Markets Overview and Further Decline Possible

Yesterday's sideways action flows very nicely with the wave 4 argument. Wave 4s give way to wave 5. Therefore, we should expect another down draft in the very near future. Following chart shows the updated market structure.

In order for this structure to remain valid, market should stay below 1770. Once we break below recent lows and enter the 1730 area, we will near the end of Wave 3 of a higher degree. SP500 target levels is between 1722 and 1730.

This 5-wave completion could have two possibilities:

1. Immediate sharp rally
2. Immediate rally but more of a sideways market action, followed by another low

• Scenario 1 would mean that markets will likely rally to new all-time highs.
• Scenario 2 would mean that markets have entered a downtrend and one should be careful of rallies. 

From a Market Matrix perspective, it seems like market wants to decline to lower levels and this decline is not over yet. Sentiment is also not showing pessimistic extremes. Above all, one should wait for the IPM Turn Window to pick the bottom. Therefore, we will keep on analyzing the market for further clues and see how things evolve. This analysis will help us in next IPM Trade Matrix trade.

Please note that latest IPM Trade Matrix trades have been updated on the blog at: 

IPM Trade Matrix - Trade 4 (Part 3)

IPM Trade Matrix - Trade 4 (Part 3)

IPM Trade Matrix Trades

TRADE - 1: (Long) = +2.6%

TRADE - 2: (Short) = +9.3%

TRADE - 3: (Long) - Non IPM Trade Matrix trade = -0.2%

TRADE - 4: Short - Still holding short since 1/31/14
Long TZA (short ETF) at 18.23 ==> 18.57 (shorts added) 
Short positions were added on 1/31/14, 2/3/14 and 2/4/14 based on Elliott Wave structure and break below critical levels. 

TRADE CONDITIONS
Condition: Outside IPM Turn Window (Re-entry)
Trigger: Test of ~1785 (SP500) and decline below 1769 (SP500). Decline trigger was based on EW analysis and other proprietary levels. 
Supporting Indicators:  Initial decline was impulsive (5-wave). Next IPM window is a Bottom and is 1-2 weeks away. Details of IPM turn window e-mailed to subscribers. 

PROFIT TARGETS
Profit Target 1: 1725 - 1730
Profit Target 2: 1670 

RISK
Stop: Above 1770
Trailing Stops: 1770 - Based on Elliott Wave analysis (will be updated on a regular basis)
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: 0% (Entry = 1785, Exit = 1770, Risk = No Risk)
Risk Reason: No significant risk because upcoming turn date is a bottom.

Applicable Rule: Do not go long or short without trigger to prevent losses by market moving against you.  

Note: IPM Trade Matrix Trades will be posted in the first half of 2014. This is an experiment to understand and enhance the capabilities of this Matrix.

IPM Trade Matrix - Trade 2 (Part 3)

Market Overview

Recent market action has not only validated the accuracy of the Inflection Point Model (by the grace of God), it is also supporting the argument that the IPM Trade Matrix is a robust trading mechanism because it can adapt to different market conditions in advance (like it did recently). The goal of IPM Trade Matrix is to make trading a system with out emotions and generate consistent results. Consistency is the key to success in the world of investing.

By every passing day, market action gives the feeling that this correction could be a start of something big. Market has initiated the 8/4 Test. First step is almost complete with the test of 1770 level. Now the second step would be the Test. If the test fails and market break below critical levels, we will enter a downtrend. By the ways things are going right now, we might enter a downtrend in February. 

If market does enter the downtrend, we would have to switch to the Downtrend section in the IPM Trade Matrix. This would mean that we will enter one more trade by the next IPM Bottom window.  

For the time being, market's structure is nearing completion before rallying for few days. Near term structure looks very impulsive. Whereas, in SP500 it is missing only one more down move before the rally can start, wave structure looks complete for Nasdaq and Russell. 

It is possible that the rally might start on the Fed's news and might till the end of January. We will continuously evaluate the market structure to identify critical levels for counter-trend rally completion. But if January ends negative, there is a very high probability that it will be bad for the entire year. 

Trade 2 Complete 

TRADE - 1: Summary of Trade 1 (Long) = +2.6%

TRADE - 2: Summary of Trade 2 (Short) = +9.3%
Long TZA (short ETF) at 16.85 ==> Exit at 18.41 ==> +9.3%
Short positions were added on 1/23/14 and 1/24/14 based on IPM Top window expiration and subsequent break below critical level (Trade 1 - risk realized)

TRADE CONDITIONS
Condition: High within IPM turn window - Top. Next IPM window is a Bottom and is 3+ weeks away.  
Trigger: Decline below 1835 (SP500), below 16400 (DJIA) and below 2473 (Global Dow)
Supporting Indicators: Lack of proprietary momentum thrust in upwards direction, Influence of weekly IPM and High within IPM turn window
PROFIT TARGETS
Profit Target 1: 1770
Profit Target 2: 1724

Note: Exited all positions at Profit Target 1 because of Rule # 3: Exit all shorts at Target 1 if decline continuation signal is not present from proprietary momentum indicator and buy signals generated by key indicators. Moreover, Elliott Wave count is close to near-term completion. Re-evaluate situation in next 2-3 days to be ready for another short entry. 
RISK
Stop: Rally above SP500 = 1849, DJIA = 16498, Comp = 4246, Rut = 1181 (3 of 4)
Trailing Stops: SP500 = 1836, DJIA = 16310, GDOW = 2470 (Trailing stops will be updated next week - 1/31/14) 
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: N/A 
Risk Reason: No significant risk because upcoming turn date is a bottom.

Applicable Rule: If short with last IPM ~2 weeks ago & next IPM a bottom, review proprietary momentum indicator (combination of 5 indicators). If momentum = 1, stay till Profit 2, else exit all at profit 1 and re-enter later. 

Note: IPM Trade Matrix Trades will be posted in the first half of 2014. This is an experiment to understand and enhance the capabilities of this Matrix.