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Stocks Bull Market Correction or Bear Market?

Stock-Markets / Stock Markets 2010 Jul 04, 2010 - 12:34 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleMy primary focus at this time remains the UK economy and housing market so as to conclude in a multi-year UK house prices trend forecast and ebook by mid August 2010.

However in response to requests and price action here is an interim analysis of the stock market:


Stocks Last In depth Analysis - 16 May 2010 - Stocks Bull Market Hits Eurozone Debt Crisis Brick Wall, Forecast Into July 2010

Stock Market Road Map for 2010 -02 Feb 2010 - Stocks Stealth Bull Market Trend Forecast For 2010

DOW Stock Market Forecast 2010

Dow support failed at 10,300, the stock market was sucked back towards 9,800 which broke which CHANGED the trend pattern that had been in force as of the Mid May analysis i.e. instead of an ABC into early June, the market is now saying that that was the first leg of a larger ABC pattern.

The trend pattern is undoubtedly bearish, but STILL corrective, i.e. the 15% or so downtrend is correcting the preceding 70% advance off of the March 2009 lows.

Elliot Wave Theory - The Elliott Wave pattern of an ABC off of the 5th peak implies a trend towards 9,100 to complete the larger corrective pattern by late July. The alternative which the bears are playing towards is that April was a B wave peak which at the very least implies Dow revisiting the March 2009 lows, at this point I give this a less than 20% probability. Yes the market has weakened, but the correction is still just that a correction.

MACD - Has the opportunity to set itself up for a higher low, i.e. in line with the ABC correction scenario to show positive divergence against the trend.

Price Patterns - Apparently the stock market has broken its neck as per the Head and Shoulders Pattern that signals a bear market. Yes the break below 9,800 is bearish, however one can not conclude bull or bear markets on the basis of one price pattern that turns out to be false more often then right i.e. Look at May to July 09, where we basically have the same price pattern that at the time was signaling a bear market returning to break the March lows, as media stars such as Nouriel Roubini were publically declaring virtually at the very low of the move. The current pattern equally will probably resolve higher just as the majority conclude that the bull market is over on the basis of price patterns. Remember on its own ANY single pattern or technical tool or theory is no better than a coin toss!

Economic Analysis - My economic analysis whilst yet to be completed, paints a picture of economic consolidation rather then recession, i.e. economies consolidate into low growth regimes as they seek to balance deficits against stimulus measures, employing inflation (via QE) as a stealth tax to achieve this, so NO DEFLATION.

Trend Analysis - The bull market's second up trendline broke in early May which signaled the start of the correction phase. Current trend is borderline within a down sloping channel, currently favouring trend within the lower channel.

The market is currently below the mid channel line at 9,750. The best outcome would be for the Dow to rally above 9,750 and then hold this channel line so as to avoid a deeper low along the bottom channel line (9,300ish). On the upside its going to be tough for the dow to break above the upper channel line which should cap any rally.

Averages - 50 day and 200 day are acting as resistance, and I am sure you have all heard of the death cross i.e. when the averages cross. Whilst this is bearish, it is inline for a multi-month correction that could witness several crosses during a trading range thus negating its importance.

Time - Time wise as originally indicated in mid May the correction needs at least 3 months to work out the preceding 13 month rally, Mid May to Mid July is not enough, implies the market is going to continue correcting into early August i.e. within a low end trading range.

Targets - A break below 9,800 targets just below Dow 9,500, then 9,250, then 9150.

Conclusion - The original forecast correction to 9,800 proved too mild, we are in a more severe points correction, however trend wise and time wise we remain within a trading range that seeks to correct the preceding bull run to Mid April 2010, that's a 13 months advance that requires at least 3 months of down time that extends to late July - Mid August for a down sloping range pattern as illustrated by the below graph. The key to the trend for the next month or so is if the Dow is able to climb back above the mid channel line at 9,750. If it does then the Dow will target the upper channel at about 10,550 and remain stuck in this down sloping channel, failure to retake 9,750 targets a trend in line with the bottom channel line which would target a 9,250 low.

Bottom Line - We remain in a stocks stealth bull market and the action off of the April 2010 high is correcting the preceding 70% advance, which I expect to ultimately resolve to a new bull market highs this year.

Risks to this Analysis - That April was the top and we are now in a bear market that targets new lows i.e. Dow 6470.

My Strategy - I view this sell off as an opportunity to accumulate more, i.e. I did not buy any Brazil exposure when it was cheap last year so that's at the top of my list to add, though EWZ at 63.90, is still not particular cheap so I may have to bite the bullet at this price for long-run exposure.

Your barely scratched the surface analyst on the amount of work needed to be completed to arrive at an accurate multi-year UK house price trend forecast.

Comments and Source: http://www.marketoracle.co.uk/Article20833.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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Comments

Ian
04 Jul 10, 12:25
depression indicators

Nadeem, you are immensely brave to go against the growing "Imminent Depression" indicators.

Brave but quite mad (imho)

Cheers!

Ian


Nadeem_Walayat
04 Jul 10, 13:55
depression indicators

The time to get worried will be when the indicators all turn bullish ;)


Samir
06 Jul 10, 01:37
NOBODY is sure

Half of the experts saying buy gold. other half saying its a bubble. one part of analysts say, hey look at the indicators. great bear market is ahead just like 30s. while nadeem and other such saying we're in bull market. so confusing is the picture. only thing i can say is that coming time has major and never seen before surprises for all of the above groups. world economy is in transition cme and this transition is going to hops impact all established rules of economy. i mean economics.


Nadeem_Walayat
06 Jul 10, 03:36
NOBODY is sure ?

NOBODY is sure ?

Not quite correct.

What you mean is people are sure of differing outcomes.

Some are Sure that stocks are in a bear market and deflation, others are sure of inflation / stocks bull market.

At the end of the day you need to come to your own conclusion on the basis of which appears to be the most probable.


Shelby Moore (author of "End Game, Gold Investors Destroyed")
06 Jul 10, 04:51
SURE inflation

I know of no time in world history (including our history since 1934) that a fiat not redeemable at fixed price to gold, ever experienced a period of sustained price deflation.

There will be inflation until the world fiat system is fixed to gold again. Period. 1 million percent sure.

Those who are fooled by deflation nonsense, will lose.


Samir
06 Jul 10, 20:45
Reply

Thanks for your comments NADEEM :) i'm sure that common persons with limited knowledge of stock markets should better stay out of highly volatile markets and accumulate gold on every dip. i'm one of them so i trust gold. at the same time i feel path to gold backed currency won't be easy or within next some years as the giants controlling fiats will try everything . ethical and unethical ways to suppers gold. but i'm sure that in the new world order of economy gold will outperform all other investments.


Simon
07 Jul 10, 08:23
stocks bear market

Nadeem your analysis is totally unconvincing, you are going to end up giving all of your gains in the great bear market.

Robert Prechter is right ! He called the April top, March 09 lows will break, watch out below !


Nadeem_Walayat
07 Jul 10, 10:50
Stocks bull bear debate
Simon

You TOTALLY misunderstand me, I am NOT trying to convince you of anything !

It is upto YOU to make up YOUR MIND !

Your free to follow Precther. I am NOT ASKING YOU to FOLLOW ME ANYWHERE !!!

The bottom line is this - IT MAKES NO DIFFERENCE IF ANYONE FOLLOWS WHAT I SAY ! Because the PRIMARY purpose of ALL OF MY ANALYSIS is with regards to MY OWN Trading and investing.

Though you may want to check this out regarding the Bear market rally and April 2010 Top -

http://finance.yahoo.com/tech-ticker/article/367008/Bob-Prechter-Bear-Market-Rally-Is-Over-Stocks-Headed-For-New-Lows


Nadeem_Walayat
07 Jul 10, 15:04
Gold / Stocks

Gold is in a bull market so yes it is good to accumulate on the dips

Though stocks are in a bull market as of March 2009 that is outperforming gold by a long way.


Ajay Singhi
07 Jul 10, 17:20
Questions about Gold and Sensex
Many thx for your analysis and updates. I cannot thank you enough for the great work you are doing. You are one of the very best FA and TA I have read and I have read quite a few of them. Had 2 questions. Hope to get some clarification:

1) In your e-book, you had outlined that the broad range for Sensex (Indian Stock Mkt) for this year is 10,000-180000. Despite the fact that SPX has retraced almost 61% of its upmove from the 2009 lows, Sensex has stubbornly refused to follow suite and has remained at the 17,500-18000 area in the last few months (almost a year). The general investor perception is that Sensex will make a new high by October. With US mkts close to their lows and a possible rebound from here to new highs by Sep-Oct (as evident by today's rally), do you foresee any need for any revision to your forecast about the Indian Mkt? As per my analys, during the 2nd half of the year, we would see a role reversal. US mkts will take the leading role and make new highs while Indian mkt will correct from hereon and join the bull party later on. Assuming that we have completed the correction on SPX, I place a similar about 61% correction on Nifty, targeting about 4200 by mid september. I would like to hear your views.

2) From its low in 2008, gold peaked exactly 21 months after its 2008 bottom and has then sold off quite a bit. Would it be fair to say that we can expect a correction, targeting at least 38% correction to the 1030 area?

My mouth is salivating at the prospects of adding more gold to my portfolio in that range. If we get 50% correction to 965 area, there is nothing like it. Thanks, Ajay -- Ajay Singhi
Nadeem_Walayat
07 Jul 10, 17:29
Markets

Hi

S&P retraced 61% ? That does not sound right.

I don't trade Sensex, I invest in India for the long-run, therefore from an portfolio point of view its great the sensex has NOT fallen.

A quick look at the chart is clearly shows a trading range of 18000 to 16000. So as a long-term investor, I would accumulate at 16k (though I already hold enough of the BRIC's - except Brazil).

4,200 ? - 16k's is the support and the pattern appears corrective.

India is showiing relative strength against the forecast which is a positive development, i.e. implies stronger forward trend.

The forecasts are road maps against which to quickly measure market strength or weakness.

Gold - Its just marking time before it breaks higher, chart wise there is support at 1155, which implies a low above this level.

Best

NW


Jas Singh
08 Jul 10, 17:48
Gold in Sterling

But what about Gold buying in £££?

Our ConLib government do have something resembling a plan to cut the deficit.

It appears much more attractive than many other major FX's, the US dollar in particular?

Regards


Nadeem_Walayat
08 Jul 10, 19:17
sterling

They don't want a strong currency, so rally should be temporary.

Though I would prefer to be wrong on sterling falling, because it is part of the inflationary theft of hard earned savings by the government.

People have been brainwashed into thinking devaluton and inflation are good - when they are near evil mechanisms for theft of life time savings.


Jas Singh
09 Jul 10, 05:05
Sterling

Yes, they probably don't want a strong currency.

However, what can they do if the markets decide they want sterling?

As your previous analysis suggests, fiscal policy fundamentals have improved significantly under the ConDem's.

I don't think the majority think that inflation is good. I think the majority lacks the financial IQ to connect the dots of what is happening.


Jas SIngh
12 Jul 10, 03:59
Sterling

Nadeem

I would appreciate your feedback on this. What can, or will the UK government do to ensure a weak Sterling, in relation to other major FX's?

Fiscally speaking, they are actively attempting to reduce the deficit, more so than many other western governments.

Do you think the markets have already priced in a deficit reduction?

Also, do you have any idea how much of the government debt is Sovereign debt?

Best

JS


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