10/14/2011 Market Outlook (Down then Up?)

Posted by Yong Pan | Oct 15, 2011 | Free Contents | 33 |

SHORT-TERM: COULD SEE SHARP PULLBACK THE NEXT WEEK, SUCH A PULLBACK MOST LIKELY IS BUY

First of all, take a time to vote our new poll, maybe you have a 3rd thought now? It’s interesting to see how sentiment shifts as the market unfolds, if you compare the poll 1 with the poll 2. Let’s see if the market has now convinced most of us.

Three cents:

Expect a sharp pullback as early as the next Monday, no later than Thursday. My guess is Tuesday because Tuesday is famous for “turnaround Tuesday”. Such a pullback more likely is short-term in nature.
A little bit bigger picture, after the pullback, we should see multiple weeks rally.
The big picture, after multiple weeks rally, SPX would down to around 1,000 at least.

The chart below shows the road map as mentioned above. It basically reiterated the Route A mentioned in the 10/07 Market Outlook, that we’ll see a sharp pullback the next week, but such a pullback most likely is buy. Some people asked me about the final rebound target, my answer has been, I need see a chart pattern. The chart below also explained my answer, I need a pullback before applying the Measured Move to know the final target.

OK, now let me try to talk you into believing why we’d see a sharp pullback the next week.

NYMO is way too high. This is the major reason that I believe we’d see a sharp pullback the next week. The signal had no exception in the past.

I want to remind you how important the position the market is at now where bears have multiple defences:

The price is testing perhaps the most important weekly MA.
Fib 61.8% and Fib 50% confluences area.
It’s been the major battle field between bulls and bears for the past 14 years.

Without taking even a tiny little breath, bulls travelled so long to challenge such an important point, with NYMO extremely overbought, so really, it needs lots of imagination to believe bulls can easily take out the resistances without any fights. More likely, in this case, a breakout, even if indeed, would be a head fake.

The chart below also argues that bulls have exhausted all the forces (before such an important challenge), as MACD Hist is way too high now. Let’s allow 3 more days up for it to reach 10 years high which means the price could be up to Wednesday and this is why I said no later than Thursday, we’ll see pullbacks.

The two charts below are arguing for a pullback no later than Tuesday. They both went wrong twice in a row recently, so maybe nobody believe them anymore. But it was in the 7 Days Rule period, during which time, nothing bearish ever worked. Now the bulls best 7 days have passed, the question is: Will those bearish signals start working again? And will the 3rd time be the charm? After all, both had over 70% winning rate in the past.

The last chart does not count as evidence for the coming pullback because the sample size is too small. I just want you to know that VIX down 9 consecutive days only happened 3 times in the past 10 years with no single case that it dropped 10 consecutive days.

INTERMEDIATE-TERM: WE COULD SEE MULTIPLE WEEKS RALLY BUT MAINTAIN SPX DOWNSIDE TARGET AT 1,000

For the intermediate-term, I believe we’d see multiple weeks rally, but eventually SPX would drop to around 1,000 at least. For why SPX would eventually drop to around 1,000, I only have some very subtle evidences, so I’d prefer to blah blah later when I have more evidences. For now, it’s enough to know that more likely we’d see multiple weeks rally.

The chart below is the major reason why I think we’d see multiple weeks rally:

Selling Climax itself had 63% chances led to a rally that could last more than 2 weeks.
What we have now is the 2nd Selling Climax therefore much better chances of more than 2 weeks rally. This, by the way, conforms my favourite 3 push down pattern.
Even in the worst case that the rally was over this Friday, from what happened in the past (red cycles), looks like at least the Friday’s high would be revisited several times, so bulls should have enough time to escape unharmed.

For why SPX downside target at 1,000, please see 08/19 Market Outlook and 09/30 Market Outlook for details.

SEASONALITY: BULLISH MONDAY, BEARISH FRIDAY

According to Stock Trader’s Almanac:

Monday before October expiration, Dow up 25 of 30.
October expiration day, Dow down 5 straight and 6 of last 7.

See 09/30 Market Outlook for October day to day seasonality chart.

SUMMARY OF SIGNALS:

	TREND	MOMENTUM	COMMENT
Long-term	3 of 3 SELL
Intermediate	3 of 5 BUY	5 of 5 NEUTRAL	Cobra Impulse in BUY mode; Non-Stop in BUY mode.
Short-term	UP	5 of 6NEUTRAL

* = New update.

Chinese Transcript

SHORT-TERM: COULD SEE SHARP PULLBACK THE NEXT WEEK, SUCH A PULLBACK MOST LIKELY IS BUY

三点说明：

短期会有sharp pullback，最快周一，最迟周四，我猜是周二，因为周二是著名的turnaround Tuesday。
大点的方向是向上，应该是有好几周的上涨。
再大大点的方向，就是SPX 1,000最终还是要去的。

下面的图示意了上述的走势，基本上还是10/07 Market Outlook里提到的Route A的走法，下周应该会有sharp pullback，但这个pullback是买。很多同学问我反弹的目标，我一直回答是要等个pattern出来后才能知道，下面的图也解释了这个回答，Measured Move是要在pullback完成后才能知道target的。

OK，现在来论证为什么下周会有sharp pullback。

NYMO太高了，这个是我认为会有sharp pullback的主要理由，没有例外。

下面的图是想提醒大家注意目前的位置，熊熊有多重阻力在这里驻防：

重要的weekly MA。
Fib 61.8% and Fib 50% confluences area。
历史上在这里反复拉锯无数次了。

牛牛一口气拉到目前这么重要的位置，在NYMO极度超买的情况下就想一下子冲过，大概需要点想象力，既使短暂冲过多半也是head fake。

下面的图再次说明牛牛已经是强弩之末了，MACD Hist太高，momentum再强也总有个极限，就算这次能达到10年high，因此再涨三天吧，这也是为什么我说最迟周四会有回调的原因。

再下面的两个证据都是说最迟周二要跌，这两证据最近连错两次，可能已经没有人信了。不过，出错的两次是在7 Days Rule期间，这段时间任何bearish信号都不工作，现在7天过了，是不是就会工作了呢？毕竟他们过去的胜率还是在70%以上呢。

最后一个不算证据，因为sample太小，我只是想让大家知道，VIX连跌9天在过去10年里只发生过3次，没有跌第10天的情况。