New Highs & New Wall of Worry

Most U.S. Markets have reached all-time highs, except for SP500, which will most likely surpass its highs in the near future. Although this is a monumental achievement for the U.S. markets as they overcame losses of the Great Recession, the response from market participants and investors has been lackluster. News coverage has been anemic, sentiment surveys are not euphoric and there is no trust in the market among blog writers. This kind of behavior not only highlights the strong wall of worry that is in place in the financial markets, it also suggests that we will be seeing higher highs in the U.S. indices in the coming weeks.

There are two things about markets that always fascinate me: 

1. Markets do what is least expected by the majority. 
2. No matter what one says about fundamentals being bad, markets are always right because price pays not the opinion.

Keeping these two important points in mind, through experience I have realized that there is no one good method of analyzing the markets. In some cases, one indicator will suggest that the market is about to peak out, but others will be painting a contrary picture. We can see a similar situation right now: Some sentiment indicators are euphoric but others are pessimistic. For example, when market reaches all-time new highs there is euphoria among the public, people talk about it at offices and small investors start piling in.

Previously there used to be celebrations on the NYSE trading floor when DJIA reached new all-time highs, but this year there were no celebrations. In 2000 and 2007 there were news vans outside of the NY Stock Exchange, but this time there were no news coverage from global media (as per Art Cashin). Previously, financial news media was calling for further gains and time to get back into the market after new highs, this time media is suggesting a more cautious and how to protect yourself. And finally, individual investors are now more pessimistic about the market than they were 500 point lower in DJIA.

Some reasons behind this abnormal behavior include:

1. Bad experience in the last 12 years with new market highs
2. Political uncertainty, upcoming budget issues and sequestration cuts
3. European problems

Although these are grave concerns, so far they have not kept the market from making a new all-time high. In fact, one can call them distractions until they really start mattering. In short, there is significant amount of pessimism in the market, which can help propel the market even higher. Some of the fundamental catalysts that can help in rising stock prices are:

1. FED's bank stress test results - March 7
2. ECB and BOE meeting – March 7
3. Jobs Report on Friday - March 8
4. FED FOMC meeting - March 20

Although fundamental events can hint towards potential market moving announcements, they cannot tell us whether the reaction will be positive or negative to the announcement. In this regard, the market's Elliott Wave structure shows the path of market's near term move. According to E/W structure, U.S. markets are in wave-5 of 3rd wave rise. This wave can last for another 1-2 weeks and could top near FED meeting. Detailed timing information has been e-mailed to subscribers via IPM Model update. As a result, the assumption is that fundamental news will result in positive market action. 

IPM Model picked the November bottom, December bottom, January top and February bottom. Next IPM Model update will be sent to subscribers on 3/15/2013. 

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