Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stock Market Indices Buying Opportunity

Stock-Markets / Stock Markets 2011 Mar 18, 2011 - 07:37 AM GMT

By: John_Hampson


Best Financial Markets Analysis ArticleIn my analysis of February 17th I suggested that a stock market pullback was imminent - it began on the 18th and remains in progress.

In my analysis of March 2nd I suggested the correction should last an average of 4 weeks based on cycles and previous corrections, and that the overly bullish indicators and sentiment needed resetting, in order for the cyclical bull to continue.

In my analysis of March 4th, I pointed to the large triangles in certain Eastern stock indices and suggested a large move was coming with their conclusion, since which the Nikkei and ASX have broken down.

In my analysis of March 11th, I suggested that indicators and sentiment measures had not been yet sufficiently reset and that movement in other asset classes suggested the correction was not yet complete.

In today's analysis, with the correction now 4 weeks old, various indicators and measures are suggesting that a US and European stock indices buying opportunity lies here and in the near term future.

Consider the items below, that point to either a low reached yesterday or a low close ahead:

1. Yesterday, the German Dax index hit daily RSI of 16, a lower reading than that reached in all of the 2007-9 bear. US and other European indices reached 30 or below.
2. Quantitative Edge's proprietary capitulative breadth indicator closed at 8 - readings over 7 have historically implied bear move exhaustion.
3. AAII's sentiment survey for week ending 16th March revealed a jump to 40.1% bears - readings of 46.3% bears or more have historically resulted in a rally for the months ahead - so close but not quite there.
4. The SP500 percentage of stocks above the 50 day moving average achieved a level historically suggestive of a reversal as of now or a little lower:

Source: Indexindicators

5. Nymo reached oversold. Typically we see a positive divergence on Nymo lead a reversal in the index. So it may mean we need to see a lower low in the index ahead, together with a higher Nymo reading, before the a reversal in the SP500 comes to fruition.

Source: Cobras Market View

6. The Nasdaq Oscillator also reached the oversold level.

Source: Hays Advisory

In summary, I have sufficient evidence to buy the stock indices here and phase in over the near term should prices track yet lower.

But buy just for a bounce, or for a sustained bull move?

Recall the reasons for the cyclical bull to continue:

1. QE/Pomo ongoing until June, plus Bank of Japan has so far injected $700 billion additional liquidity.
2. ECRI leading indicators are positive and trending up.
3. Money supply growing, money velocity stable.
4. Last earnings season delivered a solid beat rate both in earnings and revenues (higher than the last 3 quarters), and US earnings season begins again April 11th.
5. Stocks are cheap relative to bonds historically.
6. Stocks are in the presidential cycle sweetspot in 2011, particularly the first 6 months.
7. Inflation has not reached over 4%, a historical marker of the end of cyclical bulls.
8. 10 year treasury yields have not reached over 6%, also a historical marker for the end of cyclical bulls.
9. We have not seen a typical stock market topping process, normally lasting several months, accompanied by weakening breadth.
10. Yield curve is normal.
11. We have not reached overtightening of interest rates (not even started), typically ending historical cyclical bulls.
12. Recession models not forecasting a recession in the near future.
13. Solar cycles predict inflation and growth into 2013, then a recession.
14. Previous cyclical bull market internal comparisons predict this cyclical bull to continue until 2013.

And one current warning flag:

15. Bloomberg Financial conditions index has now turned negative.

In summary, the weight of evidence lies firmly with the cyclical bull continuation at the moment, and as previously noted, if this WERE a cyclical bull market top then we should see a range bound 'confused' market, a topping process lasting on average a couple of months or more, whilst stock market internals and the evironment for stocks weakens. It will become clear with time. Therefore, I am buying on the long side expecting cyclical bull continuation, but can sell into the range if a market topping process becomes more evident. The probability of the market having already begun a new cyclical bear from the February 18 peak and continuing downwards does not fit with historical cyclical bull tops and would occur in the face of the 14 counter-reasons listed above. Therefore, the lower the market falls in the near future, the more I want to buy.

The strength of this cyclical bull off the March 2009 low historically suggests this will be a prolonged bull of large returns. In a projected 4 phase cyclical bull our first phase from March 2009 through to April 2010 was amongst the strongest of any in history. The second phase typically produces much more mediocre returns than the first and should last roughly to June 2011. An average 6.4% gain for this second quartile would see the market around 1280 by June. However, given the strength of the bull so far and the supportive role of QE into June, a target of 1350, I believe, is more appropriate.

Source: Laszlo Birinyi

The pullback in the markets is welcome as we are now more closely aligned for cyclical bull continuation. To date there has been a good historical rhyme with the cyclical bull of 2003-2007, shown below. A 9-12 month initial steep leg up, a 9 month consolidation or so, and then a cyclical bull continuation but at a shallower rate than the first leg. Our current cyclical bull has thus far been a more supercharged version of 2003 onwards.

There is some downward pressure for the markets into and around this weekend's full moon and some negative seasonality next week. If the markets need to produce a lower low, before rallying, then that makes for a suitable window. April is usually a positive month for stocks.

In summary, the market correction, by time and by indicators, now makes me a buyer both here and in the near term in the eventuality of a lower low, on the basis that the weight of evidence still lies firmly with cyclical bull continuation.

John Hampson

John Hampson, UK / Self-taught full-time trading at the global macro level / Future Studies / Forecasting By Amalgamation / Site launch 1st Feb 2011

© 2011 Copyright John Hampson - 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 - 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