Friday, March 11, 2005
Market might remain rangebound
Intermediate term indicators are heading down again, suggesting that more downside/consolidation lies ahead of us. My personal take is that the market might remain rangebound for the next couple of weeks. In particular, the S&P might get pinned to the 1200 strike in options expiration week (next week).
The NASDAQ is heading towards an oversold condition faster than the S&P, both on a short-term as well as intermediate-term basis.
If a shakeout occurs now, one that is sufficient to drive the intermediate term indicators to oversold, that would lead to a more tradable rally. In which case, we might expect the NASDAQ to start outperforming the S&P. The good thing is that the recent upswing to S&P 1225 that subsequently failed never really took the market to overtly overbought levels. Hence a decline that shakes out the weak holders and moves folks to the bear camp now would actually be a welcome development.
The NASDAQ is heading towards an oversold condition faster than the S&P, both on a short-term as well as intermediate-term basis.
If a shakeout occurs now, one that is sufficient to drive the intermediate term indicators to oversold, that would lead to a more tradable rally. In which case, we might expect the NASDAQ to start outperforming the S&P. The good thing is that the recent upswing to S&P 1225 that subsequently failed never really took the market to overtly overbought levels. Hence a decline that shakes out the weak holders and moves folks to the bear camp now would actually be a welcome development.
Tuesday, March 08, 2005
S&P 1250 within striking distance
Some time ago I laid out my Big Picture Expectations for the S&P to be magnetized to the 1250/60 region. I based this on the resonant frequencies of the Square-of-Nine chart, and that the first downturn of the S&P weekly chart after the Oct26 2004 up pivot marked the mid-point of the current advance, which indicated an eventual target of S&P 1250/60. However I did not expect this to unfold after such a long time (few months), and after such unprecedented volatility.
I thought my Big Picture was about to be destroyed when the S&P executed a near-waterfall decline in Jan 05, and every intermediate term indicator I tracked embarked on a solid downtrend. But I also stated back in late 2004 that as long as the S&P defended the 1160/65 zone, the Big Picture could still have a chance of playing out. Now the S&P has capitalized on this setup and is within striking distance of the profit zone.
A successful capture of 1250/60 might even protend a bigger move ahead. It is entirely possible that 2005 might yet mark another good year for stocks, with S&P capturing upside targets of 1350, then 1400. The weekly, monthly as well as quarterly swing chart tells us that such a scenario is althogether possible, and has valid technical underpinnings based on large scale inverse H&S patterns. the impressive Aug 2004 reversal pivot, and the stunning Oct 2004 breakout that has so far held.
The conflux of time suggests that March might see an important inflection point. An inflection point can be a reversal or an acceleration. If an acceleration begins in the March timeframe, we could well see new multi-year highs in major equity indices being attained. On the other hand, if March represents a reversal, then we can see a very meaningful correction, especially if the S&P hits 1250/60 in March.
Intermediate term indicators still look very patchy and sentiment is not where I would like it to be for a meaningful rally to occur. We will be overbought by Wednesday. If by Wed we hit S&P 1250, it would be a very nice place to go short.
I thought my Big Picture was about to be destroyed when the S&P executed a near-waterfall decline in Jan 05, and every intermediate term indicator I tracked embarked on a solid downtrend. But I also stated back in late 2004 that as long as the S&P defended the 1160/65 zone, the Big Picture could still have a chance of playing out. Now the S&P has capitalized on this setup and is within striking distance of the profit zone.
A successful capture of 1250/60 might even protend a bigger move ahead. It is entirely possible that 2005 might yet mark another good year for stocks, with S&P capturing upside targets of 1350, then 1400. The weekly, monthly as well as quarterly swing chart tells us that such a scenario is althogether possible, and has valid technical underpinnings based on large scale inverse H&S patterns. the impressive Aug 2004 reversal pivot, and the stunning Oct 2004 breakout that has so far held.
The conflux of time suggests that March might see an important inflection point. An inflection point can be a reversal or an acceleration. If an acceleration begins in the March timeframe, we could well see new multi-year highs in major equity indices being attained. On the other hand, if March represents a reversal, then we can see a very meaningful correction, especially if the S&P hits 1250/60 in March.
Intermediate term indicators still look very patchy and sentiment is not where I would like it to be for a meaningful rally to occur. We will be overbought by Wednesday. If by Wed we hit S&P 1250, it would be a very nice place to go short.
Monday, February 14, 2005
market sets itself up for the next leg down
Last Friday, the US market vaulted higher after an uneventful first hour to finish the week on a high note. The Dow is now a mere 40 odd points shy of a new 52-week high while the S&P and NASDAQ look poised to challenge their Dec04 highs. The market appears to have a date with destiny on Feb 18, options expiration day. In other words, the market seems to be magnetised to higher prices going into expiration day.
A move over S&P 1200/05 that holds, especially on a repeated closing basis, will portend a move to 1225, followed by 1250/60. However against this bullish backdrop, research has indicated that the majority (68%) of down Januarys are followed by down Februarys. Moreover, amongst those Februarys that were up despite a down January, the market tended to see a significant peak going into March or early April.
So although the S&P appears ready to deliver a decisive test of its Dec04 highs, the research statistics show that the bulls may be on the horns of their own dilemma --- and sooner rather than later.
Many important pivots occured in March during the last four years. March 2000 saw the market rally to an all-time bull market high (or should we say bubble high), followed by the commencement of the secular bear market (that I believe we are still in). March 2001 saw an important inflection point, as the market made an interim low before beginning a bear market rally that failed spectacularly in the face of Sept 11. March 2002 was an interim high --- the subsequent failure of that rally saw the market nose-dive to significant bear market lows. March 2003 was the low of the three-year bear phase; the rally that commenced from that point on appears to continue unabated till today. March 2004 was yet another important inflection point, as it marked the weekly closing high of the S&P for the first 10 months of the year --- a local high that when successfully challenged and overcome in Nov04, saw the S&P vault upwards and STAY upwards.
So the months of March during the last four years saw a high-low-high-low pattern. Will we see a high this March, as per the pattern? March 2005 is exactly 5 years from the all-time bubble top. Five years or 60 months is an important time span --- witness the 5 year advance from Aug 1982 to Aug 1987 that saw the market go from a secular low to a local high that burst spectacularly with the famous crash. Then, there was the important peak in 1990 followed by the major 1995 low that was the beginning of a virtually parabolic 60-month run-up into the first quarter of 2000.
When everything is going well, it pays to keep an eye on any cracks in the technical picture. With sentiment at the recent low unsupportive of the kind of bearish psychology that typically marks the beginning of a long-lasting new leg, it will profit us to keep an eye on developing cracks in the bull case.
A move over S&P 1200/05 that holds, especially on a repeated closing basis, will portend a move to 1225, followed by 1250/60. However against this bullish backdrop, research has indicated that the majority (68%) of down Januarys are followed by down Februarys. Moreover, amongst those Februarys that were up despite a down January, the market tended to see a significant peak going into March or early April.
So although the S&P appears ready to deliver a decisive test of its Dec04 highs, the research statistics show that the bulls may be on the horns of their own dilemma --- and sooner rather than later.
Many important pivots occured in March during the last four years. March 2000 saw the market rally to an all-time bull market high (or should we say bubble high), followed by the commencement of the secular bear market (that I believe we are still in). March 2001 saw an important inflection point, as the market made an interim low before beginning a bear market rally that failed spectacularly in the face of Sept 11. March 2002 was an interim high --- the subsequent failure of that rally saw the market nose-dive to significant bear market lows. March 2003 was the low of the three-year bear phase; the rally that commenced from that point on appears to continue unabated till today. March 2004 was yet another important inflection point, as it marked the weekly closing high of the S&P for the first 10 months of the year --- a local high that when successfully challenged and overcome in Nov04, saw the S&P vault upwards and STAY upwards.
So the months of March during the last four years saw a high-low-high-low pattern. Will we see a high this March, as per the pattern? March 2005 is exactly 5 years from the all-time bubble top. Five years or 60 months is an important time span --- witness the 5 year advance from Aug 1982 to Aug 1987 that saw the market go from a secular low to a local high that burst spectacularly with the famous crash. Then, there was the important peak in 1990 followed by the major 1995 low that was the beginning of a virtually parabolic 60-month run-up into the first quarter of 2000.
When everything is going well, it pays to keep an eye on any cracks in the technical picture. With sentiment at the recent low unsupportive of the kind of bearish psychology that typically marks the beginning of a long-lasting new leg, it will profit us to keep an eye on developing cracks in the bull case.
