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Trading Any Market

Dow Stock Market Index Interim Trend Analysis and Forecast Update

Stock-Markets / Stock Markets 2011 Jan 24, 2011 - 12:35 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleThe stock market spent most of the week trading sideways in a tight range into Fridays break higher to a new bull market closing high of Dow 11871.84. However minor weakness during early to mid week was enough to get many perma-bears with itchy fingers to short and lose more money on the so called bear market rally (approaching 2nd anniversary). Some even went so far as to resurrect the worthless Hindenberg Crash Omen, as they wait for the one time when it actually delivers something other than trading losses, though a coin toss has repeatedly shown itself to be infinitely more profitable than the likes of the hindenberg crash omen.


My last in depth analysis and concluding forecast for the Dow projected a trend higher into Mid January 2011 to target Dow 12k as illustrated by the below original graph (18 Oct 2010 - Stocks Stealth Bull Market Dow Trend Forecast into Jan 2011).

Which compares against the Dow's actual trend path:

The focus of my current in depth analysis follows on from last weeks UK Inflation Forecast (17 Jan 2011 - UK Inflation Forecast 2011, Imminent Spike to Above CPI 4%, RPI 6%) on coming to a trend conclusion for UK interest rates during 2011.

However, this interim analysis is in response to a number of requests for an update on the Dow ahead of the next in depth analysis that is anticipated by Mid Feb 2011.

Where trading the Dow and other stock indices is concerned, in-depth analysis concludes in targets for positions, for the primary purpose that following entry of a trading position no further analysis is required until the target (limit) is achieved and the position is exited, or money money management (stops) exit the position on negation of the trade scenario.

Where the 12,000 target / forecast for the Dow is concerned, the Dow has done NOTHING so far to negate the existing scenario, nor has it resulted in a trend since the start of December that can be termed as being anything other than a market that is trending higher on auto-pilot.

So the Dow still targets Dow 12k, regardless of whether mid January has come and gone, because one trades the price not the anticipated trends which at the end of the day are best guesses utilised to measure relative strength and weakness. Which I will cover at length in a forthcoming ebook on the Real Secrets of Successful Trading (Due March 2011 - FREE to the Market Oracle readership).

Dow Stock Index Analysis

Market Psychology - Frustrated perma-bears continue to lose money for themselves and anyone that still cares to listen to what they spout as their stops are hit and options expire worthless. The behaviour patterns of the perma-bears with their bear market rally commentary continues to play out as I anticipated within a few weeks of the March 2009 low. Which illustrates the worthless of the whole thesis of the "bear market rally" that is has scared many small investors from monetizing on a near 100% bull run and more on other indices.

The stocks stealth bull market on Friday closed above 8,000 on BAD U.S. unemployment data, having rallied near 24% from the low of 6470, as expected the rally is STILL predominantly perceived as a Bear Market rally that contrary to some statements is still being AVOIDED by ALL but the Smart Money!

Yes after the market has moved 24%, EVERYONE IS STARTING TO HAVE SEEN THIS RALLY COMING ! - BUT NO ONE (me included) can invest or trade in a trend that they perceive as being corrective, secondary, inferior, an aberration, a subversion of the mighty bear market that seeks ever greater explanations of why it still remains intact, forget the 20% bull / bear reversal rules, instead lets hark back in time to the instances where bear market rallies could rally much further so as to always reinforce the distant juncture hypothesises, 20%, 30%, 40% ! FORTY PERCENT!

STILL a Bear market Rally ? , Will it Always Be a Bear Market Rally ?

As ever bears are at their most vocal at market correction bottoms, and have tended to emerge on every down day for virtually the past 2 months to call an end to the so called bear market rally. However a fact that they are unable to realise is that the stocks rally off of the March 2009 lows (15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ) that set a new high on Friday is longer in duration than the preceding bear market from October 2007 to March 2009!

Last weeks minor intra-week dip will have given the bears (especially on other indices) another opportunity to throw more good money after bad which implies Dow 12k is likely to be achieved over the coming week as futures and options positions result in more losses for those that fight the prevailing trend.

Off course many of those of the bearish commentate that particularly infects the blogosfear don't actually trade for the 95% rally of approaching 2 years would have already bankrupted perma-bears several times over by now, especially as many of the calls are at their most intense at market correction bottom as observed during Mid 2010 (22 Aug 2010 - The Hindenburg Stock Market Omen Doomed to Crash and Burn? ).

So I will leave the perma bears to finance the profits of the zero sum trading game as they keep shorting a market that continues to make NEW BULL MARKET HIGHS !

For some reason many commentators confuse analysis with looking for what supports ones pre-existing point of view. Instead market analysis should be starting from a BLANK FLAT position, and then let the market talk you into the most probable direction to trade, and always remember that ANY TECHNICAL TOOL or Indicator or theory in the long-run WILL NEVER BE MORE RELABLE THAN A COIN TOSS!

Elliott Wave Theory - The trend continues to resolve towards the October 2010 wave pattern for the current rally being a 5th wave, which implies it will terminate in a significant correction in time and price (at least 10%). Given that the Dow target of 12k is nearby, the correction appears not far off.

TIME ANALYSIS - Suggests the rally has the potential to continue into mid Feb 2011.

TREND ANALYSIS- The Dow continues to march higher targeting resistance at 12,000 and beyond, with no technical sign of a reversal. Support lies at Dow 11,500 that would likely be the first target for any downtrend during Feb, then Dow 11,000.

Conclusion

Firstly, whatever the stock market does over the next few weeks i.e. corrects or trends higher, one thing that continues to be reinforced by the price action is that the bears are going to suffer a lot more pain during 2011 because this bull market is far from over.

The above analysis is concluding towards probability favouring continuation of the trend higher to the Dow 12k target by early Feb, when the market can be expected to consolidate the advance of the past 6 months and enter into a significant correction that at this point suggests a 10% decline, so tighten the stops and take the ongoing rally to bank profits which is the number one AIM of trading / investing!

The target date for my next stocks in depth analysis will accompany the expected correction (Mid Feb 2011) which will aim to replicate the forecast trend of 2010 (02 Feb 2010 - Stocks Stealth Bull Market Trend Forecast For 2010) and map out the trend for the Dow into the end of 2011.

Ensure you remain subscribed to my always free newsletter to get my next in depth analysis on the stock market in your email in box, not forgetting my next ebook on the Real Secrets of Successful Trading (Due march 2011).

Your analyst, keeping an eye on the bankrupt banks..... (next in-depth analysis).

Source and Comments: http://www.marketoracle.co.uk/Article25805.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-11 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 24 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 UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 600 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

martin begbie
24 Jan 11, 05:48
USD Index

NW,

Given you expect a significant correction of possibly 10% in stocks, what impact do you see this having on the dollar index? My assumption is the dollar index would spike on safe haven buying, but this is not in line with your expectations for dollar index to fall to 69-70 by mid year.

Appreciate your thoughts.

MB


eric
24 Jan 11, 15:43
dow update

Hi Nadeem -

Appreciate you taking the time to provide this update despite all the other analysis you are trying to complete. Let's see how the market plays out!

One trading logistical question:

Are you comfortable taking profits and sitting on cash, keeping in mind that cash has limited protection.

Not sure how it works in the UK, but cash held in US brokerage accounts are not FDIC insured. One runs brokerage firm counterparty risk with cash not directly parked in some sort of security. Do you know of "almost guaranteed" liquidity ETFs that would eliminate this counterparty risk?

cheers,

Eric


JVC
24 Jan 11, 18:23
S&P 500 long term chart

Your technical analysis is impeccable.

The SPX seems to be repeating the pattern it made during the late 60's to 1980. Do you see the resemblance?

http://i51.tinypic.com/66i8ee.jpg

[IMG]http://i51.tinypic.com/66i8ee.jpg[/IMG]


Nadeem_Walayat
24 Jan 11, 20:12
USD Index

Hi

That would be the consensus view on the USD, my expectations are for a volatile downtrend, I am more interested in the destination than how we get there.

Best

NW


Nadeem_Walayat
24 Jan 11, 20:17
Trading Accounts

So far only lost money deposited in a brokerage account once in 1989. Leverage ensures that in a worst case scenerio the actual amount at risk across several accounts is less than 5% of liquid.

Its ALL a case of managing risk, stick to the bigger more well known firms rather than the small ones.

NW


Nadeem_Walayat
24 Jan 11, 20:18
bull market

Hi JVC

One indicator or chart is not enough, the sum of my analysis continues to conclude towards a multi-year bull market.

Best

NW


raj
25 Jan 11, 14:38
update

Nadeem,

please could you do an update for this article:

http://www.marketoracle.co.uk/Article2815.html

It would be great to see where the oppurtunities lie now,

Thanks

:-)


Roman
26 Jan 11, 04:31
Yen

Hi, is your view on Yen changed since the last currencies update? How likely is 115? It seems that Yen is consolidating for a move, tricky to see where the next target is, as BOJ will try to prevent it trading below 80 vs USD, are they just threats or do they have the power to stop Yen appreciating?


Nadeem_Walayat
27 Jan 11, 12:30
Yen

Hi

Analysis of yen was as a component of that for the USD.

I don't trade the Yen, so can't comment what it could do next. Just that I expect the USD Index to weaken into Mid 2011 target of 69-70.

Best

NW


David L
27 Jan 11, 12:31
Uranium

Ni Nadeem. Thank you as always!

You have mentioned uranium before. What specifically would you recommend to express this?

Also, are there any other off-the-radar areas you would recommend inquiring into?

Thanks!


Nadeem_Walayat
27 Jan 11, 12:33
Uranium stocks

Hi

I prefer to invest in sector leaders rather than small caps, far lower risk and time commitment.

Cameco is the primary one where uranium is concerned.

Best

NW.


Diane Cleak
29 Jan 11, 11:51
DOW

Hello Nadeem,

What do you think of the current situation on the DOW?

Are the recent falls simply due to the panic over Egypt,or is this the beginning of the 10% correction?

I would be most interested in your view.

All best wishes,

Diane :)


Steve
08 Feb 11, 09:06
Correction

Nadeem,

Where is the correction? Are you still anticipating one?


Nigel
09 Feb 11, 02:31
Will the Dow still correct now, or later?

At what level will your view that the Dow is to enter a 15% correction at 12,000 be negated? Is this still to happen in the near-term?


Nadeem_Walayat
09 Feb 11, 06:29
Dow correction

Hi

I'm flat as of Dow 12k, my immediate focus is on coming to a conclusion on UK interest rates, I'll come back to the Dow for a trend for 2011 in about a weeks time.

My last quick update was for Dow 12k to target first 11,500, which is clearly not happening.

Best

NW


SC
10 Feb 11, 04:07
Dow correction

I'd say the corrections just started so to a couple of hundred points NW was close enough.

Where I think he will miss is the USD to .74 (was it?). Any meaningful correction here will see the USD rise targetting .82. Yields on treasuries and gilts will fall stopping out the extremo inflationardos. Investment grade bonds will take a rise and higher yields will fall alongside equities. AUDS/USD shold drop with 2 targets at .95 and .90. Oil and gold will both drop along witha steepening sell in Asian/Emerging markets for equities and bonds. In short risk off until we get rid of the overbought in all these markets.

The problem with getting super bullish on equities is it ignores the very relevant problem of what that implies for the bond markets. At these debt levels it takes a relatively tame rise in yields to create liquidation hence why it is much more likely to be choppy seas as we seesaw between them.


ac
11 Feb 11, 18:42
Shale Gas

Nadeem,

Do you reckon that shale gas could be a bigger oppurtunity compared to uranium?

P.S. :Eagerly awaiting your ebook on successful trading. Is it still on target for spring 2011 release?


Nadeem_Walayat
11 Feb 11, 20:01
Ebook

Hi

Ebook March / April is achievable. That and the housing market are my key priorities for analysis for 2011, unlike inflation, stocks and commodities for 2009-2010.

Best

NW


SC
12 Feb 11, 12:29
Good News

That's good news.

I'm a cynical old devil having witnessed firshand how sellside participants consistently load their analysis with their vested interests. Yours ,I am pleased to say is about has free from intrinsic bias as any I have seen. I don't always agree with every facet of your analysis,but more importantly it does make me think about my own outlook withinthe context of your analysis and for that I thank you for your efforts.


Dinster
13 Feb 11, 12:35
eagerly await your ebook

I concur with SC, you have proved to be one of the most accurate forecasters for as long as I can remember and I eagerly await your ebook.

I would also be more than happy to subscribe to paid service for more regular updates on the markets.

Thanks for helping me increase my wealth.

D.


SC
13 Feb 11, 13:32
Multi year Bull

Point of interest for you givent he outlook for future bullish behaviour. Looking at where serious inflations kicked off globally and where current monetary policy is at this time globally...where would you say we are in terms of the cycle of the last bull market 2003 to 2007 ? Looking at it the risk gains appear much further along than the chronological timeline for monetary tightening. By that I mean tightening was kicking in by 2005 ,but this level of risk gain looks much more like 2006.Either way though it's notable that the first half yearly (negative/consolidating) bias kicked in in both years albeit in different months of the first half.

I know like me you don't particularly care to look back and make 'yesterday' become a platform for current price action ,but nonetheless there cyclical patterns and I don't tend to ignore these.

Do you have a view on how this fits with prior fiscal and monetary policy and it's relationship with risk taking.?


Nadeem_Walayat
16 Feb 11, 01:37
stocks and tightening

I recall looking at this some months ago, and concluded that rising interest rates are not necessarily be bearish for stocks.

Any indicator on its own is just a coin flip.

Risk wise, over the past 3months, I have converted approx 18% of my stocks and commodities portfolio into cash.

My current focus is UK interest rates then housing, as I need to conclude whether this is the best time to buy a property or not.

The amount of work I've set myself to achieve this conclusion is pretty daunting.

Best

NW


Nadeem_Walayat
16 Feb 11, 01:42
Subscription
Dinster, I explained why I won't go down that route about 2 years ago.

15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470

Best NW
RM
16 Feb 11, 07:59
Trading

Your articles are exceptionally helpful so thank you. I have never been a successful trader as I fell in the trap of wanting to get rich quick. I took a year out to clear my head and work in a different industry. What with my recent inspiration from your work and of course a grounded respect and understanding of taming ones psyche; I am ready to get back. The only problem is that I feel I know a little about a lot – and it’s all a big mess in my head!

Would you mind giving me 5 bullet points on the key facts I need to study to be a successful trader? S&P and EURUSD are the two products I’m looking at. I want to build a daily habit/routine but I do not know what that tick-off list looks like. The myriad of “Trade from home” books are useless.

Even if you recommend an amazon link then I’ll do that 

Probably a daring ask, but thought I would try my luck.

RM


Nadeem_Walayat
16 Feb 11, 16:02
Learning to Trade

Bullet points ?

1. Trading is tough, if your not fully focused you will lose money. It is not for everyone which is why over 90% lose.

2. Focus on ONE market only.

3. Trading Book ? Only one that sticks in my mind is "How to Make Profits in Commodities" by WD Gann, - It if you get it, don't read it, study it. Also don' take this as an endorsement for ganaphilia, for Gann was a great trader but an even greater salesman for mostly what did not work. But this book does work.

4. Be skeptical of everything, every tool,theory and commentary including your own analysis - Don't get emtioanlly attached, key is. is it making you money ? If not your wrong.

5. Don't discuss your positions with anyone else, EVER ! Else you will now have to contend with outside interference in your processes.

6............ my next free ebook

Best

NW.


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