Best of the Week

Is the Stock Market Topping Again?

Stock-Markets / Stock Markets 2010 Jul 29, 2010 - 09:54 AM

Here at TMTF, I enjoy making controversial calls based on Human Behavioral topping and bottoming patterns, often referred to as Elliott Wave Theory. This is a difficult pattern recognition model to follow as there can be numerous interpretations. Instead, I look for additional clues like sentiment indicators, a few traditional technical indicators, headlines in the news and covers of papers etc.

Recently I saw an article on Bloomberg indicating that short positions were at two year lows, with the ratio of longs to shorts at 2 year highs. Those types of indicators I use to help confirm if I’m on the right or wrong track with a forecast.

Right now I think the SP 500 and markets are topping in a counter-trend ABC-X-ABC rally that really started with the May 25th lows of 1040, to the June 21st highs of 1130, back to the Jul 1 lows of 1011, and now to 1121 so far the highs. That 1121 number is a Fibonacci 50% re-tracement of the 2007 to 2009 highs to lows, and just 9 points below a 61% re-tracement upwards of the April highs to July 1st lows. Evidence mounts now that August could prove tough for Bulls and some risk aversion here is a good trade in my opinion.

Back in late June I saw similar sentiment and Elliott Wave topping patterns in Gold as well. The headlines were bullish, the talking heads on CNBC were all saying to buy any dip in gold and stay long. A 21 month rally was topping and I went ahead and stuck my neck out and predicted a multi month correction. Since then Gold has dropped from $1243 to $1158 at it’s recent low, and should be heading to $1043 eventually if I’m right. It takes awhile to knock the sentiment down from overly optimistic levels, just like with the SP 500 top in April which I forecasted in mid April as well.

The SP 500 would need to clear 1130 aggressively for me to cave in and call 1011 the bottom. That was a 38% fibonacci re-tracement of the 13 month market rally, and it’s possible that was the bottom for sure. Normally though, you would at least get a re-test of that low, and possibly a drop to 942 area on the SP 500 which is a 50% fibonacci re-tracement of the 13 month rally. In addition, the pullback so far only lasted about 8 weeks relative to 13 months of rally, so I think there is another several weeks yet before we can call a bottom in 2010.

Below is an interesting chart showing recent action since late May in the SP 500 index. Investor’s like to act in patterns and this seems to show a good one. Best to you and your trading!

If you would like to learn more about our market forecasting service, please go to www.markettrendforecast.com to sign up for free reports and to see what we offer.

Dave Banister
CIO-Founder
Active Trading Partners, LLC
www.ActiveTradingPartners.com
TheMarketTrendForecast.com

Dave Banister is the Chief Investment Strategist and commentator for ActiveTradingPartners.com. David has written numerous market forecast articles on various sites (SafeHaven.Com, 321Gold.com, Gold-Eagle.com, TheStreet.Com etc. ) that have proven to be extremely accurate at major junctures.

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 losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Comments

Post Comment (Moderated)

Subject:

Name:

E-mail address (will not be published):

Comment:

Commenting Issue - If on submitting you are returned to the main Index Page (50% chance) then your comment has not been accepted, Follow below steps for 95% chance of comment being accepted.

Click your browser Back button (from main index page).
COPY your comment text from Comment box (i.e. copy to clipboard).
Press PAGE Refresh - You should see the message "You are not authorized to carry out this operation"
Paste your comment back into the comment text box.
Click Submit - If everything goes okay you will remain on the article page with the message "Your comment was held for moderation and will be reviewed shortly".
If instead you are again returned to the main index page then repeat 1-5, alternatively EMAIL to comments @ marketoracle.co.uk quoting the article number.

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2011 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.