Saturday, October 27, 2012

Messing Up With The Brain.

That’s what the market is doing with bulls and bears. The bottom is in sight but it is going to be a messy short term bottom. I would not be surprised at all to see the markets up one day down the next for the whole of next week.

So far the important support level has held but it is still too early to do bottom fishing. As I had mentioned in my email, till cash SPX closes above 1420 in a convincing manner, there is no reason to go long for even one day. Even after that, if you want to go long, I would recommend that you weigh all the benefits against risks.  Most likely we will see a retest of the earlier high and may even have a higher high but just. I would think that the risk is more to the downside, both fundamentally and otherwise.  We have been here before.

(H/T: Lance Roberts)

I do not normally believe in analogs. Analogs are fun while it works but we cannot make investment decisions based on analogs. But there are other factors like money flow through the banking system, the coming fiscal cliff and even cycles indicate that there are dangers ahead.

One of the respected chart analysts, Peter L Brandt has this chart to show:

The caveat is that this theory is invalid if SPX closes above 1480.

By Mid-November, I expect SPX to push above 1470 but whether it will stay above is the million dollar question.

We will take it one day at a time but now is not the time to be cute or smart. The topping process is on and even if the mid-November top comes by end November, it does not change anything.

That’s all I have for this rainy weekend. For those of you living in the path of the storm, hope you are well prepared. If we have to err, better be on the side of caution, be it a storm or stock market. Stay safe friends.