Thursday, July 12, 2012

Market Scenarios

"In the name of God, the most Gracious, most Merciful"

Since the last post at UST on July 5, 2012 suggesting that the market could have topped, market has persistently decline for the past 5 days. However, the pessimism is totally absent. Whereever one looks, from investment advisers to individual investors or from VIX to Put/Call ratios, there is no pessimism. Traders are trying to identify technical and fundamental reasons to be bullish, while forgetting that the market has declined for 5 straight days: There must be something that the market might be knowing in comparison to the traders.

In any case, lets analyze the market structure for better clarity. Following figures show both Bullish and Bearish cases interms of Elliott Wave structures:


There is significant optimism in the market right now. We have not seen any panic in the 5 day selling so far. This suggests that the market has not put in a bottom yet. Thus, sentiment is bearish for the Market.

Market Timing:
As per market timing, market needs to top in late July/ Early August (exact date of IPM will be calculated later). Since there are still almost 3 weeks till the top, if the market bottoms right now, it would have to rise for 3 weeks till the top date. A 3 week rise would be enough to make a new high above 1377 and possibly even exceed 1420. However, based on market structure SP500 should not rise above 1420. Therefore, an immediate bottom is a lower probability. 
          On the other hand, if the market bottoms early next week at much lower levels then it could rise for 1-2 weeks (reasonable duration) and still not exceed 1377 high. Therefore, per market timing model analysis, market needs lower prices over the next 3-4 sessions.

Technical Indicators:
At best indicators are neutral, there is no oversold condition right now. In fact, market needs to do a lot of work to get oversold. Therefore, there is no support from indicators indicating an immediate bottom.

Market leaders are neutral to negative. Therefore, we can expect lower prices.


Based on the market's internal readings, it seems like the market will continue its decline for the next few days. Next week could mark a short-term bottom, fueled by corporate earnings. However, in order to reach there we need further selling. If SP500 rises above 1360 then the Bearish case will be voided. Initial downside targets range from 1320 to 1290 (these will be narrowed down as we approach this area). However, the most likely scenario would be a decline below 1300 to hit a lot of stops and then start a sharp rally.
          Finally, the market is nicely complying with the UST "Road Map", which was sent to people who requested it (via e-mail). If someone wants it before next week (when it will be made public), e-mail at: 

You can also request a detailed Market Matrix document by e-mailing at the above e-mail address.

Question: Is the market going to sell-off on the heels of a job report? Based on the analysis yes. But it would be interesting to the mainstream media's reasoning for this decline!!

1 comment:

  1. Very interesting Naqvi, and coincides with the next Fed Meeting on August 1st. Take a look at the link:

    The Market Road Map, this current analysis, and the CNBC article explaining the SP500 and how it rises before Fed Meetings (and other factoids) all seem to be pointing at a potential market topping around August 1. Very interesting reading.

    Be careful out there, Brad


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