Friday, November 18, 2011

still headed higher

Here is a 10 point box, one box reversal point and figure chart of the cash S&P 500. The thing that stands out most on this chart is that the recent three week trading range between 1210 and 1290 stands almost completely above the longer and wider August-October trading range. I interpret this to mean that the market is accepting prices at or above the breakout level as fair value. This in turn says that the move to 1290 in late October was a genuine breakout and should be followed by upside continuation once the current consolidation phase is complete.

The sovereign debt fiasco in Europe has been blowing the market hither and yon for four months now. Despite an avalanche of bad news and dire predictions the S&P is still trading almost exactly in the middle of its 2011 range. This I think is bullish behavior in the face of bad news. Of course, the news can always get worse as we discovered in 2008, but generally I find that it is unwise to fight the market's last war.

Note that the August-October trading range ended with a shakeout which too the S&P about 10 points below the low of the trading range and this shakeout was followed by a fast rally. I think something similar is going to happen now.

The only thing which would cause be to be wary and possibly abandon my bullish prognosis would be a close today (Friday) below 1208.50, the November 1 low. Such a close would be below the lows of the preceding two weeks and suggest at least a further drop to 1140 or so.


boris said...

There is two views here.
Short and Long
Perhaps short view can help the long one as if we were to get considerable drop here the picture Dear Carl is watching will vanish and he will be, according to him, changing his mind.

1) So, Our Market pressure tools suggests that, this is not time to expect significant stock market rally.

2) If today closes about where we are or even higher by 10 Emini points the pattern created will be looking just as bad or close to 2007/8 pattern.

3) Our Multi-year/month outline says markets are at best in a giant swing market between 1000-1400 on SPX and we , most likely , have seen the highs of that range and are ready to see the other side. We are not calling devastation down to 666 or lower again, but 1000 is achievable.

So, on two counts.
1) Dear Carl, will change his mind( he sayd so) if we drop 20-50 points from here or some such. I think that will happen as per our current |Market Pressure configuration

2) Our own long term outline, does not support new highs , therefore we are not even giving the benefit of the doubt to 1450 scenario( at least not at this juncture).

The rest remains to be seen

quick note on Currency Collapse.

Dollar is new king of the town. It maybe hard to see this for a while though and that is the way markets like to do it. We had "SELL AMERICA" on for 5 years. Now we are putting up the sign "BUY AMERICA" and as American I love it.

boris said...

Sorry, but this point is important for investors, as a clarification. I believe that the only way Carls scenario of substantially higher markets are possible via another debasement of Dollar. While our outlines do not support that view, if it was to happen and othewise, there really is no reason to buy stocks, but buy gold. I think it will do better in either case. It will go down less if stocks go down and it will go much faster and higher if Dollar is managed to be lowered and stocks higher

q said...

Agreed on risk positive markets and I now think the tip off will be bond yields headed much higher. Bond TLT is ready for higher volatility and should result in much lower prices (higher yields). MK