Wednesday, January 18, 2012

Market Readies Itself for a Rise

The market broke above the 1285 level (mentioned in last update) and has since risen higher. Today, the market closed above 1300 after 6 months. This is a huge achievement by the market in light of all the negative news coming out of Europe with multiple high-profile debt downgrades.

Negative news such as debt downgrades typically coincide with market bottoms because it brings out excessive pessimism, and pessimism leads to market bottoms. However, recently we are not seeing excessive pessimism. Instead, we are witnessing elevated optimism.

From a contrarian perspective, this kind of psychological behavior (optimism instead of pessimism) would mean that we are very close to a market top. But our research shows that optimism and pessimism can stay elevated for very long time. Therefore, one should understand the broader market trend and analyze it in the bigger context.

As for the broader context, US indices have completed the 8/4 test to the upside and are now in an uptrend. Recent sideways market action (Jan 3 to Jan 17) has laid the foundation for a sharp market rise. This would mean that the market is ready to rally.

Since the next Inflection Point Model turn date is scheduled for after 2 weeks, it is possible for the markets to keep rising for the next two weeks. In the next post, we will discuss the actual Inflection Point Model turn date and its implications in the light of market trend.

Stop: 1285 (SP500) closing

1 comment:

  1. Thanks. I missed the train when the S&P was 1190 2 months ago. Now, the S&P is 1315 and hoping we can still rally.


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