Stock Market Analysis - January 30, 2011

Stock Market Analysis

Based on current sentiment readings, historical perspective, indicator's analysis and Elliott Wave structure, it seems like market can still continue higher for the next couple of weeks. This observation is in agreement with the new inflection point model. Market Matrix is given below. 


Note: Can Egypt take the entire market down? Or was this the washout which would give way to further rally? I will discuss detailed market conclusions on Tuesday - next week.  

Stock Market Analysis - January 23, 2011

Recap

Last week, I stated that the analysis is suggesting that the market is tiring but it might continue to rise at a slow pace. This is pretty much what has happened. Market continued to move sideways during the last week. 

Stock Market Analysis

Based on current sentiment readings, historical perspective, indicator's analysis and Elliott Wave structure, it seems like market can still continue higher for the next few weeks, albeit at a slow pace. This observation is in agreement with the new inflection point model. Detailed analysis is given below.

Running the government on 8¢

Running the government on 8¢

Stock Market Analysis - January 17, 2011

Recap

Two weeks ago, I stated that the analysis is suggesting that the market might be getting ready for a rise into a top during the first week of January. Market made a high on January 6, 2011, within the pre-defined target, and then went sideways for 5 trading days before making a higher high. Last time, I also stated that there were several active fib relationships in 1280-1300 region. Interestingly, market is currently at 1293.

Stock Market Analysis

Based on current sentiment readings, historical perspective, indicator's analysis and Elliott Wave structure, it seems like market can continue higher for the next few weeks, albeit at a slow pace. This observation is in agreement with the new inflection point model. Detailed analysis is given below.

Inflection Point Modeling - Meaning, Strategy & Application

Last year, I stated that the inflection point models were suggesting a top around January 6, 2011 in the financial markets. Interestingly, SP500 registered its highest price for 2011 on January 6, 2011. It has been going sideways since then. 

In order to refine the model based on the most recent market data, I re-ran the two inflection point models. To my amazement, I came across two very interesting observations:

1- In the re-run, model 1 is still suggesting that a turn took place on January 6, 2011. However, model 2 is not showing any indication of a turn taking place around January 6, 2011. This inconsistent behavior can be a sign that the recent top was not a significant top i.e. we might not witness a serious decline. 

2- According to the re-run, next turn-date is predicted in mid February 2011. Interestingly, both models are in agreement regarding the next turn date. This date is also confirmed by several other market measures. Therefore, in February 2011 we might witness a more significant top than the top of January 2011. 

Real Estate - Already Topped? - Clear Risk Definition

Real Estate based Mortgage-backed securities were one of the primary causes behind the stock market turmoil of 2007-2009. Recently, I came across an article on CNBC "Mortgage-Backed Securities to Save Financials?" ( http://www.cnbc.com/id/40926897), suggesting that these Mortgage-Backed Securities are making a comeback and one should invest in them.


After reading the above mentioned article, I decided to analyze the Real Estate sector from academic, technical, fundamental and sentiment perspectives. The goal of this article is to decipher the overall state of the real estate market and to clearly define the risk in this sector. 

Mortgage-backed securities are essentially bundles of mortgage loans that are secured by the underlying properties. Such securities caused massive losses at major banks when the housing market crashed.

After extensively studying Mortgage-Backed Securities, it turns out that these securities provide a very clever way of freeing up capital for further real estate transactions. In other words, MBSs foster growth of the Real Estate and the Financial sector. However, introduction of leverage and greed in these MBSs during the Real Estate boom, amplified the inherent risk associated with these instruments. Consequently, after topping in early 2007 Real Estate market declined by 78% from top (2007) to bottom (2009), as measured by the Dow Jones Real Estate Index (a proxy of the US based Real Estate market).

Stock Market Analysis - January 02, 2011 - Happy New Year

Recap

Last month, I stated that the analysis is pointing towards a dull holiday trading. Since that time, the market (SP500) has only risen 25 points in low volume trading. This time-off from the stock market enabled me to concentrate on finals and observe Moharram. Now I am back, and hopefully will be posting regularly.  

Stock Market Analysis

Based on recent sentiment readings, historical perspective, indicator's analysis and Elliott Wave structure, it seems like market is getting ready for a near term upward thrust followed by a correction. This observation is in agreement with the new inflection point model that I worked on over the holidays. Detailed analysis is given below.

Market Matrix:

This Matrix gives a pictorial representation of the internal market strength, indicators and suggested turns. Based on the current picture, we have many neutral to bearish signal, as evident from Red and Yellow colors. These color codes are based on my historical analysis and market scores. This Matrix is used to come up with market related trading conclusions.

Conclusion

There are certain cycle tops in the first and second weeks of January 2011. The above analysis points out to a possibility that this market might be getting ready for a rise into a top during that time frame. Furthermore, corporate earnings will be released in the second week of January. Typically, if the market rises into the earnings season then it corrects during the earnings season. 

High Probability: Rise to a top in the 1280-1300 (SP500) area during the first or second week of January. This area has certain active Fibonacci ratios. This rise can result in a correction, correcting the rise from July 2010 and probably even more. Therefore, it can be a significant correction. 

Low Probability: Market continues to rise above 1330 level, with only a shallow decline.

Risk Management: First indication of trend reversal will be a break below 1243. Based on current optimistic extremes and wave structure, a break below 1175 will suggest deeper decline in stock market is possible.  

Future Topics:

1- An Interesting pattern in Nasdaq 100

2- Has Real Estate really bottomed or are we about to see a Double Dip?