Stocks Bull Market About to Hand Bears Another Noose? Forecast 2016
Stock-Markets / Stock Markets 2016 Mar 30, 2016 - 08:36 AM GMTBy: Nadeem_Walayat
The supposed great bear market of 2016 has relentlessly trended in the WRONG direction as each hope that the bears clung to once more resolved in another ramping higher of stock prices. The latest best hope being the Fed meeting that was meant to deliver bear market apocalypse and most recently Yellen yelling that the Fed is in no hurry to raise US interest rates that keeps catching market participants by surprise. This despite near 2 months ago we saw the BoJ panic with negative interest rates, and then earlier this month the ECB also panic with negative interest rates!
Nevertheless the stock market has dutifully climbed a wall of worry to its last close of Dow 17,633, positive for the year and within 4% of its all time high of 18,351. So whilst the bears are blaming the Fed for the failure for stocks to fall, and if its not the Fed then its the corporate's for buying back their own stock, or that the markets are manipulated! All without understanding the fundamental fact that the MARKET is the sum of ALL of ACTIONS and the only place where this can be seen to become manifest is in the PRICE, just as I stated in March 2009 right at the beginning of this stocks bull market!
15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470
The markets ARE manipulated, once you as a small investor come to agree with this statement then you can take the necessary steps to prevent yourself from being wiped out by ALWAYS keeping this in mind that Manipulated markets WANT you to act in a certain manner at certain times, they want you to buy into the latter stages of a bubble as the manipulators distribute, and the market manipulators want you to SELL into Market Bottoms and early bull rallies when the manipulators are accumulating.
Who are the market manipulators ? Today it is the Investment banks, investment funds, CEO's (stock options) and last but not least HEDGE FUNDS that created the stocks bubble through leverage of X20 or more that subsequently bankrupted the banks that were driven insane by short-term greed with trillions of dollars of liabilities which have NOW been fraudulently dumped onto the tax payers. I have not heard a single story of a hedge fund manager losing money, not one! They have BANKED their profits ! The losers are their investors who held on and the banks who leveraged them up to the tune of tens of trillions, and in the final instance the Tax payers who are being FORCED to bail out the bankrupt banks to the tunes of tens of trillions!
The only thing that actually matters is the PRICE ! NOTHING ELSE! and I mean NOTHING ! Not earnings, Not fundamentals. Listen to the PRICE or you WILL miss the Stealth Bull Market!
And remember this is what I have been stating for the SEVEN YEAR DURATION of this stocks bull market, so it is not something obvious with the benefit of hindsight as several recently are stating, all after the fact, after stocks have been rising for many years, that it was all due to Fed market manipulation but then add must imminently end! Doh! The Fed and the rest have been manipulating stock markets since at least October 1987! The day after the crash when the Dow BOUNCED! (See how I beat the 1987 CRASH).
And a reminder that my consistent view for the duration of this year, even in the depths of Januarys severe correction was that the stock market would resolve with a trend towards NEW ALL TIME HIGHS THIS YEAR based on my in-depth crude oil price analysis of Mid January, concluding in the following two points :
02 Mar 2016 - Stock Markets Dow, FTSE Tracking Crude Oil Rally Towards New All Time Highs 2016!
Nevertheless my series of interim stock market posts and videos have been unequivocally consistent in the following two points :
1. That the stock market was under going a severe correction that would resolve in a resumption of the stocks bull market.
2. That the stock market was expected to track the crude oil price trend forecast which called for an early Feb low at approx $25.
25 Jan 2016 - Stock Market Bottoming Out or the Last Bull Standing?
Stock Market Quick Technical Take
What jumps out form the stock chart is that the recent bounce was off the August low, can it hold ? We'll the decline into the low was pretty severe which technically means it's unlikely to hold which means that the stock market is in a larger corrective pattern that began of the May 2015 high, which is a pretty lengthy corrective pattern in terms of time i.e. from May to probably February, which has acted to unwind much bullish sentiment to the point where even many of the former bulls are now fully fledged bears, probably reaching their most vocal just as the stock market puts in its bottom.
MACD - Additionally the MACD is in the process of bottoming out from an extreme low which also confirms that further downside is very limited.
The bottom line is that the oil price trend and the stock markets oversold state are converging towards a stock market bottom that should carve out a final bottom for 2016 in a time window that probably runs for another 2-3 weeks. So whilst it is probably not going look pretty i.e. the last low of 15,500 looks likely to break, however given the oil price trend forecast then it should form the end of this stock market correction and herald the resumption of the stocks bull market.
With my earlier stock market expectations directly based on my crude oil price analysis of Mid Jan 2016:
17 Jan 2016 - Crude Oil Price Crash Triggering Global Instability, Trend Forecast 2016
Crude Oil Price 2016 Forecast Conclusion
My forecast conclusion is for the crude oil price to trade within three distinct trading ranges for 2016 of $20 to $40, $35 to $50 and $62 to $40. Furthermore the trend pattern imposed onto the trading ranges implies that a bottom is likely by early February 2016 at around $25, followed by a trend higher into Mid year towards $50, a correction into September, followed by a trend towards $62 before succumbing to a correction during December to target an end year price of approx $48 as illustrated by the following forecast graph.
The bottom line is that the current the oil price collapse is a wake up call to all major oil producers that crude oil as an energy source is running out of time. So whilst there may be future oil price spikes, however the long-term trend, given the likes of climate change is for the oil age to go the way of previous ages such as the Stone Age and Bronze age and so it will be for the oil age. Which means nations such as Saudi Arabia, regardless of price understand they need to get as much of their oil out of the ground as possible and sold off before they run out of customers!
Stock Market Current Technical Take
With the bears scurrying further back into their caves given the relentless nature of the Dow's ongoing climb higher, here's my technical take on what is probably going to happen next.
Crude Oil
The crude oil price last close of $38.49 stands $12 higher than its multi-year bear market low of $26, and near $4 below its recent high of $42.
Clearly the oil price is undergoing a correction. However the fundamental picture is one of strength i.e. the earlier break above $34 that the oil price is now gravitating towards would allow the oil price to put in a significant higher bottom. So in terms of my crude oil price forecast nothing much has really changed, the oil price remains on target for a DOUBLING off of its low price of $26 and therefore trend towards at least $52 before the end of this year.
The implications for stocks is if to continue to track the oil price than stocks too would be expected to under go a similar correction, that they are currently showing relative strength against.
FTSE Inter Market
THE UK FTSE stock index is clearly showing relative weakness to the Dow after having failed to participate in the most recent rally to new highs. With the MACD also rolling over. So along with crude oil the Dow is showing divergence against the FTSE which therefore implies to expect the Dow to revert towards a similar trend.
US Interest Rates & Economy
The US economy is slowing fast, as Fed / market 2016 prospects for 2.6% have already dropped to 2.2% and will continue to morph towards 1.5%, which is pretty similar to what is happening for the UK.
Therefore markets expectations for 5 rate hikes for 2016 have already evaporated to just 2. So what's the odds that by year end instead of raising rates the Fed could even cut rates and pump more QE (or what ever label they give it) into the weakening US economy to prevent a recession. After all it is an election year!
And a reminder of what I wrote over 6 months ago for the prospects for US rate hikes:
13 Sep 2015 - Stock Market Dow Trend Forecast for September to December 2015
In my opinion, whether the Fed raise rates or not does not really matter too much at this stage because it will be just a token move of raising rates from 0.25% to 0.50% rather than signaling a series of monthly rate hikes.
So whilst a rate hike would galvanise the bears to herald another stock market collapse as being imminent, the probable reality will be that when the dust settles the stock market will probably be trading several percentages higher a month after the first rate hike. Which means any dip in stocks following the first rate hike is likely to be temporary and nowhere near on the scale of the recent decline.
The key here is uncertainty, uncertain prospects for rates and economy tend to result in stock market weakness which is supportive of a view for an imminent correction and the market then basically waiting for some easing from the Fed.
Dow Stock Market Technical Analysis
ELLIOTT WAVES
The June 2015 high was clearly a fifth wave peak with the subsequent price action to the Feb 2016 low most easily resolving to an ABC correction low pattern which implies to expect a series of impulse waves to new all time highs this year.
However, imminently wave 1 should juncture and resolve with a wave 2 correction to between Dow 16,800 and 16,250.
US Presidential Years
Obama's 8 years of mostly doing nothing are just about up. But what can traders expect for a year when a NEW Presidency must be elected? On average stocks tend to fall by about 4% which compares against all Presidential years gain of about +7%. Though on the plus side there have only been 4 elections where the sitting President could not stand, so not much data which therefore has me leaning more towards +7%.
SEASONAL ANALYSIS
The basic stock market seasonal pattern is after a weak January for stocks to rally into May then down into August, then after a wobble during October, to rally into the end of the year. Well so far the stock market is roughly following the seasonal pattern which implies a strong April, a top in May and then down into August. However, it all sounds a little too easy i.e. 'Sell in May and Go Away' which is not far off from what happened last year (2015). More probable is for an inverse outcome i.e. weak April, May and then Rally during the Summer months, perhaps all the way into the election.
TREND ANALYSIS
The Dow clearly has support around 15,500 and resistance at 18,000. Most recent price action hit resistance from a down-trend line coming off the all time high of 18,351. Therefore the Dow has so far yet to test Dow 18k, which may be the immediate direction. Whilst trend analysis suggests the Dow would be targeting 16,500 before it sets itself up for another decisive attempt at breaking above Dow 18k.
MACD - The MACD has reached levels last seen when the market was topping out in November 2015. Therefore implying a significant correction is imminent.
Stock Market Forecast
Whilst the Dow has yet to give a technical SELL signal, i.e. is still in rally mode. Nevertheless component analysis is clearly converging towards imminent bearish expectations for the stock market. However, we would still be in a BULL market, which implies that stocks are likely to undergo a correction to a range of between Dow 16,800 to as low as Dow 16,500 against the last close of 17,633 over the coming weeks ahead of the Fed or another major central bank announcing its going to print money for election year 2016.
Therefore, as the title of this article implies, the bears are about to be handed another noose to put around their necks, who I am sure will reach their most vocal just as the stock market correction bottoms and snaps higher by probably late April.
Alternative
If the conclusion for a correction proves wrong then the next most probable alternative would be for the Dow to blast off towards new all time highs, which will likely also be accompanied by stronger oil prices.
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Source and Comments: http://www.marketoracle.co.uk/Article54615.html
By Nadeem Walayat
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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