|
The price action
following the SELL signals earlier this month can only be described as a
VICIOUS BEAR TRAP !, We got sell signals, good ones for Stock BULLs such as
myself (as of Mid March 2009) it was a clear sign to get ready to accumulate
more, for bears it was a sign to double up for the long awaited bear market
RETEST and maybe to make back some of the money lost shorting the rally ?
Even though rising
prices for a bull during the stealth bull market is good, however, the
vicious rally FOLLOWING Clear Technical SELL SIGNALS is something that
signals alarm bells, as while it can be entertaining to gloat at the crushing
of the bears, however when I look in the mirror, I have to wonder will I be
next to be caught in a vicious BULL TRAP ! This is a vicious market and
whether one is a bull or a bear one NEEDS to be on their guard as the
consequences of getting sucked into TECHNICAL ANALYSIS, as opposed to REAL
TRADING i.e. REACTING to Price movements in REAL TIME, could easily wipe
traders out. More on REAL TRADING in my site walayatstreet.com which will go
live once it is ready, yes people have been patiently waiting but the site
cannot go live until it has the requisite articles to explain the many
aspects of trading as the consequences of not doing so will result in a
deluge of emails, so as with the markets PATIENCE is in order.
Back to the stock
market, let's dissect what happened, the precise point where the summer
correction scenario abruptly terminated and where we are heading to next:
Original Analysis
The analysis
of April 26th concluded that the Dow is targeting a high of 8,750 by
mid May 2009 which was expected to be followed by a significant correction of
14% towards a Dow target of 7,500.
 
Dow Hits 8750 Target
The Dow hit the
target on 2nd of June which was confirmed in the
quick update at the time, and therefore expectations were for the
significant correction to materialise.
Dow Gives Sell
Signals During June and Early July
Analysis
of of 7th July - The Dow spent early June distributing along 8,800,
which gave plenty of time to put on short positions with tight stops. The key
chart trigger was the lower high at 8,600 which targeted a break of 8,200. The
pattern size is 400 points which projects to 7,800 before the next expected
bounce. The overall pattern size was about 650 which projects to 8,200 minus
650 = 7,550, which is pretty close to the original projection of April 26th for the target for
the Correction AFTER the peak around 8,750. The chart also showed a head and
shoulders price pattern with a similar measuring move.
The conclusion was that
the Dow was still projecting towards a target of 7,500 to suck in more
traders on the bear side before the resumption of the stealth
stocks bull market. The Mega-trend remained for the stocks stealth bull
market to move towards a target of 9,750 by the end of this year.
Dow Busts TA
Expectations by Triggering a Series of Buy Triggers
Technical analysis
was busted - There is no point in second guessing as to why the pattern
changed, the fact is simple technical analysis DOES NOT WORK MOST OF THE TIME, hence one needs
to always have at the FRONT of their mind, (not the back) that the MARKETS
ARE MANIPULATED! As I have voiced throughout the year at key market turning
points to ignore the fundamentals and listen to the price, as you are trading
the price not the data! Still the price re-action observed was not something
that could have been anticipated by anyone, rather only reacted to in real
time trading environment.
Where Next for the
Stock Market
Near 1000 point moves
spread over just over a week makes this a great traders market but is it
still a forecasters market ? I have say it is tough to call a market as
vicious as this but my existing analysis as of March 09 is for a rally to
9750 for the Dow this year, the price action to date is inline with this
expectation. So taking into account that this is a potentially very vicious
market here is my analysis -
Dow Analysis and Projection
TREND ANALYSIS - The rally off of
8,090 has been strong and powerful and could carry for some more points
before correcting. The key change to the behaviour of the trend is the
development of a new primary trend line that should now contain all
corrections and in fact projects towards 9,750 into December 2009. Therefore
implying that we could see the Dow touch this line several times during the
year. The anticipated immediate correction is expected to bounce off of this
line.
RETRACEMENT LEVELS - The Dow Rally from
8087 has retraced 100% of the decline from 8877. The correction therefore was
8877 to 8087 or 33% which is a sign of strength. A rally of 200% of the correction
projects towards a target of 9667. With intermediate term targets of 133%
9137, 150% 9272, 166% 9400 as key potential resistance areas. Therefore this
is suggestive of a sustained trend along these price points, to be
accompanied by corrections of between 33% to 50%.
PRICE POINTS - Immediate support is
at 8,600, which would represent a 50% retracement from the above 9137 %
level. The heavy consolidation area between 8,600 and 8,900 is indicative of
further price action in this range which is suggestive of the Dow spending
further significant time in this zone for several months. This is suggestive
of more sharp rallies followed by downtrends back into this price zone for
some months. Key support is at 8080 a break of which would negate this
scenario.
ELLIOTT WAVE THEORY -
Elliott
wave count is straight forward and has not changed since the Stock market
bottomed in March. The abc correction followed by the strong rally, is highly
suggestive of an impulse wave 1, therefore implying a bull run of similar
magnitude of the rally from 6470 to 8900, which projects to 10,500 that's
significantly above the original target of 9,750.
MACD - the MACD indicator
cross has signaled a buy, which is supportive of an overall bullish trend,
though not at a particularly oversold level therefore implying that the trend
will be more volatile and laboured than that of the rally from 6470 to 8900. As
well as signaling that the eventual peak may set the market up for a more
significant decline.
CYCLES - The bull market is
suggestive of a 3 months up, 1 month down overall cycle pattern, this
suggests a target of late October for the rally peak before a more
significant correction takes place.
SEASONAL TREND - The seasonal trend
should be for stocks to decline into early September, therefore this is
contrary to the building scenario.
FUNDAMENTALS - People always ask
reasons as to why stocks should rise, though in reality the reasons always
become apparent AFTER the market has already moved, as I warned in Mid
March, however I did at that time also give possible reasons, which still
remain as the primary reasons for explanations of why stocks are rallying
into a stealth bull market -
A. The markets move
ahead of the economy, whilst I don't profess to know the EXACT reasons of why
they will move AHEAD until that becomes apparent AFTER the market has already
moved, however I do have some reasoning in that INFLATION, Zero Interest
Rates (Forcing savers / financial institutions to take risks) Quantitative
Easing (money printing), and HUGE Fiscal stimulus packages that are laying
all of the ground work for the next bubble regardless of how bad things
appear as any outcome that prevents another Great Depression will be seen as bullish!
i.e. even a low growth high inflation stagflationary environment WILL be seen
as a positive outcome against the present day data that points to a collapse
of global demand on a scale not seen since the Great Depression. The
governments HAVE learned the lessons from the Great Depression and WILL
succeed in inflating the asset prices and ignite the next perhaps even bigger
bubble, meanwhile the stealth bull market will continue which by the time
everyone realizes what's going on stocks will already by up by perhaps more
than 50% from the low.
However in the final
analysis one is trading the stock market and NOT the economic data, so yes
reasons can always be found, but when it comes to actual trading they are
irrelevant, especially at market junctures.
EARNINGS - Analysts are
surprised !, earnings are surprising to the upside, the earnings
'fundamentalists' have been busy revising previous earnings forecasts that
convinced many that fresh bear market lows were imminent and thus missing out
on a stocks bull market that has already moved 40%!, Nevertheless its not
surprising to me that earnings are surprising to the upside, expect even more
'surprises' later this year, after all where do you think a;; pf the bailout
billions have gone ? It has to go somewhere and we are seeing it the profit
surprises in master market manipulators of Goldman Sachs and JP Morgan
STOCKS STEALTH BULL
MARKET - My last analysis in the midst of the correction stated that the
probability of an end to the current fledgling bull market being at less than
20%, with the rally to date confirming that we remain in a STRONG MULTI-YEAR
stocks stealth bull market. I am amazed that a 40% rally over 3 months is
STILL perceived as a BEAR market rally?, what happened to the 20% rule?.
MARKET MANIPULATION - The powerful rally
following a HUGE technical SELL SIGNAL, is clear sign of market manipulation
i.e. in terms of generating the sell signal AGAINST the bull market trend so
as to PROFIT from the subsequent powerful short covering rally. Don't forget
this is a BULL MARKET, All corrections are to get sucker money in on the
short-side as an enable for a larger more profitable subsequent rally.
CONCLUSION - My earlier fears
about a bull trap appear to be unfounded, the stock chart is talking that we
are in a stocks bull market, and is suggestive of a trend higher towards a
2009 target of between 9750 and 10,000, with a high probability that we may
get there before the end of October!. Key danger areas for this scenario are a. for the trend line to contain
corrections, and b.
that 8080, MUST HOLD.
To keep up to date on
the state of the stealth stocks bull market, ensure your subscribed to my always free newsletter.
Your stock index
trading analyst.
My next in depth
analysis will cover the trend for the stock markets over the next few months,
to receive this on the day of publication ensure that you are subscribed to my always free newsletter.
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is the editor of
MarketOracle.co.uk.and has over 20 years experience in trading and investing.
| 
