Stock Market Analysis - April 18, 2011

"He who is deserted by friends and relatives will often find help and sympathy from strangers." - Hazrat Ali

Based on current sentiment readings, historical perspective, indicator's analysis and Elliott Wave structure, it seems that we are approaching an inflection point. Therefore, one should be ready to buy the market. This observation is in agreement with the Inflection Point Model. Market Matrix is given below. 

Conclusion

There are many green lights. With very good risk-reward ratio. It appears that we are nearing a bottom, within a primary uptrend. This bottom  will be confirmed by a break above 1320(closing). It is a good time to buy with cycles bottoming, technical improving, sentiment  neutral to pessimistic  and  waves complete.  We will wait until verification from the trading model before going long. If market closes below 1295 then market could see further selling.  

Various supporting wave structures will be discussed in next post, while the cycle turn dates have already been discussed in the last blog update. These supporting wave structures would include: Emerging Markets, Real Estate Index and SP500. 

One important development to keep in mind is that although we have not witnessed a sharp decline in the optimism towards the market by newsletter writers, geopolitical, political and economical events such as end of QE2, Lowering of US outlook by S&P, corporate earnings anxiety, Oil related stress and war in Libya, have induced enough confusion which can give way to a sustainable rally. 

Even with all of this analysis, one should always remember that only price pays. Therefore, one should always trade in the direction of the primary trend and have a comprehensive risk-management strategy. 

Thus, in terms of Risk-Management the market is currently buy-able as long as it does not close below 1295. Furthermore, uptrend will be re-confirmed on a close above 1321 (SP500).

Mid April 2011 Buy? - Inflection Point Model

In the name of God, who granted me insight, knowledge and wisdom to walk through the confusing financial markets. On March 5, 2011, it was stated that the inflection point models were suggesting a bottom in the financial markets around March 14, 2011 (+/- 4 days). Later, it was stated on March 21, 2011 that "With cycles bottoming, technicals improving, sentiment pessimistic and waves complete, the risk-reward ratio is very low. This suggests that we are witnessing a good buying opportunity." 

Interestingly, the market bottomed on March 16, 2011 at 1250 and immediately jumped to 1340 within next 14 trading days. Since then the market has chopped around without exceeding the February highs. Although I have been out of the market during this chop fest, I am keenly watching the unfolding socioeconomic situation, Elliott Wave pattern, sentiment gyrations and the Inflection Point Model. 

Model 1 and Model 2 first produced the mid April turn date on March 30, 2011 (http://understand-s-thrive.blogspot.com/2011/03/tentative-market-time-line.html). In order to further refine the projections, the two Inflection Point Models were re-run and following conclusions were achieved. 

 

Conclusions

Model 1 and model 2 are both suggesting that the next market turn date will be around April 18, 2011 (+/- 4 days). Therefore, we can have a turn window from April 13 to April 22. This means that it is possible that we might have already seen the bottom in the equity markets on April 14, 2011 @ 1302 (SP500). Furthermore, week of April 15 was the options expirations week and many times market turns during options expiration. 

I will further analyze the market from the following perspectives to better understand the future market trajectory:

1- Sentiment

2- Elliott Wave structure of Indices, US Dollar and Commodities 

3- Cycles 

4- Technical Indicators

These will be discussed in an upcoming Market Matrix post. In short, we might be nearing a significant bottom or might have already bottomed. Therefore, one should be vigilant for potential long opportunities. If market strongly rises above 1340, it would suggest that market has already bottomed.