Sunday, March 24, 2013
There was a lot of talk last week regarding Cyprus and it's ramifications on the broader market. As they scramble right now to come to terms with a deal I will express my short term market opinion.
The chart above is the S+P 500 intra-day chart using the 30 minute interval. This chart goes back the last 20 trading sessions and the last swing low at 1485. We had a 24 point sell off shortly after the swing low at 1485 was put in (first rectangle). After that we had 3 drops of exactly 7-8 points on the way to the last swing high at 1563. Last week with the volatility coming from said Cyprus news the market put in an almost equal sized 25 point drop as the one that initially started this short term bull market campaign.
The fact that the bears were not able to push this market any lower than 25 points is bullish to me for the short term. I believe the low at 1538 will hold and the next move will take the S+P 500 a little ways further to new all time highs above and very likely take a peek above 1600 for a short while.
Once this short term rally is completed a drop in the major averages of 15-20% will proceed. I expect the S+P 500 to trade below it's November 2012 low at 1340 before all is said and done. For more info refer to my previous market update post.
Thursday, March 14, 2013
The above chart is the daily chart of the S+P 500 going all the way back to October 2011 lows. I've highlighted two separate rectangles in green which represent the last 2 bull market campaigns that proceeded off that swing low, including the current one we are still in the final stages of.
As you know from my previous post I am anticipating an approximate 18% drop in the broader market but am sticking with a range of 15-20% for simplicity purposes. The question was from where will this drop take place.
I believe in studying this current bull market cycle we can conclude a swing high forming in the 1607-1614 range on the S+P 500, which I have highlighted in grey. The only other area to watch of course is the obvious 2007 bull market high which is fast approaching, at 1576.09.
So from this range we should expect the correction to begin, using these estimations above an 18% drop in stocks would yield around 1320 on the S+P, which would take out the November 2012 low. This of course is just an early estimation, once the actual swing high is in place we can get a much more definite downside target.
Now this is a bit premature, but once this correction concludes I am anticipating another strong bull market rally that should take the Dow Jones Industrial Average to AT LEAST 16,000 and that is being conservative.
Tuesday, March 5, 2013
The broader markets have rallied quite a bit since June 2012. Of course those following this blog were able to stay ahead and profit from all of it. Now we are coming into overbought territory and have to talk about getting defensive.
The top chart above (weekly S+P 500) shows each new bull market high pt was made exactly 52 pts above the previous highs, which yields about 1582 or so. Below shows 3 equal sized corrections in this bull market campaign, which produced 207-260 pt following rallies. We can then expect at least 1551.12 as upside target + reversal spots.
The bottom of the two charts above (monthly S+P) shows 2007 bull market high pt within reach, and a trend line connecting the 2000 and 2007 bull market highs coming in just under 1600 as of right now. All this lines up as confluence for where the market will eventually top out.
Conclusions: We should be expecting a correction in the near future, somewhere in the vicinity of this above zone I laid out. My forecasting model is predicting an 18% drop in the S+P, though for simplicity I'm sticking with a 15-20% correction range.