With all the uncertainty in the world, and everything that could happen over the weekend, I think it’s safe to say that the market didn't rally 22 points naturally to complete a swing low as we go into the weekend. When I saw the index futures turn from deeply oversold to positive as if by magic in the pre-market Friday morning I had a pretty good idea that the Fed was ready to put an end to this correction. By the end of the day it looks like they probably succeeded (at least for now).
Now the question becomes, since the Fed didn't allow even a 38% retracement is this just a daily cycle low, or was that all we are going to get for an intermediate degree correction? Looking at the McClellan Oscillator this kind of powerful surge is usually indicative of an intermediate degree bottom. However, I’m not sure that’s going to be the case here.
If we consider that this correction was terminated prematurely then I suspect we are going to have to retest these lows in the coming weeks so what I think is likely to play out is a move back up to and maybe marginally above 2000, followed by another move down that at least retraces 38% of this intermediate rally. In other words I’m looking for a short daily cycle that makes a slightly higher high and then a marginally lower low.
That should set the market up for the Fed to ram it back up ahead of the September FOMC meeting and probably through most of October ahead of the midterm elections. As a matter of fact we may be looking at a potential megaphone topping pattern in the months ahead.
This was how the last bull market topped also, as the Fed tried to artificially prop the market up with zero interest rates and trashing the dollar.
Unless we get a miraculous reversal on Monday that does test that 38% retracement, I suspect the stock market has a date with the 2000 level pretty quickly. I don't think the S&P is likely to get through that level though, at least not on its first try. 2000 is too big of a psychological level to be easily overcome.
So basicall, buy the dips now as the Fed will pump up the markets in the run up to the US November elections - this might be the final blow-off phase? - then get the heck out of town and back into cash?
ReplyDeletebasicall = basically
ReplyDeleteWhile I agree with your vision of future moves, I balk at your suggestion that the market was "fixed" by the Fed. In public analysis at Elliottwavestockmarket.com the night before, Lara predicted based on Elliot wave logic, that the S&P would move on Friday to 1933. I would also expect SP to test Thursday's low on Tuesday before moving to test the highs.
ReplyDeleteThat the .382 retracement wasn't reached makes it all the more LIKELY they're going to punch this through 2000 ASAP, just so they can get the "big fig" in the bag and into the books. THEN, they're going to pull the Flush Handle and finish the correction, prior to your expected final move up into the mid-terms.
ReplyDeleteI applaude every thought and analysis from Toby on every subject, his charting is second to none....... his vision helps me going forward for sure.
ReplyDeleteGoing back to 2009 for me personally before I stumbled upon his website I've always to myself and investing friends that I felt this market has and continues to be "manipulated" by larger conglomerate entities that control this world financially and politically some may call it the "New World Order" and with Toby's thesis of the FED which makes complete sense to me in fact it is clearly seen in recent candlestick formation bottoms through 2014 panic bottoms that fueled the markets time and time again spoiling my then SQQQ tactics that cost me a fortune when I tried to "swtich sides of the fence" but what I have learned that THE obvious doesn't happen especially when the Yahoo Finance headlines were flooded with bearish themes....... always go "against the herd" in my book.
He nailed the gold bottom metals call too....... kudos Toby!
Michael
I think Toby may well have this SPX call correct and way ahead of the herd (as usual). One can get to his conclusion on the reasoning of Fed likely moves. I get to the same conclusion, but differently, simply analyzing both money flow and momentum. What these two technical indicators tell me is that there is still a lot of (upward) momentum in the pipeline that has not yet been exhausted. Ditto for money flow. However, the up and down gyrations Toby is looking for - the megaphone topping pattern - will do wonders for using up the remaining fumes in the gas tank. Looks to me like late fall - call it November - these indicators will reveal the final exhaustion. And heck, that seems about on par with this article's third and fourth charts.
ReplyDeleteI suppose all you chart analysts are oblivious to world events.....I already know your answer.....
ReplyDeleteWell Anonymous - let's hear you tell us about the future world events so we can make profitable trades. If you can't do that I suggest your system, based on future world events, is not of much value.
ReplyDeleteI really hope that you are wrong about the 2,000 target. Enough already with this roller coaster. The stocks should go to their fair value, which is at least (the very least) 20% below current levels.
ReplyDeleteThis Wall Street scam has been going on for long enough. Fearless and greedy bastards gambling out other people's money without any assumption of responsibility. After all, they are too big to jail, as it has turned out.
The Fed has its pockets in it too most likely. But this whole mojo "Chasing The Yield" is a load of crap. What kind of an excuse is that? So what if the interest rates are low? They are even lower in Europe. Yet, those markets are more reasonable and react to negative news the way they should, with massive sell-offs. What about Japan? Ultra easy monetary policy does not stop Nikkei from going down 3% in a single day. How is our situation different? We are in a stagnant low growth with no prospects of prosperity. Revenues are almost flat. Half of S&P 500 profits come from the rest of the world, which has seen one of the worst years since the Great Recession. Wars, instability, banking troubles, bankruptcies. Yet, we have not had even a 10% correction. I am sick of this crap. I have not seen an appropriate risk-reward ratio for months. Everything is overvalued and investing in stocks bears a risk of losing 50% or more, while presenting an opportunity to make... what... 3-4%... how much more can we go from these insanely inflated levels. The S&P 500 has been overvalued since breaking out of 1,600. Quarter after quarter, we witnessed the same scheme:
- Wall Street sets extremely low expectations, which are almost impossible to meet (yet, some companies manage to miss even those targets)
- Companies meet expectations or produce a slight beat
- Stocks rally
And no one gives a damn about all those "beats" being actually lower to flat compared to last year. Not to mention that most beats are nothing more but financial engineering.
Stocks used to get slammed after poor forecasts. Not anymore. Today's "investors'" (or as I call them, gamblers) excuse is, "Fuh, it was not as terrible as expected. Still terrible but not as bad as we thought."
Yield, yield, yield... Chasing the yield... I have not heard a stupider excuse to go long on stocks in ages. How is shorting stocks not a "yield"? Can somebody explain me? If stocks are cheap to fair value, buy them. Got expensive? Short them, let them return to at least their fair value. This scheme still produces a higher yield than bonds, is more logical, and close to the fundamental reality. The S&P 500 should have been stuck in a 1,500-1,600 range at best. The growth is stagnant. So should be the stock market. Buy 1,500. Short 1,600. Still much higher return than from bonds with a much less risk than we have today.
Instead, what we have is a disgustingly pathetic behavior that can only be explained by manipulations. I don't even read headlines anymore. They don't matter. You can write an article for any market move and just change 1 word in it after the market close.
For instance, last Friday's action had nothing to do with what media claimed was "eased tensions between Ukraine and Russia." Who in the world saw eased tensions there? Just because a Russian general said the "training drills" were over and troops returned to their bases does not mean the conflict is over. In fact, how can anyone even trust to words of Russian spokesmen? 2 days prior to Friday, after NATO claimed Russia had 20,000 troops at the border, Putin stated it was not true and that there were "no troops." All of a sudden, these "no troops" finished "training drills." And I thought there were no troops at all.
ReplyDeleteAnd even if not listening to bogus statements, and using only a common sense, one can realize that this conflict is far from over and has no chance of a peaceful resolution. Why?
Well, because pro-Russia separatists will end the fight only if their demands are met (acceptance of independende of Donetsk by Ukraine. Even when the rebels call for truce, they don't mean they are giving up. They are simply winning some time (maybe even for reinforcements) and showing their willingness to peacefully resolve what Ukrainian government will never go for in order to win simpathy of the world. The world will not want to have those peace-wanting men slaughtered, will they? And then, there is the Ukrainian government ran by a billionaire f...cktard who does not care about lives of people (as can be seen from the pressure of Donetsk despite the presence of unarmed local residents). It is not really a big deal if Donetsk becomes independent or if it stays with Ukraine. This war is not about that. Donetsk won't make the fighting sides significantly more powerful. Both Putin and Poroshenko have enough money to flee at any given minute should the conflict become unbearable, leaving millions of lives in jeopardy. When people are rich beyond their needs, they strive for power. That is what the conflict is about. The show of power. So again, Poroshenko won't let Donetsk to leave. Not because he cares (he does not) but because he wants to. And Putin will not let Ukraine fall out of his influence. Not because he needs it but because he cannot afford showing a weakness.
We all know that, Wall Street knows that. Yet, we have a massive rally in the face of all uncertainties.
Sanctions alone (without even a Russian invasion) will slow global growth enough for companies in the S&P 500 to feel it. "Investors" (gamblers) know it but continue manipulating this circus (called by others "stock markets".