... by Ali Firoozi Yasar
A shot to the new highs but April is the month you need to watch closely!
As you know, incoming US economic data in early 2014 have been largely disappointing and the Fed blames the weaker performance mainly on the impact of unseasonably cold weather on consumer spending, industrial activity and construction. In January, retail sales data came out well below expectations, existing home sales and housing starts started trending significantly lower, US manufacturing activity also appeared to be decelerating , industrial production declined at the beginning of the year, durable goods orders continued to contract and ISM manufacturing index dropped to an eight month low.
US real GDP is expected to advance 2.8% this year and 3% in 2015, roughly a percentage point above 2013. Actually, the Fed believes the events and factors at play are short-lived and the US economic recovery remains intact. Actually, this bunch of weak economic data has not yet convinced them to let the market drop as it has all been the weather’s fault not anybody else….
As for the geopolitical tensions, Ukraine crisis cannot just be ignored. Actually, it is a global crisis and will not be a one-day news story which will fade away soon. You see, it has a real potential to be escalated real soon. All eyes are on Russia and Ukraine, watching them closely.
As you saw, after a sharp decline to open the trading session on Monday, the markets immediately recovered all over the trading day following Mr. Putin’s latest statement, relieving the buyers who were actually looking for value on the dip, and the buying has been continuing to open up the session for tomorrow so that we can see a shot back to the highs. In fact, buyers are all in control, buying the dip whenever they get a chance and we may also have new all time highs. But how much is it going to last?
In my previous post, I mentioned that the market could exceed the levels on my charts, as I somehow knew the “central planners” would be able to get the situation under control, and then put the blame on the bad weather. But how are they supposed to fight the serious events that are about to come up in April. Yes, you heard me, April! Actually, next month will be a rough month for investors and financial markets. Keep an eye out for the markets around these dates, April 15th, 24th and 29th.
I have repeated over and over again that the market will have to correct on the monthly chart as the cycle has just completed and they (central planners) are trying their hardest to hold it up as much as they can. Whether it is a serious geopolitical tension or a financial crisis which might pop up out of nowhere in April and cannot be blamed on the weather, the stock market will have to retrace a major portion of the gains which has been accumulated since the rebound of 2009. If that does not happen, I will sure need to go back to the drawing board to just find out what is wrong with my cycle analysis.
May you profit handsomely,
... by Red
Is this the start of Primary 4 Down or is there one more move higher still to come?
(to watch on youtube: www.youtube.com/watch?v=atoahCbWYt0)
Looking at the charts on the various time frames I could argue a case for both scenario's. One will be right and one will be wrong so we simply have to play the safest bet which I think will be long around the middle to the end of this coming week... but ultimately we know that the powers that be already know which one will play out and it's our job to read their minds.
For right now I think we can all agree that the direction is currently down. But a bottom should appear sometime this week, with the 19th-21st being the idea time frame. Why? Simple really. The coming FOMC meeting on Wednesday the 19th should gives us the clues we need. Assuming that nothing changes and the Fed's decide to continue with their plans to withdraw more of the QE money then we should logically expect some negative reaction from it afterwards. But, as we all know, the market thinks and reacts ahead of the news... which means that "most" of the selling should be about over with by the time the news is released.
I'm looking for a target low of 1810-1815 SPX for the first area of support. But, I suspect that for that level to work out as being the low we really need to rally some ahead of this coming FOMC meeting. Technically, we are do for a bounce but with the meeting still in front of us I suspect that we will not bounce any and just continue drifting lower due to the fear of the "unknown" from whatever will be said at the meeting. So, we could actually drop to that zone going into the meeting instead of bouncing up to an overhead downward sloping trendline of resistance in the 1860 area.
While we know that one should never trade off the news as it's already built into the charts ahead of time we also should know that with some pending (possibly negative) news lurking just a few days away shouldn't expect any turn back up just because some short term charts are getting oversold. The market does react to news as it's put out their by the powers that be to mislead the sheep in the wrong direction by having something to blame the selling or buying on. Of course if there was no Fed meeting this week then I'd expect the market to bottom around the open on Monday and start rallying from oversold short term charts... but that's not the case here!
So, we should expect the market to chop around until the FOMC minutes are released Wednesday around 2:15 pm, with a downward bias of course. I suspect that we'll end up dropping to that 1810-1815 area prior to the meeting... which should get a lot more short term charts (and the daily too) in an oversold condition, which means the bottom will be near.
Then once the news is announced that they have decided to "stay the course" (meaning to continue withdrawing money) we should see another move down out of fear (done by the retail sheep of course), which could drop us to the rising trendline of support in the 1790 area. Bears should be all over it as it breaks down through the "even number" level of 1800 and that's about when I think we'll bottom.
I've noticed that "Skynet" (the name I've given to the super computer that manipulates the market) has routinely pierced through important levels briefly to lure in the last retail sheep just before switching and going the opposite direction. It should be the same thing for the bulls "if" we rally up to new higher highs in the coming month hit 1900... which of course should be pierced by 5-10 points to trap those bulls long. While I don't know if we are going up to new highs or not I do believe the coming low will trap the bears short... which is why I suspect 1800 will be broken briefly.
I've seen this happen many times in the past and have calculated that these moves usually last 18-20 calendar days and drop 80-100 SPX points. They also don't give use bears many chances to get short with a decent bounce. While I'd love to see a bounce to that downward sloping trendline of resistance (around 1860 now) we might not see it at all? That bounce might not show up until after we bottom in the 1790 area, and then it will of course be lower (in the 1850 probably).
I think the thing to do is to see where the market trades at on Monday and Tuesday prior to the meeting. If it doesn't fall to the 1810-1815 area and instead chops around in this 1840 zone then we could see some brief rally up to hit that trendline right around the FOMC minutes to scare out the bears that are currently short. Then a drop to that 1790 area within a couple more days following the meeting. That would suggest a low by Friday the 21st, which could be the plan Skynet has for us sheep?
The other plan would of course be a continue drop into the meeting with a low in the 1810-1815 area when the minutes are released, followed by some panic selling to the 1790 area, and then a rally back up to start from that day forward into the rest of the week or more. The only thing I see here that has high odds is that we will continue down more next week and probably bottom in the 1790 area. Then the rally that follows could put in a lower high (then the 1883 high) or make one last higher high in the low 1900 area.
Therefore the safest plays I see here are to short any decent bounces with a exit low area of 1790 and then get long for a rally to at least the downward sloping trendline of resistance, which should be in the 1840-1850 by then. After that I don't know? We'll have too see what the charts tell us at that time as well as the propaganda being pitched to us sheep on the main stream media news channels.
If they continue to preach the end of the market scenario then we should expect the resistance to be broken and another higher high is likely. If they talk about the market going to new all time highs then we should be shorting and expecting that resistance to hold and the expected right shoulder (of what should then make up a nice "head and shoulders" pattern) to become some type of "Wave B" up or "Wave 2" up... meaning a big wave down should follow.
It's really too early to know which will play out so for now I'll just be focused on this coming week and will as always give you guys updates in the comment section as things change and play out in real time. Making forecasts this far in advance are just to be used as a general road map of what to look for... not to trade off. The charts change daily and the best I can do is tell you what I see today. Always read the comments for updates.