Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Sheffield School Places Election Crisis - Affluent Schools Demand Increase in Funding - 27th Apr 15
Labour Bribes Voters With Housing Market Stamp Duty Cut and Rent Controls - 27th Apr 15
Stock Market SPX Index at Resistance - 27th Apr 15
Society's Leaders Have Been Digging a Bottomless Economic Pit - 27th Apr 15
Impending Stock Market Top - Trend Forecast Summer 2015 - 26th Apr 15
Desperate Stock Market Bubble Thinking Takes Hold on Wall Street - 26th Apr 15
Stock Market Back into The Bear Suits - 26th Apr 15
One Stock Market Where You Haven't Missed the Bull Market Boom Yet - 26th Apr 15
Migrant Crisis - Europe Has Completely Lost It - 26th Apr 15
What Obama's First-Ever Energy Review Missed - 26th Apr 15
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The War on Cash!

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.


© 2005-2015 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

Free Report - Financial Markets 2014