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Friday, February 22, 2008
For those who do not remember, the pattern has been 100% over a 10 year time frame and has returned 24% from the lows to the end of the move.
A move of this size will bring us right back to the highs on the S&P 500 at 1570-1580.
Here is more confirmation of this pattern, as the prediction model is looking for sharply higher prices over the next 2 1/2 months.
The blue bars represent the current market action and the black bars are the benchmark model.
As you can see, the black bars make quite an impressive run over the next 60 days and to top it all off, the model is calling for a 24% return from low to high just like the sentiment pattern did.
The market today staged a very impressive late day rally and once again saved itself from breaking the wedge based on closing prices. This continues to be a strong positive, especially with most market pundits expecting this pattern to break to the downside.
I think the main reason you saw such a sharp reversal was their short covering as the market moved a but higher. Many of the shorts put their positions in place early in anticipation of some sharp downside follow through on a break of the wedge and when this did not materialize and the market began to stabilize and push a bit higher there was a mini buying panic as more and more shorts got covered.
The good news about getting today out of the way is that we are now out of the seasonal weakness pattern and breaking into a strong seasonal upside pattern. This pattern officially goes into effect on Tuesday and runs all the way through March 16 or perhaps even stringing out all the way to March 20th. The nature of the potential rally will dictate its life cycle so we will address that once we have enough data under our belts.
For Monday we have a Neutral to Very Slightly Bearish Tendancies for the day.
The Models Outcome is as Follows:
Bullish - 3 components
Bearish - 3 components
Neutral - 2 components
This translates into a coin toss either way, but should not be a big increase or decrease when the close finally occurs. Expect the volatility to continue though as there are simply to many positions out there that need to be squared.
As I said, I am going to try and post more of a week-end comment later in the week-end, but in the event I do not manage to squeeze it in, then this will have to do.
I hope you all had a very profitable week in the markets as there were some great opportunities presented to us and the good news is that looking forward, new opportunities should flourish.
Thursday, February 21, 2008
Not superb volume, but decent.
There are a couple of options here as to how to play this.
1. Buy half your position in this area and wait to but the second half if and when the stock comes back to the trendline and tests.
2. Conservative investors can wait until it pulls back to the trendline and has a successful test before putting a line together,
The market managed to stay within the wedge on the S&P 500 and the 30 minute Nasdaq as well. The two charts show both of these occurences.
The seasonal model calls for a moderate up day Friday as the model scored
Friday also is the early start to a strong period in the market.
Wednesday, February 20, 2008
The market is marching right along with what our work dictates and the next stop on the upside is a break of the upper boundry on the wedge as shown in the chart below.
Tomorrow brings to a close the negative seasonal influence and next week should usher in a very strong upward seasonal draft that could very well carry prices sharply higher. This period of strength also has life until mid March where we should see some weakness for the last half of the month.
The Probibility Model for Thursday shows us 6 Neutral and 4 Bearish, so we anticipate a down day, but only modestly so, with the lows of today remaining untouched.
Things are starting to shape up on the intermediate term picture, however, after we complete this negative seasonality tomorrow, we need to really see the market make a move upward that will take investors my surprise and also begin to bring some of the sidelines money back into the game.
Here is the breakdown of the Seasonal Probability Model.
Day of the Year - UP 47% Neutral
Day of the Month - UP 47% Neutral
Return for Day of the Month - (-0.08)% - Neutral
Day of the Week - UP 55% Neutral
Day of the Week Returns - +0.04% Neutral
Post Option Expiration - UP 42% and worst of the week - Bearish
Post Option Expiration Return - (-0.16)% and 2nd worst of the week - Bearish
Post Presidents Day - UP 42% - Bearish
Post Presidents Day Return - (-0.02)% - Neutral
Inside Pattern - UP 43% - Bearish
Overall - 6 Neutral and 4 Bearish
Comment - Look for a modest pullback Thursday
Tuesday, February 19, 2008
Today was marked as the worst day of the 3 day seasonal weakness pattern and could be the lowest point of the weakness we see.
The market tried to break out of its wedge today, but the pressure lower would not let it hold.
The second day in this weakness pattern calls for a modest increase in prices, so we could see a break on the upside out of the wedge tomorrow. You can plainly see on the chart that we are getting very close to a break one way or the other and Wednesday should rectify prices in either direction, with the probibility leaning towards a break higher.
The Third and last day in the seasonal weakness pattern calls for only modestly lower prices so should we get a break out of the wedge in an upward thrust tomorrow then we will look for a small pullback of that move for Thursday.
After this pattern works its way through, the market should enter a period of unusual strength all the way until March 19th. Of course we need one thing to happen at a time and the first is an upside breakout of the wedge.
DAY OF THE MONTH - 52% CHANCE OF AN UP DAY (INSIGNIFICANT) - NEUTRAL
DAY OF THE MONTH RETURN - NEUTRAL
DAY OF THE WEEK - 59% CHANCE OF AN UP DAY - BULLISH
DAY OF THE WEEK RETURN - BEST OF ALL DAYS - BULLISH
POST OPTIONS EXPIRATION - 54% UP DAY AND BEST OF ALL DAYS - BULLISH
POST OPTION EXPIRATION RETURN - HIGHEST OF ALL DAYS - BULLISH
POST PRESIDENTS DAY - 40% CHANCE OF AN UP DAY - BEARISH
POST PRESIDENTS DAY RETURN - INSIGNIFICANT - NEUTRAL
OUTPUT - MILDLY POSITIVE DAY EXPECTED
Monday, February 18, 2008
Yesterday we talked about the negative side of the current market and why 1320 on the S&P 500 is so important to the intermediate and long term viability of equities.
This still remains the case mind you and that level on the S&P 500 continues to remain an area of concern and bears a keen eye in order to keep all avenues open.
However, as you know, I remain one of the few that continue to believe we are NOT in a bear market and this decline we have seen in equity prices, while painful, is nothing more than a normal correction in an ongoing bull market.
Remember, all of these market pundits that are crying wolf now are the same ones who have been echoing caution over the last 2 years. These are the same market analysts that talked about how long it had been since the market saw a meaningful correction of 10% or more and how just this type of correction would be healthy for the long term viability of equity prices.
Well now they have gotten their 10% plus market correction that they had been looking for and all of a sudden it no longer is healthy for the market, but quite the contrary. Now it has become the starting of a bear market instead of a normal correction in a bull market.
Seriously, I don't know how they can do it. They look for something to happen for two years and remain in a limited equity position during the entire time and then the market finally does what they have been saying it would do and all of a sudden they change their minds on what it means.
You can see now why I do all of this analysis myself and I only use the mass of analysis from others as a contrarian indicator at best.
Anyway, I have attached a chart of the NASDAQ that shows quite a large wedge forming on the 30 minute chart. This wedge has some fairly major implications for prices if it breaks out to the upside. The minimum target is for a better than 12% rally to be ripped off and probably in fairly short order.
So while we continue to monitor that S&P level 1320 we also remain in a buy weakness mode and until anything tells us differently then this is the strategy we continue to use.
Sunday, February 17, 2008
While we believe the ultra short term low was put into place on Friday, it never hurts to be prepared for the unexpected, especially with the current market behavior.
The chart below shows exactly what I am talking about and should be printed out for reference.
That is how important it is.