyrdomof Husayn in the battle of Karbala.” (Husayn in Christian Ideology)

Pandit Jawaharlal Nehru: India’s 1st Prime Minister
"Imam Hussain's sacrifice is for all groups and communities, an example of the path of rightousness."

Edward Gibbon (English historian and member of parliament)
"In a distant age and climate the tragic scene of the death of Hussain will awaken the sympathy of the coldest reader."
[The Decline and Fall of the Roman Empire, London, 1911, volume 5, pp391-2]

Rabindranath Tagore (Indian Nobel Prize in Literature 1913)
"In order to keep alive justice and truth, instead of an army or weapons, success can be achieved by sacrificing lives, exactly what Imam Hussain did."
“Imam Hussain (R.A) will warm the coldest heart.”

Dr. Rajendra Prasad (1st President of India)
"The sacrifice of Imam Hussain is not limited to one country, or nation, but it is the hereditary state of the brotherhood of all mankind."

Dr. Radha Krishnan (Ex President of India)
"Though Imam Hussain gave his life almost 1300 years ago, but his indestructible soul rules the hearts of people even today."

Swami Shankaracharya (Hindu Religious Priest)
"It is Hussain's sacrifice that has kept Islam alive or else in this world there would be no one left to take Islam's name."

Sarojini Naidu (Great India Poetess titled Nightingale of India)
"I congratulate Muslims that from among them, Hussain, a great human being was born, who is reverted and honored totally by all communities."

Market Overview and Future Direction

I would like to start by thanking God for the accuracy of the IPM Model because "Trying is Human, Result is God."

IPM Model doesn't seize to amaze us with its accuracy. Latest example in this regard was the latest stock market action, as witnessed over last 2 weeks. Without going into much details, the IPM Model not only predicted that a top would occur on 11/1/13, it also predicted the bottom scheduled for 11/11/13. (+/- 4 days)

The most amazing part of this prediction is not the accuracy, but how all the Market Matrix signals came together to generate a buy signal, right around the turn dates. For example, Elliott Wave structure was completed on 11/7/2013 to mark the end of market correction. This structural completion was accompanied by market buy signals. Since this happened in an uptrend, there was no reason to doubt the long-side. This took on even more importance because over the last week a lot of investors and traders started to leave the market because of extreme optimistic readings from newsletter writers.

Since this is not the first time the validity of the IPM Model has been confirmed by the market action, UST team will be publishing 3 White papers to better understand the IPM Model and its history:

  1. Stock Market Timing and IPM Model
  2. IPM Model and Performance Overview
  3. IPM Market Trajectory Library and Trade Matrix

As for the boarder market, recent optimistic extreme does not bode well for the long-terms prospects of the overall stock market. In fact, it is quite possible that market might top-out during the upcoming weekly IPM Model turn date (date emailed to subscribers).

Following chart highlights the Elliott Wave structure of the global stock market index. According to this chart, there are still few rallies left in the market. The question again is: WHEN will it complete? And my guess is that it will be around the upcoming weekly/daily IPM model turn windows.

Recent Posts on the Market Action:

  1. Rally Continuation Target
  2. Elliott Wave Analysis
  3. Implication of Divergence on the Broader Market
  4. Market Topped as Expected. Now What?

Overall, market is getting stretched to the upside and danger signs are appearing:

  1. Extreme optimism
  2. Divergence between U.S. stock market and the housing/real estate sector
  3. Divergence with certain leading markets

We need to evaluate these signs on a regular basis to understand market risk. In the event, it might be pertinent to mention that UST predicted the start of a new bull run in the global stock market in November 2012. Since then we have seen 26% gain in a year and are still in a Bull market. That call was amde possible by a proprietary market analysis technique.

At Understand, Survive and Thrive, we are continuously trying to improve our market analysis techniques and develop new analytic strategies, which can provide edge to the readers. These strategies will be introduced in the near future.

Note: Critical level is Thursday's low!

Sunday, November 10, 2013

Rally Continuation Target

Given that the market holds above Thursday's lows, market can rise another 4-5% till next IPM Model Turn window.

Next IPM Model turn window will be e-mailed to subscribers next week. Please note that the IPM Model turn window resulted in very good trades over the last 2 weeks.

Friday, November 8, 2013

Elliott Wave Analysis

Market is ready to head-up. Elliott Wave analysis suggests that the market structure is leaning towards a bullish resolution, even with optimistic sentiment.

Market should hold above yesterday's low. Yesterday, NYMO buy signal was also issued.

We will continue to evaluate market pattern, and decide on sell time appropriately.

Wednesday, November 6, 2013

Implication of Divergence on the Broader Market

U.S. stock market has been performing very well for the past 4 years. In fact, this is one of the fastest/least loved Bull markets in the history of the U.S. indices. It is not loved because people continuously doubt it due to divergences that appear from one sector to the other sector. These divergences can through-off investors from looking at the primary trend. Thus, creating a wall-of-worry which bull market can climb. 

Some of the biggest examples of these divergences since 2009 include:
  • The divergence between unemployment rate and stock prices
  • The divergence between housing recovery and U.S stock market rally from 2009 to 2010. 
Therefore, divergence themselves are not a reason for concern, but are rather something to look at and keep in mind for clues about up-coming trend.

As far as the overall market is concerned, we have been hearing a lot of talks about another stock market bubble. This bubble is attributed to several high-flying tech names which are rallying like late 1990s. Twitter IPO is another much hyped entry into the stock market, which is increasing fears about the presence of a bubble. And the reason behind this bubble is linked to Fed's ultra-accommodating monetary policy.

Another sign of a potential tech bubble is that last year Harvard Business School's MBA class heavily favored to join start-ups in comparison to Wall Street. This highlights the extreme lure that these companies are carrying at this point in time. 

Although sharp rise in high-flying stocks is a source of concern especially at a time when economic mainstay industry like housing sector is diverging from the broader indices, it does not guarantee an immediate decline in the stock market. We might be right 2 years from now, but stock market investing requires accurate timing aspect, if one wants to make successful investments. Furthermore, bubbles typically do not pop when everyone is looking out for them. They pop when the majority embraces them. And according to a latest research, wealthiest Americans have not embraced the stock market bubble. In fact, they are still cash heavy in their portfolios.

In regards with market timing and next move, it appears that market has enough juice left even with all of the above concerns to make new highs. Seasonality is in favor of higher stock prices at least till next year. UST team has already published Weekly and Daily IPM Model turn dates for subscribers. These dates would be very interesting because it seems like the market is getting ready to rally into these turn dates. 

A rally into these turn dates would help further develop the case for market divergence. And by that time bubble discussion might subside giving way to mainstream acceptance of the high-flying tech stocks. At that point, it will time to become scared. 


Tuesday, November 5, 2013

Real Estate / Housing - Ominous Divergence!!

Housing industry is the mainstay of the U.S. economy. Without robust housing recovery it will be difficult to sustain a robust economic growth in the U.S. Housing industry fuels a lot of jobs and allows financials to rally. Financial stocks are heavily dependent on the housing sector because loans made out to home-buyers yield significant profits. Moreover, credit rotation in the U.S. economy is primarily governed by the housing and real estate sectors.

Therefore, whenever the housing and/or real estate sector starts to under perform, astute investors take notice. We are in one of these times, where housing and real estate ETFs like ITB and IYR are lagging the market. This can be a dangerous sign for the overall economy.

At Understand, Survive and Thrive, housing sector's warning signs were documented in great detail in August 2013. Following articles were published in this regard to warn about potential housing risk, and to not get overly bullish about investing in this sector:

  1. Is Housing About to Take a U-Turn: Road to Recovery to ...
  2. Housing Market - Near Term Picture
  3. Housing Market - Down Trend Resumption
  4. Real Estate Market - End of Recovery?
  5. 2009-2013: Real Estate and Housing Rally Analysis

Since then SP500 and DJIA managed to make new highs (as predicted by the daily IPM model in late August). But housing and real estate sectors have been diverging from the broader U.S. indices since May. This is a dangerous sign for the broader U.S. stock market.

Housing ETF - ITB 
Real Estate ETF - IYR

A similar divergence was seen before the 2007 stock market peak. At that time, housing sector started lagging the broader indices since early 2007. Finally this divergence caught up to the broader stock market, and SP500 / DJIA topped in October 2007. This top was followed by nearly 50% plunge in stock prices. Following charts show the divergence as seen in 2007.

There are several reasons why this divergence should be taken seriously:
  1. Housing sector is a very economically sensitive area. It foretells upcoming credit conditions, buying power of the consumers and consumer confidence in the economy. If it starts lagging behind, it typically means that the economic under-currents are not very strong i.e. consumer demand and buying power is waning. Since consumers derive U.S. economy, dwindling consumers is a bad omen for the overall economic growth
  2. Housing sector's growth trickles into numerous industries. And therefore, a slowing housing industry could be a bad sign for several peripheral industries.
One very interesting aspect of the 2013 ITB (Housing ETF) and IYR (Real Estate ETF) is that both of these sectors topped exactly during the weekly IPM Top date. This date was emailed to subscribers in May. Since topping in May, these sectors have only managed to make lower highs so far. Moreover, another weekly IPM Model Turn window is approaching (dates emailed to subscribers). So the big question is: Is this sector going to make a lower high during the upcoming Weekly IPM Turn window. A lower high in a turn window, typically foreshadows a Bear market!!

Although these divergences can resolve themselves with a sharp rally in the housing stocks, we need to keep these in mind till the time they are not resolved. However, trading decision should not be purely based on a potential divergences because a divergence does not typically materializes till the broader stock market index follows to the downside. Therefore, trading decision should be based on your own methodology, along with other indicators like IPM Model turn windows. In the next update, we will evaluate this divergence in relationship with the broader U.S. market to analyze the possibility of SP500 making a new high even with this ominous divergence. 

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Saturday, November 2, 2013

Market Topped as Expected. Now What?

So the market topped once again within the IPM Model turn window. Now the question is that whether this Top will be a temporary top, followed by another rally to new highs? Or will it be the start of a major correction?

As far as the current IPM model update is concerned, it was stated in the last post that there were two IPM model turn dates namely at 11/1/13 and 11/11/13 (+/- 4 days). 1st Turn window (11/1/2013 (+/- 4 days)) was scheduled to be a market top. And so far, it has turned out to be an accurate prediction.

Market action following current turn date will be governed by the market trajectory library. IPM Model's next turn date, after 11/11/13, is scheduled to be a market Top and is a significant turn date because it coincides with the Weekly IPM Model turn date (both of these dates will be emailed to subscribers). Therefore, it is likely that current correction will be short-lived and we will soon see new highs.

In other words, 11/11/13 turn date should mark a market bottom. Bottom picking will take place in conjunction with proprietary indicators.

At this point in time, I would like to mention that IPM model has accurately predicted multiple market turns for years now. In fact, IPM model is being used by Understand, Survive and Thrive for almost 3 years, and its accuracy in market timing can be regarded as second to none based on my personal experience of 5 years of trading the markets (since 2008). As a result, a white paper will be published on the effectiveness of the IPM Model over the coming week, and several trading models will be introduced based on the IPM model.

As you might already know, market analysis is a probabilistic art and requires persistence with edge. IPM model provides the type of edge that an investor needs in order to perform well in the markets. IPM model's prominence significantly increases as it has three feature, which other market timing models do not have:

  1. It provides investors with the exact date that a turn will happen
  2. It provides us the nature of the turn before hand (Top or Bottom), which allows an investor or trader to position their trades accordingly
  3. It tells the next IPM model turn date and nature. This would allow the market participant to understand the market trajectory over the next few weeks.

Understand, Survive and Thrive team has developed a market trajectory library to encompass all possible market trajectories between the two turn dates so that it is easier for subscribers to understand the up-coming market action. Furthermore, UST team has also developed a market trading matrix based on the IPM model turn dates. IPM trade matrix will be used to layout trade plan for November.