Stock Market Trading Over The Next Four Months

By: Donald_W_Dony

Following the May 20, 2010 Market Minute titled "Reversal levels reached", global equity markets have completed the expected correction and are now starting the next four month trading cycle. This means that there is a high probability of positive markets in June.

The probability percentage falls to only 50% in July and below 50% in August. Models suggest that as the next low in the four month cycle draws closer, the likelihood of positive world markets declines. September has only a 27% probability of finishing in the black based on 50 years of data. Another pattern of concern is the increasing percentage of decline in the last three 16-week trading cycles. This unfolding outline, coupled with the negative track record of September implies greater volatility and downward potential in August and September.

Bottom line: Models indicate that the risk of downward pressure in June is low but gradually increases by mid-July and continues to build to the expected September trough. Models also indicate that after this current four month cycle is complete, the next 16-week time frame (October to January) is anticipated to be positive. Probability percentages advance to a bullish 73% for positive markets.

Investment approach: Mid-term to short-term traders may wish to increase the cash positions in their portfolios by late July and hold this extra safety margin until the anticipated September trough.

More complete analysis is in the June newsletter. Go to www.technicalspeculator.com and click on member login.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2010 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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