“All economic movements, by their very nature, are motivated by crowd psychology. Without due recognition of crowd-thinking … our theories of economics leave much to be desired. It has always seemed to me that the periodic madnesses which afflict mankind must reflect some deeply rooted trait in human nature — a trait akin to the force that motivates the migration of birds or the rush of lemmings to the sea. It is a force wholly impalpable… yet, knowledge of it is necessary to right judgments on passing events.” Bernard Baruch
With that said our last issue of MarketMap2011 headlined:
For the beginning of 2012 the expectations are so low, if not “hopeless,” from the IMF to the US Fed Chair that the way is paved for even the smallest amount of good news to catapult the world stock markets into bullish over drive.
Our market advisory is not about the attitude “we are great and hey look what we said, told you so.” But we told you so. In our November 11, 2011 issue we concluded that “Bottom line is we remain optimistic for trading and have a bullish outlook into the yearend 2011 and first 3 months of 2012.” We said in the same news letter that “From what we see, after the low expected on the next COT December 12th +/- a trading day prices should be stable to higher until the middle of March of 2012.
The low came in on the 19th and since that low the market is up 9%. So yes, we have been down right on the money. With my interest at heart, we provide this technical market brief for free, I just want you to share it with others and point them to our blog and forum.
I become more bullish with each passing day, as the world bankers predict the next great depression and most, if not all, of the financial advisory service advertising and / or book titles look like this! ” Read this before the Stock Market Crashes! “or “Learn how you can Profit from the next Meltdown”. I really do not feel the investment public is that gullible.
I do see some minor cracks in the EXTREME bearish sentiment (the basis of my bullish contrary opinion), when I see several of the market pundits have turned modestly bullish. We believe this will lead to a near term mini-minor crash that takes the market by surprise here in February.
However the long term forecast is now super bullish and is based on more than just the extreme negative sentiment that has likely set up the biggest bear trap in history.
Most everyone knows the January bellwether indicator is bullish (as it was in 2011) where this indicator calls for the market to end the year higher than it began. The key question is as always is:”how is it going to get there?”
Our cycle work actually calls for the year to be similar to 2011 but better. In 2011 the bears rightly advised to take a summer vacation starting from Memorial Day to Labour Day and they were right as the market was in corrective mode. In 2012, the rule of alternation will apply. Therefore traders should expect more corrections in the spring and a more dynamic bullish trend in the summer.
The MarketMap2012 calls for higher prices into late August with a higher high posted in late October, just before the elections. While 2011 closed the year up 6% based, I expect the market to do even better due to the bullish cycles including the election year cycle. So unless the public does a flip flop here to become super bullish in the near term or the mass media takes the lid off with a return to positive broadcasting, the market will continue to climb a wall of worry.
Based on how the market has been reacting to events in the Republican primary, I would go even further to add that, if the Republican race clarifies itself sooner rather than later, the market will response positively to that and moreover, if the presidential race is between Romney and Obama, the stock market will react positively and the advance may be historical. Remember the guideline: It is how the market reacts to the news that is more important than the news itself.
On a near to short term basis, our cycles overlay project a minor top in the making now. Our in house Market Map2012 is calling for a tradable change of trend (COT) top on February 5 plus or minus 1 trading days. For prices to consolidate the gains it has made since December 16, 2011 with COT lows expected the 8th +/- 1 days and another due on the 26th+/- 1 day.
CBI’s in-house risk taking index (RTI) remains valid until the inter market relationships uncouple that have been dominant for the last 11 years.
It gave a buy signal on Dec. 16, 2011 near the low of the Dow, it has maintained its uptrend since and stock prices have not looked back. As you can see the RTI has waned recently but has not given a sell signal by reversing the intermediate term up trend line or falling off its current step level. Any such move would be an IT sell signal and fit our January Market Map2012 calling for a correction in February. On the other hand any move to the next higher step level would suggest that the up-trend is about to gain momentum and the 2007 highs are going to be challenged.
Our RTI index is based on the inter-market coupling of a rising gold, commodity and foreign currency. Thus far in 2012 the overall theme of the equity markets is not reverting to its more traditional dislike for inflation where stocks, commodities and currencies are uncoupled. In other words today’s environment is still about inflation which is good (when compared to deflation or depression). Were as traditionally lower inflation is good for stocks as it means a wider margin of profit for business as raw material prices do not eat in profit, so stocks go up vis-?-vis the great 80’s and the roaring 90’s.
The leading commodity markets appear to have finished corrections on December 16th and they are staging a move back above their 200 day moving averages. Again, I feel that traders should look for change and in this case instead of the commodities leading stocks, it may be the other way around. So key in on relative strength for your clues for the front runner.
TraderAssist(R) is a “trader 4 trader “forum and support group”. There are many rules that cannot be reduced to trading platform code; the market condition of uncertainty is one of them. It is during this type of market environment that desk trading is difficult because of the lack of follow through and trend by the markets. It is this market condition of rapid changeability or lacking direction that hurts most traders’ ability to profit. As soon as a move begins it is over and going the other way. We understand how tough it is to stand on the side lines and not to trade. Given all the brain washing out there that you have to “be in it to win it “all of the propaganda propagated by the industry to sustain itself like you “have to take every trade” to be disciplined or that no one knows the futures so you have to simply buy and hold. I feel the key to winning is to know when not to engage in trading, when to cash in your chips and to be patience for the next opportunity. 2012 is presenting a great trading opportunity as “uncertainly” is waning.
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Great and Many Thanks,
Jack F. Cahn, CMT
TraderAssist(R)
Since 1989, Creative Breakthrough, Inc.
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