4 replies to this topic

[VolPivots]

After the near-term sentiment shakeout.... Looking at the chart below and keeping in mind that we are coming off new ATHs in cumulative breadth, some thoughts: 1. We have not yet even established the breadth peak (unless we just did) from which meaningful divergences can be built to put in the price peak (i.e. breadth leads price) 2. 15week EMA....looking at the slope, it's a strong weekly uptrend. It's gonna require some corrective pauses followed by further rally attempts, which ultimately stall to set the price peak. 3. NDO (Normalized Deviation Oscillator)...my working hypothesis is that the current action is similar to 2nd half 2005 into Q1 2006 on both the NDO as well as my preferred accumulation measure. We need to see 2 big spikes down (like 2007) in the NDO before the final price peak. 4. Cycles: 59week cycle seems to be the dominant cycle the last decade (vertical red lines with 1/2 cycles in vertical black lines). Current projections have a trough due in ~13 bars/mid-April. BUT I'm guessing that pullbacks down towards the 15wema are buys, and we will see a phase shift due to seasonal influences...much like we did in late '06/early '07. 5. The Fed, GS, et al. are behind this rally and will continue to maintain their "growth" channels. Putting all the pieces together....I'm guessing downside risk is SPY 100; ideal time target is Nov10-Jan11; ideal price target is ~ 130-132 on SPY....also keep in mind the Lehman candlestick circa SPY 120. Most likely time for the 1st material pullback (after the current timeframe) is mid-Summer then early Winter (late Nov/early Dec perhaps). Cal11 and 1stHalf '12 won't be pretty.....

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[Gary Smith]

Nice post marketneutral, forecasts are very irrelevant to my style of trading but I concur that we could see a 20% gain sometime in 2010 for the S@P. A strengthening economy, a return of merger and acquisition activity, a rebound in the CLO market, yield curve at record levels, the strongest junk bond market in history, corporations holding the most cash in over 40 years, default rates expected to plummet by over 50%, an expected reversal from outflows to inflows in domestic mutual funds, and the list goes on. I should mention that unlike many here, the fundamentals are very important to me albeit once in a trade all that matters is price. I've always felt the more knowledge you have, be it fundamental or technical, the more apt you are able to exploit opportunities as they arise. Like you, I also am very worried about the froth in near term sentiment. Good luck.

Edited by Gary Smith, 02 January 2010 - 07:07 PM.

[arbman]

Hey Dave, take a look at the $NYTOT (the issues trading on NYSE) and compare to 2003-2004 rallies, a new breadth trust will not be really confirmed until the number of firms trading on NYSE starts growing again. We just had one of the unison movement upward after the crash, very typical. I wrote about this here, however, I am not outright bearish either, I think this weekly trend will take time to roll over too... In 2001-2002, we had also these strong rallies that lasted shorter, but the declines were also milder, but the real sustainable breadth trusts did not come before the number of firms registering with NYSE started to grow for about a year. Many of those firms were probably Nasdaq transfers, but we do not have such a growth wave coming from the bottom up, instead a lot of firms falling apart... The weight of the large caps will be more visible once the weekly momentum becomes exhausted in the second half. The large caps feed on the smaller companies and I really do not see such an explosive growth developing at the moment, the jobs picture confirms so far after a 9 month rally --these are the parallels of the 1930s. We are still in a bear market in my opinion for 2 more years and we may be very well marking THE tops of the 50% retracement while moving out of the eye of the hurricane... Best of luck and happy new year!

Edited by arbman, 02 January 2010 - 07:34 PM.

[VolPivots]

Nice post marketneutral, forecasts are very irrelevant to my style of trading but I concur that we could see a 20% gain sometime in 2010 for the S@P. A strengthening economy, a return of merger and acquisition activity, a rebound in the CLO market, yield curve at record levels, the strongest junk bond market in history, corporations holding the most cash in over 40 years, default rates expected to plummet by over 50%, an expected reversal from outflows to inflows in domestic mutual funds, and the list goes on. I should mention that unlike many here, the fundamentals are very important to me albeit once in a trade all that matters is price. I've always felt the more knowledge you have, be it fundamental or technical, the more apt you are able to exploit opportunities as they arise. Like you, I also am very worried about the froth in near term sentiment. Good luck.

Always appreciate the thoughts Gary. One thing I learned from Mitch Zack's....earnings drive performance. Wish I had more time to research individual stocks, but things don't look too bad for a lot of blue chip companies. The are no doubt many pockets of weakness in the economy (consumers, banks have a long ways to go, commercial real estate credit quality is slowing deteriorating, etc.); however with globalization and easy transfer of capital flows and most central banks still in 'accomodative' mode, we aren't necessarily as dependent on those particular sectors of the economy....perhaps later, but hopefully the technicals start giving us hints before then (e.g. volatility starts picking up, breadth divergences, etc.).

Anyways, the forecast is more of a 'context' type / keep an open mind thing....certaintly not tradeable, but the underlying 'inputs' are some of the keys to longer-term outlooks IMO. Best to you in 2010!

[VolPivots]

Hey Dave, take a look at the $NYTOT (the issues trading on NYSE) and compare to 2003-2004 rallies, a new breadth trust will not be really confirmed until the number of firms trading on NYSE starts growing again. We just had one of the unison movement upward after the crash, very typical. I wrote about this here, however, I am not outright bearish either, I think this weekly trend will take time to roll over too...

In 2001-2002, we had also these strong rallies that lasted shorter, but the declines were also milder, but the real sustainable breadth trusts did not come before the number of firms registering with NYSE started to grow for about a year. Many of those firms were probably Nasdaq transfers, but we do not have such a growth wave coming from the bottom up, instead a lot of firms falling apart...

The weight of the large caps will be more visible once the weekly momentum becomes exhausted in the second half. The large caps feed on the smaller companies and I really do not see such an explosive growth developing at the moment, the jobs picture confirms so far after a 9 month rally --these are the parallels of the 1930s. We are still in a bear market in my opinion for 2 more years and we may be very well marking THE tops of the 50% retracement while moving out of the eye of the hurricane...

Best of luck and happy new year!

Gokhan, interesting on the NYTOT...will have to take a closer look. One thing that is a bit bothersome is that correlations are starting to break down to some degree, which is often a prelude to a meaningful correction. Seems like quite a bit of spread trading lately....until the last week or so, much of Asia was weak and only now seems to be playing catchup rather than starting a big IT advance. Also have Gold falling and USD strengthening (though some weeks ago 80ish on the weekies seemed plausible and what I thought would be a gift from the bear gawds..i.e. $ rally may be getting close to finito), which I watch as 'liquidity' indicators (I think Gold generally leads???)....sentiment seems frothy enough too, but it's coming on light volume....heavier volume would be more bothersome.

Large caps seem to be the key...they held up very well while the RUT and many foreign markets went through their selloffs....should have acted Friday on the very notable weakness for the high-correlation megacaps....OEX continues to struggle whenever it gets much above 515. I do agree that we still have a long ways to go before the secular bear is officially over, though it's very possible, if not probable, that the nominal lows are now in the rear-view....TWT.

Good luck next year...though I don't think you need a whole lot!