Market is down on the heels of market beating results by JP Morgan, Google, and Wells Fargo. Please keep in mind that the IPM turn window expired yesterday. So it will be interesting to see if the market's two day sharp rally ended during the IPM turn window and now we are headed down for the next 2-3 weeks, as the next IPM window is far way.
Furthermore, we had a Weekly IPM turn window which indicates that there is a very high-probability that a market top has been put in place.
As mentioned before, 8/4 test will be our guideline for any trend change. So far, Russell 2000 and DJIA have completed the setup and re-test phase of the 8/4 test. If they can break below Tuesday's lows then the 8/4 test will be completed and the trend will be confirmed to the downside.
The following was written as part of the comments in the last post
In the short-term it would be interesting to see how the next few days turn out. In order for the market to continue its decline, we should first rally in the short-term. Since we are in the IPM turn window and earnings season has started, it would be appropriate to see the market rallying up till Thursday followed by another decline. This would be the most appropriate scenario because currently we are not seeing any real panic in this selling, as evident from put-call ratios. This suggests that there is more decline to come.
On the other hand, if the market bottoms within the next few days and rallies sharply, it might be starting the next rally leg. But this scenario would require the global equity index to rally also, which looks a lot lower probability.
Furthermore, we had a Weekly IPM turn window which indicates that there is a very high-probability that a market top has been put in place.
As mentioned before, 8/4 test will be our guideline for any trend change. So far, Russell 2000 and DJIA have completed the setup and re-test phase of the 8/4 test. If they can break below Tuesday's lows then the 8/4 test will be completed and the trend will be confirmed to the downside.
The following was written as part of the comments in the last post
Global Equity Index - Weekly
In the short-term it would be interesting to see how the next few days turn out. In order for the market to continue its decline, we should first rally in the short-term. Since we are in the IPM turn window and earnings season has started, it would be appropriate to see the market rallying up till Thursday followed by another decline. This would be the most appropriate scenario because currently we are not seeing any real panic in this selling, as evident from put-call ratios. This suggests that there is more decline to come.
On the other hand, if the market bottoms within the next few days and rallies sharply, it might be starting the next rally leg. But this scenario would require the global equity index to rally also, which looks a lot lower probability.
Great comments Naqvi. I already tool my money off the table. Can't wait for the next decline to do some buying. Is any one buying gold like GLD? Or bonds?
ReplyDeletethx
Over the past few weeks, I have been trying to implement a concept that I recently learnt in the Asset Allocations class to come up with a dynamic asset portfolio. The goal is two fold:
ReplyDelete1- Systematically determine the primary trend of a market be it Equities, Gold/Silver, Bonds. Please note that these three markets are primary stores of value.
2- Dynamically update portfolio allocation based on market conditions.
This solution will allow different allocations for bear/bull markets for all three asset classes. Furthermore, it will allow you to take gains from a well-performing position and distribute them to a not so well performing position - allowing you to build position for the next rally phase.
Although this is something is progress, I will start sharing the sample portfolio allocations on this blog after the semester is over. As far as current situation is concerned, Gold and Bonds are in a bull market. Therefore, one can buy them as far as the trend is up. If the stocks do tumble over the next few weeks, both gold and bonds will rally because they have completed a several month correction.