Since we have not seen a dramatic parabolic rise in S&P500 yet, my assumption is that we might see it towards the end of this year latest into early 2013. Pending how high P5 can bring us, e.g. 1510-1580, the sharper correction period should bring us back to 1200-1100 area.
As for now, I highly doubt that the March 2009 lows will be seen again.
The 1500-1570 area in S&P500 is a major multi decade resistance and I highly doubt we are going to break it by far on the 3rd try in past 12 years monthly chart.
An area just above the 1500 would bring the monthly chart to overbought and weekly to very overbought. We shall bear in mind that a parabolic rise (P5) has very or extreme overbought conditions. We saw that in Crude ( 2007 ), in Silver ( April 2011) and we will see it in many stocks within this year . XLP most likely will be one of those sectors exploding to upside within P5 and probably sectors like Semi Conductors too.
In September/October 2011, OT suggested that the chart pattern might be similar to 1998 and several reasons were given.
On 8th of October 2011 the below 1998 Chart was posted and in addition the remark was made that after the low made in 1998, the SPX gained 6 month later 30%.
Where are we now 6-7 month after the October 2011 low ?
Summary:
The S&P500 moved higher between 1998 - 2000 and there is a decent chance that 2011 - 2013 is very similar. The current 12 Year Monthly Chart is supporting this view and levels just over 1500 is very likely. Considering that most foreign investment actually flows into the Dow Jones, we could see a marginal new all time high in Dow Jones whereby S&P500 will mark a lower low compared to 2007. That being said, as for now this is my best guess and is NOT WRITTEN IN STONE.
We are all aware that the internet is full of blogs/sites involving trading the market. Some better then the others but most if not all do interpret the market wrongly. Wishful thinking or outwitting the market is mainly the topic or blaming outside forces and/or third parties for their losing trades.
Online Brokers have a survey of account holders and facts are that a rather scary large percentage per quarter of individual accounts is losing money. These are facts and do not be blinded by many Users, Trolls, Blogmeister, Wannabe Chartists and Hobby Analysts posting in comment sections of blogs winning trades or after fact positions. Unless a blogmeister or user can show ( even a paper trade ) sheet of entering & exiting positions (not ultra short term split seconds & minutes) in timely fashion, ignore their analysis for YOUR OWN GOOD. Trade only what you see yourself and stay away from short term trades. There is NO FAST TRACK to make money in the stock market !
In past 3 years ( don't want to go back to far in time ) we have seen self proclaimed Perma Bears giving the impression having eaten market wisdom with the spoon. When market is up, they all of a sudden have a certain number of longs and those magically make more profits then the large number of shorts. When market is down, all of a sudden they dont have longs and are short only with a large committment. To undermine their wisdom, charts are posted after the facts and usually tight stops are widened only when the stock goes their way after hours, days and weeks. Again, ignore this sort of BS.
The reason why their Pinnocchio Trades must be winners is very obvious. Without any readers of their blog or website there would be no traffic needed for large amount of advertisements or donation buttons to be clicked. The question one must ask themselves is; why does a real trader would need advertising income or worst donations ? Obviously the income does not come from trading and the blog or site is used more unless for social marketing & sales purposes. Some want to sell books others only ads and receive donations. This can only be achieved with winning god like performances.
In addition to the above, when the market goes against them they divert the topic and blame Apple and Ben Bernanke or Jobless Claims or ......... (please insert ).
Probably the most amusing comment I have ever read was " Apple is the market" . WOW, what a statement that was never even remotely supported.
Besides being most likely the dumbest thing I have ever read is the fact that Apple is a listed company that has a percentage in terms of market weight.
The market capitalization of each stock is determined by taking the share price and multiplying it the number of shares outstanding. The companies with the largest market capitalizations, or the greatest values, will have the highest weights in the index. The weight of a company in the index is equal to the market cap of that company divided by the total market cap of all the companies in the index. For example, in March 2012, the total market cap of the S&P 500 was $12.7 trillion. The largest company in the index was Apple , with a market cap of $546 billion. Its weight in the index therefore was 4.3% of the total index.
Since we have determined that the weight is 4.3%, we probably can agree that Apple is not the market.
In addition to the dumbest ever remark is the fact - If indeed AAPL would be the market, why not be long in equities past years?". Easy money for those who believe in it.
Below are the Sector Weights of Indices being far larger then Apple.
We also have a different weighting scheme. Namely, S&500 Market Weight and Equal Weight.
The different weighting schemes will result in different sector exposures. The table below shows the difference in sector weight between the two indexes as of Dec. 30, 2011. For example, in the EWI, the consumer discretionary sector had a weight of 16% but only 10.70% in the MWI. In the MWI, energy was 12.30%, but because there are only 43 stocks, the weight in the S&P 500 EWI is only 8.60%. Understanding the difference in sector make-up will help to determine which index to use.
Sector
No. of Companies
S&P 500 %
S&P 500 EWI %
Consumer Discretionary
80
10.70
16.00
Consumer Staples
42
11.50
8.40
Energy
43
12.30
8.60
Financials
82
13.60
16.30
Healthcare
52
11.90
10.50
Industrials
61
10.70
12.20
Information Technology
70
19.00
14.00
Materials
30
3.50
6.00
Telecommunications
7
3.00
1.40
Utilities
33
3.90
6.60
Sector weight comparison as of Dec. 30, 2011
And the second dumbest remark is to blame Ben Bernanke and/or the Federal Reserve for every move the market makes against their trades. Because it makes so much sense that the FED can influence short term market moves. LOL
Primary function of the Federal Reserve is to help maintain the economic soundness of the U.S. economy by setting the interest rates that banks charge each other for overnight loans.
AND NOT TO ANNOY PERMA BEARS
The cost of borrowing has direct effects on the costs to businesses and individuals. By raising or lowering this central interest rate, the Fed can influence how fast or how slow the economy will grow or contract. However, it usually takes many months to see the full effect of any changes they make.
Many consumer interest rates are strongly influenced by changes made by the Fed. Usually when the Fed raises or lowers rates, the prime rate (the rate charged to large corporations by banks) changes almost immediately. Many credit card and consumer loan rates are tied directly to the prime rate. In addition, mortgage rates are also greatly influenced by the Fed rate changes.
Since the stock and bond markets are closely interwoven, changes by the Fed can also affect the stock market. While there is no direct link, the market tends to react positively to rate cuts and negatively to rate increases. Usually, "the markets" are already sensing what actions the Fed may take and prices may rise or fall long before the Fed actually meets and announces any changes
For those who do really think the FED is there to be responsible for the disastrous trades of certain individuals, I highly recommend literature on the effects of central bank communicatioand predominantly focused on interest rates. (Perhaps Cook & Hahn and Kuttner Studies might help )
Perhaps those Perma Bears blaming Bernanke for their disastrous trades could explain us a little bit more about monetary policies, federal funds future data, policy intervention and estimated regressions, where a change in an asset price, like a stock index, individual stocks, investment portfolios or market interest rates measured over an interval that brackets the monetary policy announcement.
Perhaps this could be a magic formula ? -> ∆yt = α + βSurpriset + εt <-
and which formula to use to calculate a Surprise ? ->
Or perhaps the Perma Bears have failed to take the Recession Indicator into consideration to capture the changes ?
Return = α + β1Target t ∗ (1 − Rec t) + β2Path t ∗ (1 − Rect) (12) + β3Target t ∗ Rect + β4Path t ∗ Rect + εt
Perma Bears might consider changing their reading materials to:
Basistha, A., and A. Kurov (2008): Macroeconomic cycles and the stock market’s reaction to monetary policy
Belsley, D., E. Kuh, and R. Welsh (1980): Regression Diagnostics: Identifying Influential Data and Sources of Collinearity. Wiley, New York.
Blinder, A. S., M. Ehrmann, M. Fratzscher, J. de Haan, and D.-J. Jansen
(2008): “Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence,” Journal of Economic Literature
Boyd, J. H., J. Hu, and R. Jagannathan (2005): “The Stock Market’s Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks
Brand, C., D. Buncic, and J. Turunen (2010): “The Impact of ECB Monetary Policy Decisions and Communication on the Yield Curve
Very amusing is the fact that Perma Bears never complain about the FED when the market retreats.
Then we have the Wannabe Macro Economic Blogger Types amongs those Perma Bears and they too are indeed very amusing. Reading their Euro Crap News and thinking those EU News will have any impact on the stock market is astonishing. How dumb can any trader be believing today's news has any influence on the market. Certainly the financial problems ahead was known when the market tanked in 2008 and took most of the global listed banks with it down. The media is seeking hypes to report that are irrelevant to the markets future. A good trader is prepared to think & act irrational.
Does the ISM Manfacturing New Order Index look that bad or rather good ?
MANUFACTURING AT A GLANCE MARCH 2012
Index
Series Index Mar
Series Index Feb
Percentage Point Change
Direction
Rate of Change
Trend* (Months)
PMI
53.4
52.4
+1.0
Growing
Faster
32
New Orders
54.5
54.9
-0.4
Growing
Slower
35
Production
58.3
55.3
+3.0
Growing
Faster
34
Employment
56.1
53.2
+2.9
Growing
Faster
30
Supplier Deliveries
48.0
49.0
-1.0
Faster
Faster
2
Inventories
50.0
49.5
+0.5
Unchanged
From Contracting
1
Customers' Inventories
44.5
46.0
-1.5
Too Low
Faster
4
Prices
61.0
61.5
-0.5
Increasing
Slower
3
Backlog of Orders
52.5
52.0
+0.5
Growing
Faster
3
Exports
54.0
59.5
-5.5
Growing
Slower
5
Imports
53.5
54.0
-0.5
Growing
Slower
4
OVERALL ECONOMY
Growing
Faster
34
Manufacturing Sector
Growing
Faster
32
Any number above 50 depicts economic expansion and below 50 contraction.
US REAL GDP is not bad as well and is actually higher today than it was pre- crisis . Importantly, earnings and the economy are both stronger yet the S&P 500 Index is still far lower compared to 2007 highs (Please view a nice data website by clicking her )
Well, since this rather long article might have made the reader either leave OT or became tired and/or bored, I leave you with below amusement for this weekend lecture.
At the close several Breadth Indicators turned bullish confirming this rally since SPX 1359 is not a fake out move.
Breadth Thrust became oversold at 30 and remains strong
NASDAQ Advance - Decline has turned bullish
NASDAQ SUMMATION created a marginal BUY SIGNAL
NYSE Advance - Decline is bullish
NYSE SUMMATION has created a BUY SIGNAL
NYSE New Highs - New Lows is in bullish territory
SUMMARY :
The combined Breadth Indicators show us that money is chasing equities and to ensure we can particpate making profits we shall buy the most sold sectors showing the least bullish percentage. As said, the first 2 coming to mind by viewing the BPGDM and BPENER is Mining & Energy Sectors. Material should do well too.
Charting your Way to Profits by being a Perma Bear trying to outsmart a market that can stay longer irrational then most if not all bears solvent, can cause Bears to fall very hard.
Well, the very same happened to our special breed of Perma Bears being tranquilized by the Bulls.
Meanwhile the Chin Wag Team has respected the old rule to short bounces when 20 EMA is below 60 EMA and buy dips when 20 EMA is above 60 EMA. It is such a simple rule and there is no need to draw silly foolish fantasy trend lines in any charts.
OT wishes a great weekend and do not get too scared of any Perma Bear appearances
