The
major trend line on the chart below must be broken in a big way before a
full blown bear market will be confirmed. This is still months away at
best so do not
worry. The AlgoTrades INNER-Market Analysis will get us positioned when
the time is right and enable us to profit as the stock market falls in
value.
Your
long term equity investments can continue to
be held at this point. Speculative and momentum stocks (Russell 2K
index) continue to show weakness, so I would stay away from them. Large
cap stocks will likely be in favor as the safe haven “blue chip” stocks,
but when the market is ready to roll over, all stocks will fall. The
safe haven plays should be bonds, gold, and inverse ETF funds.
We
do fear a US dollar currency crisis, and if so investors will be moving
away from US investments and the massive bond bubble may burst. But at
this time, it is not a concern.
S&P 500 Quarterly Chart – BIGGER PICTURE
This
chart I feel provides a great perspective on the overall market trend
and price patterns. This is the 70 year prospective. I hope something
like this unfolds. Fingers crossed to a 12 month correction/bear market.
This will build the new base for the next super cycle.
US Dollar has now reached the upper resistance trend line… we could see weakness in the dollar going forward…
The Risk-Off Trade Is Slowly Unfolding
The S&P 500 index is losing its momentum. Money has been rotating into Bonds and global markets for a year in
anticipation of the stock market correcting.
With
six months of the SP500 index trading sideways we have had to focus on
some other areas to find opportunities. Some recent winners have been
long oil
with UCO, long live cattle with COW, long Russia via RSX, and long Japan
with EWJ.
The Fear Index & Big Trend Analysis
The
VIX index has been trading at low levels for a few years. This suggests
that fear is low, complacency is high, and that SP500 is becoming
vulnerable to a stock market correction.
In
the chart below, I have placed the VIX index above the stocks trading
above the 200 day moving average. As the number of stocks trading above
the 200 day moving average falls it’s telling us that fewer stocks are
moving up in value while the broad market climbs. This is bearish.
This
provides a great visual of how falling markets correlate with investor
fears. While overall market breadth remains strong, a change in the VIX
often provides an early warning sign of potential danger.
“When The VIX Is Low Its Time to Go, When The VIX Is High Its Time To Buy”
Stock Market Rises with Fewer Stocks – RED FLAG
Since
mid 2014 the US stock market has become move volatile. Fewer stocks
participating in
the markets move up. This can be seen by comparing the percent of stocks
trading above their 200 day moving average and the S&P 500 index.
When
a stock market stalls, which is what it appears to
be doing, the movement is comparable to that of how an aircraft stalls.
It slowly continues to rise, things become choppy/unstable, then it
drops and picks up speed trying to regain stability and control.
Once
the stock market or an aircraft come to a complete stall they both end
with a violent drop. While I am not calling a top yet, understand each
month we are getting closer.
An analyst and trader I respect talked
about how the Dow Jones is flat for the the year, yet investors think
big profits are bing made. But in reality we have not seen real gains
and the broad market expand in months. More investors are bullish now
than we have almost ever seen according to Investors Intelligence Survey
with a whopping 57% of investors bullish on stocks.
The
CEO of Ameritrade said that almost all of their 6 million
traders/investor account are completely invested in stocks, and are
leveraged using margin also. This is the ultimate contrarian warning
sign of a bear market should begin
over the next few months.
INNER-Investor Monthly Conclusion:
The
great thing about being an investor is that the analysis and trends
move relatively slow. We do not buy at the dead low, nor do we exit at
the high, and sometimes we get shaken up during tough phases
in the market like the second half of 2014 and first half of 2015.
I’ll be honest, the second half of 2014 and first portion of 2015 has been exceptionally tough to generate profits.
Winning
streaks, and losing streaks are just part of investing and it happens
to everyone and every strategy as the market has difference market
phases and characteristics.
I believe the second half 2015 is will provide great opportunities and we will close the year out with decent gains.
Please share this article
Peter
Eliades of Stockmarket Cycles, presents an intriguing scientific
discovery – his work has uncovered a formula that appears to govern
financial market mechanics, in particular, the US equities market.
According to the findings, a particular angle of ascent or slope has
lead to a market zenith for nearly 14 consecutive years. He presents the
precise slope angle and a simple means to calculate the trendline
(slope = 68.3 / 238 days = 0.28584) for virtually any forecasting chart.
Since 2002, the market has failed to close over 1.1% beyond the
trendline and then subsequently declined sharply. On Monday, May 4th,
the model registered a key stock market top, with the proviso that no
construct is perfect.
