Thursday 19 January 2012

A Bend In The Road?

The last two days were really hectic with no internet connection and fifteen hour flight etc. As such I could not post anything and my apologies for the absence.

In the mean time, the stock market in USA has been a one way street. It has so far defied all logic and divergences. It has gone from extreme to further extreme. But such extremes are not backed by any fundamentals. We all know that seasonality pushes the stock prices higher at this time of the year but usually there is a correction during mid-January which has not happened yet.

I was looking for SPX 1300+ during the 1st week of January but it did not come then. I was also expecting a mild correction and continuation of the rally in the 1st week of February. So far the correction has been elusive. The problem with such situation is that without a correction not much upside can be expected in February.

I wanted to check if my models are totally wrong or are they just ahead of time. (Just like Prechter!) One of the best ways to check is to find out what other Gurus are saying. These are the people who have track record little better than Prechter and while nobody is correct all the time, it is better when success rates are higher than failure rate.

So I first turned to Charles Nenner. According to Mr. Nenner the short term upside price target for Emini is 1312. And today ES reached a high of 1311.5. We will see if Mr. Nenner is right this time.

Next I turned to Tom Demark. He gave an interview in Bloomberg on December 22nd. You can view it here; . His upside price projection for SPX is 1313-1340.But he also expected to reach this target by the 1st week of January. One interesting point made by him is if SPX takes out the high of October 27, then it will create three successive high and that will be the top. We have now satisfied his two conditions for a top. We have reached the upside price target and SPX has created three successive highs as seen in the following chart.
Another person who makes a very good use of analog is Eric Swarts. The following chart is from him.
According to his analogy, the top was in today with pull back imminent before a final push in February. That fits well with my original model.

I also wanted to see what FX is doing. AUD has been my favourite indicator for SPX with a very high (almost 99% in 2012) correlation.
From the daily bar it seems that an AUD/USD top is either in place today or will be with one more try. It is at the falling resistance level and at the top of the triangle.
On the other hand USD has been falling from the start of the year and has now created an inverse HS pattern. The DJ-USD index support is at 9900 level and it seems that support is going to hold. While I do not expect DJ-USD index to run away over 10200 levels immediately, I think it will test the neck line as early as next week.

Bottom line, I am continuing with my short position. There are times when the model gets extended and I think now is one of those times. So instead of looking for the bottom by 20th January, I will now look for a short term bottom by around 24th – 26th January and then go for final pop in a long while by the 1st week of February.

Thank you for your encouraging comments and emails and for visiting .Please join me in Twitter (@BBFinanceblog) to get an unbiased market analysis filtered of noise. Share it/ forward it/ retweet it to your friends and circle. We will see how the market goes in the next few days but we will prevail. For now let me catch up with some sleep.


  1. Glad to have you back. As always, your analysis is much appreciated.

    - Mike P.

  2. It's probably near at least a short term top because my friends called me and said I need to start buying before I get LEFT BELOW. For the record, I have been sitting with my ass on my hands with a 38.5% long portfolio since before New Years.

  3. Welcome Back, I have missed your post. I look forward to your view of the market. I too have been holding short. Waiting on that pull back to go long. Every time think that a pull back is coming it has continued to go higher. Maybe tomorrow we will get our wish. Thanks for your expertise and your postings.

  4. So glad you are back in cyberworld. I have missed your posts. I am very new to all of this, but I have a small abc correction 1291-1303-1277 over the next week and then a push up in early Feb to 1340-1360. I too have held my (too early) shorts, and will hope that the correction comes tomorrow!

  5. Have a good rest for it deserved after such grueling traveling. I am still holding my position with Canadian Etf Hxd a bit under water .30 cent per shares since inception. But will prevail and will be vindicated in time. A note was in Nashville couple weeks ago and the only tourist down there filling up business where diamond people. At 3 of the night show we attended there were about a dozen people of our group age in the mid fifties. These diamond people were attending the show but were careful with their expenses. What will happen in few years to all business once their saving are exhausted because of the insane zero interest policy maintained by chairman Ben the Helicopter which should be ban for ever.

    One has said that to be on the ground and see with your own eyes that all is not well in the great U.S.A the country is sick and only Cnbs is not seeing it.mthank for your great post Jean a fellow Canadian

  6. thanks for all that explanation....really helps in learning..

  7. I enjoyed your post, TexEx.

  8. KID dynamite bashes ZEROHEDGE...slowly zh is getting exposed ...

  9. Hi, forgive me if you have already answered this in previous postings, but do you have a long-term view of the market?

    For example, do you see S&P at around 500 (or lower) within the next few years, and if so, do you have an estimate of when that will happen?

    Many thanks.

  10. Mark,
    I will post a note by the weekend.

  11. Much appreciated.

    The reason I ask is that I have all of my assets in cash (savings accounts earning around 4% p.a) but I want to get back in to the stock market for the long-term. I know the market is very volatile right now but I'm no trader (nor do I want to be!).

    I firmly believe we will have a very severe downturn by 2015-2016 at the latest (my guess is 2014) but wanted to know your thoughts. I don't want to get back in until we have had some kind of 'reset'. I appreciate it's almost impossible to know when this will happen, but I'm 100% convinced that it will.