Thursday, July 11, 2013

Market Analysis - Ben's Words & The Rally Top?

Ben Bernanke's words have stoked a very nice rally. Futures are up by more than 100 points. And the assumption is back that FED will keep on printing. Interesting thing to note about yesterday's press conference is that it came on the same day as the scheduled release of FED's meeting minutes. These minutes showed a divided FED over continued money printing operations. In hindsight, it seems like the Federal Reserves chairman was worried about market's reaction to FED's minutes, and therefore, he held a press conference to mollify the market impact.

So far it seems like he has been successful in keeping the markets afloat. But a very interesting Elliott Wave development has taken place as a result of this press conference and the subsequent rally in stock futures.

Following chart shows the Elliott Wave count of current wave 2 rally. Please note that longer term wave analysis was presented yesterday.

Above chart shows that current rally has taken a 3-wave form, which suggests that it has been a corrective wave. If one looks closely at the wave count, it becomes apparent that yesterday we needed one more spike to complete the last 5th wave. We got this spike from today's rally. So in essence, Elliott Wave form is complete as far as 2nd wave is concerned.

At the same time, we are in the price range where there are multiple price and fib relationships to provide stiff resistance. For example:
  1. Wave A of 2 = Wave C of 2 at 1666
  2. Wave 2 = 78.6% of 1 at 1657
  3. Last high = 1686
Therefore, if the market wants to top out, it should top out soon - below 1686. It is possible that today's gap open is sold and then the market starts its decline.

On the other hand, we have recently received optimistic sentiment readings which are suggesting that optimism is back and with a vengeance. Unlike 2nd half of July, when pessimism was prevalent, we are now near the other extreme. This kind of rapid increase in optimism is typically attributed to the end of Wave 2 rallies because the primary purpose of 2nd waves is to suck in remaining longs before market starts another decline phase. Hence, it will be interesting to analyze market's performance over the next few days, especially as we deal with the IPM Model Turn date.

Initial confirmation of the top will come on a break below 1650 on a closing basis.

Note: In the last update, it was mentioned that we will be writing about Gold. I will be outlining the multiple articles that I intend to write about Gold over the next few weeks. But the bottom line is that Gold seems to be at a major inflection point, and today's rally might be the first sign in this regard. The goal is to write 10-12 articles on Gold, analyzing Gold from fundamental, Elliott Wave, Sentiment and long-term technical perspectives. And then to issue a white paper on Gold as Gold might be the investment for the next several years.

Note: IPM Model has been a very informative tool for market timing. If interested in IPM Model Subscription, please fill out the form below. Model Performance

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