Sunday, November 13, 2011

Don't lose sight of the forest

I am sure many of you have not heard the word "bull market" for a while. Our air has been filled with bearish sentiments, bearish rants for a while. Even though there are few bulls around, I haven't seen anyone say for sure that we are still in a bull market with a valid reason. We have permishbulls who make bull market calls everyday without rhyme or reason, I ignore such professionals for the same reason that I ignore permabears who are maniacly depressed every day. I wanted to examine the market's long term trend from a technically valid point of view. You should not lose sight of the forest for the sake of the trees. I don't hold fundamental or political views to be of much importance and significant enough to bear weight on my trading. I do have my moments of political rants but that has no affect on my trading. I trade short term and very short term, because I can say for sure that nobody has any grip over the long term view. We must hold long term view but to have complete control of your capital, short term trading is still better. You have to work hard for every penny while you are trading short term but like I said, your odds of winning are better in the short term. You can always set aside 10% of it on your long term view and rest for Intermediate term, short term and very short term.

I am both a bull and a bear, I am flexible to skin the game on both sides.

The full analyst side and blogger sites are fully drunk with comparisons of 2008 with the current period for at least the last 5 months. If it happens, congratulations to everyone but me. While it may still happen, I don't see that at this point of time.  I myself see that we have deviated from the 2008 comparison. I would say they may have been right till the 1st week of October. October's market rally completely changed the game in bull's favor. The Bears may still have a chance, but you need to look at the current trend (and not dream of the future trend) to tell what market you are in. We have been in a Primary Bull market since March 2009, we continue to be in the same. It looked like we may sink into a bear market, but we did not. The market gyrations in the last 5 months have definitely caused enough damage, so non-stop rally case to > 1400 within 2 months can be put to rest because we first need some consolidation here for the bull's case.

Bull case: The best scenario for the bulls is to consolidate in this 1200 - 1300/1350 range for a while like atleast 2 months, gather lost momentum and zoom upward breaking previous high of 1370. The presidential cycles, seasonal cycles rhyme with the bull's case as well.
Bear case: The best case of bears is go lower from here but October's rally has delayed the bear case for atleast 2 months. The October rally that followed is nothing short of a miracle as it changed the game completely.  In the next 2 months bears have to show strong conviction, otherwise bear case is dead. When everyone on the street and wall street are uber bearish, the options house will have to push the market higher and that is exactly what they did. The house never goes broke, please remember that. The options house definitely made enough from this wild swinging while investors and traders from all terms bet their money on put options and lost.

Neutral case: I predict lower than 1100 but higher than 1000 by March 2012 because the chart below points to a cycle low in March 2012. Cycle low doesn't mean we have to go down from here. The cycle low could be higher from here which simply means for the next cycle, the bottom is in. My best guess is we may visit 1150 in March 2012 before going higher towards next year's presidential elections. Before 1150, I think we will see 1325 - 1350 though. Predicting long term cycles to the T is very tough but we can use long term charts to say general statements like "we are still in a bull market....", "we are in a bear market....", "we avoided bear market.." and so forth but not to say we will see bull market for the next 12 months. That is not possible to predict. It is completely futile trying to predict targets except for fun.

As of now, evidence points to the continuation of the Primary bull market that began in March 2009. When the charts change, I will make it a point to visit this topic for sure. I will take time to post it on this blog.

  1. CCI moving back above 0 indicates resumption of bull market.
  2. TRIX cross over did not occur yet, no confirmation of bear market. TRIX is lagging but the last cross over happened in May 2008. This cross over is not even close and will not happen in the next 2 months, unless major damage occurs before that. But, notice that TRIX is trailing in its momentum compared to the previous 2 bull markets, atleast at this point. Further down the road if the bull market continues, TRIX may rise to the 2007 bull market level but that is to be validated later, can't predict now.
  3. Ultimate oscillator had the first kiss of 30 line indicating bearish trend in 2007, so far we had none. Even if it may not touch 30 (like in 2000), I would like to see this spend sometime below 50 for me to say this is a bear market.
  4. Rate of Change had a small tick below 0 but nothing major of a bear market  here. The previous bull market had multiple touches (or close) to the 0 line before resuming upwards.
  5. MFI is still in bull mode and did not even come close to 50. Strong evidence of the money flow.
  6. Slow stochs indicate neutral stance now and are pointing upwards. The chart doesn't have full stochs, but that shows the same thing. Fast stochs show that they have crossed above 50 after being below for 4 months pointing upwards.
  7. Cycles point for a low in March 2012 but that low could be indicating a bottom for the next cycle which means it could be higher from here and not lower. I don't have that visibility.
  8. DJI and COMPX pretty much show the same. NDX is very strong and we haven't even come to a bear mode in NDX's case. SPX chart showed some bearish tinges before October but NDX chart didn't even come close. Keep your eyes on AAPL, they will propel AAPL up like a rocket. Let it take time to gather some AAPL bears and bottom for the short term. Then the bears will provide needed momentum to go up.
  9. MACD fast crossed slow line but note the histogram size comparison vs 2008. We are not anywhere like in 2008. SPX rallied for 1 - 1.5 years even after bearish cross in 1998 - 2000.

I am aware of Lakshman's recent ECRI work. We may still enter a recession but that doesn't mean we have to go into super bear market mode. We had minimal impact of recessions on the stock markets from 1982 to 2000.

My long term chart is only to view the big picture. I certainly don't trade the long term charts. I do hold partial positions from the bull market start in 2009 but most of the portfolio I trade is short term, very short term. No patience here to trade long term. I am happy with my short term trading. I certainly don't weigh my entire portfolio on long term views. What if my long term view is wrong, is the question. If my short term view is wrong, no problem. I will get stopped out which will give me another chance. Betting on the long term is like win big or lose big.

None of the 3 cases are guaranteed at this point. While the evidence points upward, we can go into a bear mode albeit it will take time and only if bears show very strong conviction in the immediate future. For the Intermediate term, I vote for neutral case with consolidation. For the long term, I see currently a continuation of the Primary bull market.

I don't have opinions on the super cycles or Grand super cycles or any other such fictionary stuff.  I stay away from Elliot waves. 

For the latter part of this rally, they are pushing commodities upper while holding the tech sector back. They could rotate other sectors later which means they can resume the tech sector up while holding commodities back. When that happens, you will see a real serious violent push in the market with escape velocity. 

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