Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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.


© 2005-2019 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

6 Critical Money Making Rules