This year market remained virtually unchanged so most of the folks using buy and hold on 401Ks will be flat at best.
I was moving my 401k in and out of market as I thought the overall market trend is moving and I made 18.5% . Isn’t that nice.
Here are the pics
The trend
Sliced Monthly
Sliced Quarterly
Always know when to exit.
This Santa rally historically ends in first week of Jan.
Capturing profit by Jan 4th is highly advisable.
DOW Industrials (the gang of 30 $INDU) broke out on the upside so expect S&P500 (SPY) and Russell 2000 (IWM) to break out in upside too.
The jump of Nov 29th destroyed the bears. There is not much to be bearish after that. I informed my clients immediately as
“On 11/30/2011 12:43 PM, Partha S Mukherjee wrote:
> Market changed its bearish tone to atleast non-bearish today after central banks assured that none of the banks will go down due to European Debt.
>
> This means banks will not suffer MF global demise and we can now cruise higher.
>
> -Partha “
With European hangover gone this week and market holding on to its gains, the next most logical thing is institutions drive the market down to scare of the weak hands with PR of some downgrade and then drive the market up by end of the week starting the Santa Rally.
Let see how this week turns out
The selloff continues. After testing of Head and Shoulder neckline, expect a throwback greater than 20% here.
It means that SPY and IWM to fall below their September lows
These are the places where market decides which direction it wants to go.
Below are SPY and IWM’s chart.
On Daily chart both of the ETF’s are in waiting mode as evident by the symmetric triangle.
On Weekly chart both the ETF’s are showing a classic pullback to neckline after a Head and Shoulder breakdown. So the odds of market going down from here is high.
The previous inflection point was on October 3rd when I wrote this email to all my clients but couldn’t update this blog as I was on vacation
From: strategytrades@yahoogroups.com [mailto:strategytrades@yahoogroups.com] On Behalf Of Partha S Mukherjee
Sent: Tuesday, October 04, 2011 8:08 PM
To: Removed the company email
Subject: [strategytrades] Market Twisted on Fed’s tune
Hi,
I wrote about my understanding of operation twist on my blog a week
earlier http://blog.strategytrades.com/?p=233
Yesterday we had the first auction based on operation twist and I
was eager to see its impact. Thou I was fundamentally expecting a trend
change and reasoned so in our Skype chat but I wanted price action to
tell me when.
Today, market indicated its desire to scale up. Time will tell if
this is a bear correction or a bull action. At this present moment, it
is wise to get long in the market.
If market makes a new low then we lose around 4% otherwise we make
atleast 10%. With starting of 4th Quarter I think we have the tail wind
for the market to go higher.
Thanks
Partha
PS: I am in sabbatical and have no access to company’s email.
Bulls tried hard for first 3 days of last week to move the market up but it became evident that Bulls had hard time holding the line.
So now the question is what is market telling us.
I see a typical head and shoulder pattern, a neckline breach and then the test of the neckline followed by throwback. This is classical stock chart pattern.
The conclusion is to expect more downside.
Targets
DOW 10,250, TRAN 3892 and SPY 106.37
Here are the charts showing the Head and Shoulder Pattern
Thou we saw massive selloff and huge negative PR’s, both Dow Industrials and Dow transport held their previous lows.
Fed’s new Operation Twist will flood the investment banks with cheap long term cash after 2 weeks. Those cash has no better outlet than stock market . We saw this in 2 earlier QE’s and the uptrend it produced. We also saw that it takes sometime before QE’s money hit the market. Two weeks from now Fed will hold their auction and in a week or so after that it will be available to the traders.
Money is the only fuel for the stock market and in-spite of all the negative PR’s, it is highly likely that market will reverse its course to upside in October.
Operation Twist was first implemented by Feds in 1960 (started in early 1961) based on the popular dance at that time. If you see the chart from 1961, the market did go up in a steady trend from 1961.
Since fed is jacking up short term interest rate and lowering the long term interest rates, we need to keep an close eye for the dreaded inverted yield curve in future which is a pretty accurate indicator of an impending recession.
This became evident on this week’s move when market had trouble breaking below previous lows.
Here are the charts
Last week VIX was very high(very high put buying), suggested that Market Makers can run the market on the upside so that option profits are chewed upon. That is exactly what the market makers did by rallying for all the 5 days and bringing the Market to the top of the range.
This Market Maker action served many purpose
1. Market Makers are able to cover their option underwritings at much lower costs.
2. Got many people to believe that we are going up and take bull positions.
3. Made shorts to cover their positions.
But this is exactly the range where Bears loved hunting in past occasions. Next week I expect the bears to come back in full force.
We have the FOMC on Wednesday (Sept 21st) and there is lot of expectation on Fed to start QE3. If Fed starts QE3 or any other money pumping mechanism, we can go back to bull mode again.
Here is the DOW movement
Here is the Transport movement
Dow Industrials already signaled that it is ready to dive down deeper. Dow Transport is still not ready.
More downside is expected and keep a watch for sharp reversal on testing previous lows.
Dow Industrial broke down its Bear Flag
Dow Transport still honoring its Bear Flag
This week we expect more downside. Market can pause a bit mid-week for President’s Job plan.
Both Dow Industrials and Transport have trapped buyers(look at the long spikes above last week candle) from last week which can fuel the downside.
You can see a typical bear market pattern, Market does well till Wednesday and closes lower by Friday.
Dow Industrial’s chart and its bearish channel
Dow Transport
