Hypothetical Market Sketch

1- Market already topped.

2- Market falls into the next turn date and bottoms in the next few days.

3- Market rises for a few days to gather more optimism before topping out within the final 4 days of the next turn window. This top will be followed by a sharper decline. (High Probability)

Or

3- Market continues to rise past the recent high. This would mean that the market has begun a significant rally phase (Low Probability)

Please note that this is just a hypothetical scenario and it will be refined based on the real-time data.

In the next post, few refined IPM analysis concepts will be shared to evaluate the market reaction to future IPM turn dates. 

IPM Turn Window - January 24, 2012

As mentioned previously, market has continued to rise above 1285 level. However, the interesting thing is that we recently got a Vix based sell signal. Last time this signal was generated was in late April 2011 – days before the market topped at ~1370 (SP500). This observation takes on even more importance when viewed in context with the broader over-bought condition and the market optimism, prevalent across the board. This kind of sentiment backdrop does not result in sharp rallies; instead it is a harbinger of market declines.

This background brings us to the current IPM turn date. In the last post, it was mentioned that the next turn date was within 2 weeks. After re-running the model, following outcome was achieved.

According to this analysis there are two IPM turn dates in close proximity with each other. The first date is tomorrow (1/25/12). Interestingly, this date coincides with the Federal Reserves’ meeting. With the market approaching its 2011 highs (DJIA and Nasdaq 100), optimism being elevated and Vix sell signal, it will be very interesting to closely observe the market reaction to the upcoming turn date.

Furthermore, there is another turn window in the next few days. This means that we could be in for choppy market action. 

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

Happy New Year & IPM Turn date

In the last post, the following IPM chart was shown:

The market has risen into the above mentioned turn window. The turn window's last date was: 1/3/2012. So far market has peaked on this date. Therefore, markets should soon decline sharply.

At the same time, sentiment has become excessively bullish. This kind of behavior happens near the tops. 

Market's rise above Tuesday's high will invalidate the decline potential. Hence, one can define the risk of this trade with a stop above Tuesday's high. In other words: Short on a decline below 1268, with stop above 1285 (SP500).

P.S. I have been busy with another project, and that is why there have not been more frequent updates. 

End of Year Rally or Wash-out!!!

Although the UST proprietary market index is in a downtrend and in a pronounced bear market, major indices like SP500 and DJIA are holding up. However, the following chart shows the possibility of a series of 1s and 2s in the stock market. If this Elliott Wave analysis is true, we might be in for a sharp decline really soon.

On a larger scale, markets are tracing out a Head and Shoulder's pattern. This pattern would mean that we are about to embark on a sharp down move. This pattern will be confirmed of a decline below 1185 (SP500.

INFLECTION POINT MODEL:
The Inflection Point Model predicted that the markets could top on December 5, 2011. Dec 5 has so far turned out to be the top date for Nasdaq and Russell 2000, with DJIA and SP500 topping 2 days later. It seems like the next turn date is 2-3 weeks away (chart given below). Exact date has been calculated and will be sent to the subscribers. Please note that IPM showed a top when everyone was looking forward to the end of year, Santa Claus rally.

Lets see what the last two weeks of 2011 bring for the markets. Please note that according to our wave and time analysis, we are about to witness a sharp decline in to the end of the year. As always, this scenario is bounded with 1250 (SP500) level. A break above this level, will nullify the decline potential.

SHORT TRADE:
We will bring down the stops to 1230, once the market decline sharply.

Note: UST market update frequency will increase after December 21, 2011

Trading Algo - 12/12/11

Market: Bull (SP500) / Bear (New Index)	Defining Level: 1216 (SP500)
Trend: Up (SP500) / Down (New Index)	Defining Level: 1203 (SP500)
8/4 Trend Change Confirmation (Down to Up): Yes (SP500) – Trend Reversal Confirmed in New Proxy
Current Trade: Short from 1243 Profit Objective 1: 1205                                                 Trailing Stop (closing):  1250 Profit Objective 2: 1168                                                 EW Stop: 1250 Status:
Next Trade / Model Based Approach: N/A Stop:                                                                             Risk (%):  Risk Associated with trade:
Turn Window: November 29 (-2/+4 days) Market completes rally and tops	Scenarios 1-   Market bottoms in turn window 2-   Market tops in turn window 3-   Market double bottoms and breaks out 4-   Market double tops and breaks down
Observations:   IF the market continues its downtrend, we will soon see acceleration to downside. Another evidence of us being in a bear market is the fact, market failed to close above the 200 DMA on numerous occasions. Without going into details, it appears that the New Proxy index was once again accurate in predicting that we will stay in the bear market for a long period of time. All of this information was shared with subscribers. This kind of market behavior brings to light the need for patience and persistence, when analyzing the markets. UST Trading Algo pretty much stayed on the sidelines during the choppy month of November (we were short from 1240, but got out just before the big decline because of over analysis!!!), which in itself is a huge achievement.    A special Euro Update was mailed to Subscribers on Monday. Although this report was written before the EU summit, it predicted that Euro will decline sharply based on a 5 year long pattern. This week Euro came down from 1.337 to 1.299. If you want this special Euro analysis report, please send an e-mail to: subscription.ust@gmail.com

Over Analysis and Trading!!!

There has not been any updates because I did not want the market to whipsaw my thinking again. Over analysis is bad for trading. It deviates one from the major theme. Anyways, a detailed update will be sent tonight. 

Over the last several days, market has gone net sideways. Optimism has came back into the market as seen from from Investor Intelligence, Rydex, Vix and options data. Since we are now in an uptrend, shorting will be risky. As you know that the last IPM turn window expired on Monday, I was waiting for a decisive close above Monday's highs before saying that we will start going up. So far, many indices have topped on Monday!!! On the technical indicators side, the market rally has been very week. All of these developments, in conjunction with the fact that the market is testing its 200 DMA forced me to not confuse myself and the readers by over analysis. 

Therefore, we can say that as long as SP500 does not convincingly break above 200 DMA, one should not go long. If it breaks above 200 DMA, one will re-evaluate the wave pattern and time symmetry to identify potential trades.

Please note that the Euro has not risen as sharply as SP500. There is no guarantee of what kind of decision the EU leaders will take this week. But in the long term, Euro is tracing out a very large HS pattern. This pattern will be discussed in the upcoming blog post. If this pattern is completed i.e. Euro declines below 1315, then the target is in low 1.20s. If this happens, it will significantly affect the stock market. 

Note: Does it mean that the charts are showing us that we are on the verge of a collapse???

Anyways, right now might be a good time to short the market on a decline below yesterday's low and keep a stop above 200 DMA i.e. any where from 1270-1273 etc.

Note: Look at how the market collapsed this morning. Over analysis is not good.