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Trading Lessons

Stocks Bull Market Correction Continues, U.S. Dollar Bears Running Out of Time?

Stock-Markets / Financial Markets 2009 Oct 04, 2009 - 08:08 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleThe Stock markets continued to correct following the preceding weeks sell signals as confirmed in last weeks newsletter. The market has now given a ABC pattern which allows me to generate a trend channel within which I can trade more closely to the price, i.e. rather than leaving stops far distant due to the lack of price action as the below chart illustrates (more on trading, eventually at walayatstreet.com).


Courtesy of stockcharts.com

Dow / FTSE Targets

The trend remains inline with expectations for Dow / FTSE to experience a serious correction during October and therefore should continue to trade inside the down trend channel all the way towards the targets of FTSE 4,650 and Dow 9000, with now clearly determinable re-entry levels as well as much tighter stops.

Reasons for the rally ?

People are always interested in reasons for why markets must move in this or that direction, I have long since come to realise that the reasons are not important as the reasons only become clear in hind site AFTER the market has moved, Back in mid March the reason for stocks to keep falling were centred around falling corporate earnings expectations, as illustrated by John Mauldin's - Reality Bites :

Year-to-date through February 27, the S&P 500 was down 18.62 percent and the Dow Jones Industrial Average was down 19.52 percent. Moreover, strategists and investors are increasingly coming around to the conclusion that corporate earnings are going to be nothing short of horrendous this year and that stocks are headed even lower, as HCM has been arguing for months (without pleasure, we hasten to add). Very recently, three of the smartest forecasters on Wall Street sharply lowered their earnings forecasts for the S&P 500.

Which I said to ignore as the bear market had by then built up overwhelming bearish 'reasons' to reinforce the expectation of much lower prices, however all of this was irrelevant as it was OLD NEWS.

For more on what to do and not to do at market bottoms see - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470

However, some of the reasons I gave back in mid March as to why stocks should rally have now AFTER the rally has occurred are put forward as an explanation.

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.

U.S. Dollar Bears Running Out of Time?

Despite the over whelming weight of bearish fundamentals that the dollar collapse proponents are eager to remind readers across the media, however one fact may have escaped this onslaught and that is the U.S. Dollar is NOT falling, the trend remains in line with my U.S. Dollar bull market analysis of Mid August 2009, that concluded that the U.S. Dollar targets a rally to USD 90 by the end of this year on the proviso that 75 is not breached on the downside which would negate the scenario. To date the Dollar has held support and continues to build a base, however at 77.25 the dollar is seriously lacking upside momentum so all is not 'yet' lost of the dollar crash proponents, despite the fact that we have listened to the same expectations for the past 18 months since the U.S. Dollar bottomed in March 2008, given the weak state of the current rally they may finally be proved right!

Today's Market Lesson - Do not THINK too MUCH !, Don't get lost in reasons of why the market must move, rather focus on what the market is doing on the price charts! AS you are trading the PRICE CHART and NOT the fundamental DATA! They can and DO move in OPPOSITE DIRECTIONS! Funnymentals are a RED HERRING that continue to sucker both the professionals and the inexperienced, whereas they should amount to no more than 10% to 20% of the your decision making process when trading rather than the over inflated 80% or more that many weight towards in depth Funnymentals studies into for instance corporate earnings forecasts.

Your swing trading analyst not too interested in what the funnymentals suggest.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jas Singh
06 Oct 09, 02:37
USD DOW relationship

Hi Nadeem

Please explain. How can you expect a DOW pullback to 9000, and the Dollar going to 90? Surely a rally to 90 would suggest much lower DOW, perhaps taking out the March lows?

Thanks


Nadeem_Walayat
06 Oct 09, 05:46
DOllar / Dow

Hi

Because

a. Stocks are in a bull market

and

b. the dollar is in a bull market.

Of the two, right now stocks are in a far. far stronger position than the dollar.

Best

NW.


Andre
06 Oct 09, 19:04
Stocks pullback

Hey Nadeem, great analysis as always. I have a question for you concerning the recent run from 9450 to 9730. Is this just a head fake, and a daily fib retrace to the .50 or lower? Do you still expect the downward trend to 8900-9100?

Thanks.


Tariq
09 Oct 09, 04:03
DOW

Hi Nedeem,

It seems that the "correction trigger end" has been hit. Do you think that 9450 was another bear-trap? Do you think the DOW is still heading for a correction? What next?

Many thanks


Nadeem_Walayat
09 Oct 09, 09:17
Dow Trading

Where Next ?

Up, beak above 9780 triggered me long (1/4th).

Best


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