Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
Here’s Proof Rising Rates Are Good for Gold - 21st Feb 17
Gold and Silver Weekly Update - 21st Feb 17
US Dollar and Gold Battle of the Cycles - 21st Feb 17
NSA and CIA is the Enemy of the People - 21st Feb 17
Big Moves in the World Stock Markets - Big Bases - 21st Feb 17
Stock Market Uptrend Continues - 21st Feb 17
Brent Crude Oil Price Technical Update: Low Volatility Leads to High Volatility - 20th Feb 17
Trump’s Tax System Could Spark The Wave Of Self-Employment - 20th Feb 17
Here’s How to Stay Ahead of Machines and AI - 20th Feb 17
Warning Signs Of Instability In Russia - 20th Feb 17
Warning: This Energy Investment Could Wreak Havoc On Your Portfolio - 20th Feb 17
The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts - 19th Feb 17
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17
Gold Stock Volume Divergence - 17th Feb 17
Gold, Silver, US Dollar Cycles - 17th Feb 17
Inflation Spikes in 2017, Supporting Gold Prices Despite Increased Odds of March Rate Hike - 17th Feb 17
Roses Are Red... and So's Been EURUSD's Trend - 17th Feb 17
Gold Trade Note Sighted - 17th Feb 17
Gold Is Undervalued Say Leading Fund Managers - 17th Feb 17
NSA, CIA, FBI, Media Establishment 'Deep State' War Against Emerging 'Trump State' - 16th Feb 17
Silver, Gold Stocks and Remembering the Genius of Hunter S. Thompson - 16th Feb 17
Maps That Show The US’ Strategy In Asia-Pacific - 15th Feb 17
The Trump Stock Market Rally Is Just Getting Started! - 15th Feb 17
Tesco Crisis - Fake Prices, Brexit Inflation Tsunami to Send Food Prices Soaring 10% 2017 - 15th Feb 17
Stock Market Indexes Appear Ready to Roll Over - 15th Feb 17
Gold Bull Market? Or was 2016 Just a Gold Bug Mirage? - 15th Feb 17
Here’s How Germany Buys Time From China - 15th Feb 17
The Stock Trader’s Actionable Guide to Trump - 15th Feb 17
Trump A New Jacksonian Era? The Fourth Turning (2) - 14th Feb 17
Stock Market Yet Another Wall Street 'Witch's Brew' - 14th Feb 17
This Is Why You Don’t Own A Lot Of Stocks - 14th Feb 17
Proposed Tax Reforms Face Enormous Headwinds - 14th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Probabilities For The Stock Market Going Forward!

Stock-Markets / Stock Markets 2012 Nov 10, 2012 - 10:37 AM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleThe Dow plunged 433 points, or 3.3%, in the two days after the election. The timing makes it ‘obvious’ to many pundits that it’s due to President Obama being re-elected.

But he was already president prior to the election, and the stock market has been in a strong bull market that started March 10, 2009, less than two months after he was inaugurated. And after a 10% March to June correction this year, the market continued to rally strongly off the June low even as the polls showed him as likely to win re-election.


So it’s doubtful the election is the catalyst for the correction.

Besides which, the correction is not something new this week. It’s been underway since mid-September, almost two months ago. In fact, the correction was already enough to break the trend-line support of the rally off the June low a month ago.

The Dow gained 1,492 points from its June low to its September high, and has now given back 800 points since that September high.

So what is the market’s problem?

If the media’s sudden switch from its obsession with the election to its new fixation on the ‘fiscal cliff’ is any indication, the worries of corporate insiders and hedge funds all summer are finally being recognized as being serious.

Major market participants including corporate insiders and hedge funds did not believe the rally off the June low was justified and were already selling into it at an unusual pace, and increased their selling after the Fed announced in September that it would provide QE3.

From their public pronouncements it was clear that concerns about the dysfunction in Washington, and the resulting ‘fiscal cliff’, were primary factors in the bearishness of corporate insiders, and the high levels of cash raised by hedge funds and other institutional investors. The heads of major corporations, rating agencies like Standard & Poor’s, and even international agencies like the IMF and World Bank, have been warning all summer that the U.S. fiscal cliff must be resolved or the U.S. economy will drop into a recession next year.

Other worries also remain, including plunging U.S. corporate earnings and the euro-zone debt crisis.

Yet some serious concerns are subsiding. Economic reports have been indicating for a couple of months now that the U.S. economic recovery is back on track after its spring and summer slowdown. And recent reports from China indicate similar improvement there, alleviating fears that its economy is slowing into a hard landing.

I’ve been saying for some time, that although my indicators remain on sell signals, conditions seemed to be setting up for a correction but then a typical ‘favorable season’ rally through the winter. And it has been my contention in these articles that regardless of who wins the election, and even though it may be at the last moment, Washington will hammer out a compromise that at least kicks the fiscal cliff down the road into next summer.  

Meanwhile, the market’s most consistent pattern, regardless of which party is in office, and regardless of surrounding conditions, is its seasonality.

The basic ‘Sell in May and Go Away” strategy calls for selling May 1, and re-entering on November 1. Academic studies prove that following that simple strategy has out-performed the market by a significant margin over the long-term, while taking only 50% of market risk.

However, my firm’s Seasonal Timing Strategy (STS) improved significantly on the basic Sell in May pattern by incorporating a simple technical indicator, short-term MACD, and a re-entry rule that calls for re-entering the market on October 16 each year unless MACD is on a sell signal at the time. In that event, the re-entry is delayed until MACD triggers its next buy signal.

And that is the case this year. When October 16 arrived, short-term MACD was on a sell signal indicating a correction was underway. And it remains on that sell signal.

However, at some point in the October/November time-frame the market almost always becomes oversold in a correction and the indicator reverses to the upside to a buy signal that is the re-entry signal for the market’s favorable season.

I expect that to happen again this year, with the catalyst for the upside reversal likely to be a political agreement that resolves the ‘fiscal cliff’, or at least kicks it down the road.

So, for now the risk is for further correction. Not only has my seasonal strategy not yet triggered a re-entry, but my non-seasonal Market-Timing Strategy remains on an intermediate-term sell signal, and some significant support levels like 200-day moving averages, and trendline supports, have been broken.

So I advise continuing to hold the downside positioning in ‘inverse’ etf’s that I have been recommending in these articles for several months, as well as high levels of cash.

But it’s not a time to fall asleep at the switch. Given the broken support levels anything can happen. But I still believe conditions are being set up for a typical favorable season rally to next spring once the correction ends.

In the interest of full disclosure, I and my subscribers have 20% positions in each of the inverse etf’s; ProShares Short S&P 500, symbol SH, and ProShares Short Russell 2000, symbol RWM.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

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.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife