Saturday, December 11, 2010

Year end stock market comment and prediction

OK, many are bullish and wondering when the big next leg up is in the market to 12,000 to 14,000 on the Dow. I know many still believe in Santa Claus and I would hate to disappoint you, so let's just say this. It isn't going to happen anytime soon. It is more likely we will go down to 6,000 than 12,000-14,000 over the next year or two. Below are some charts which to me say we are now very close to completing the right shoulder of a Head and Shoulder pattern, or "W" pattern, which I like to call it. Below are 2 charts of the Dow and S&P updated as of the close on Friday. With all the "movement" in stock prices and averages many have seen of late, when you put that movement in the context of very long term trends, the indexes have barely moved these past few months. But we are completing this pattern and as the arrow shows from the tilt of the "W" pattern it is pointed down. Is this a certainty? No, but I would say better than 75% chance it will. If I must stay on one side of a bet or the other, and let's not be mistaken here, buying stocks is professional gambling, I would say the odds are against any Bulls minimally for the next 3 months. First, here are the charts and then some additional comments.

One of the reasons I know the market is about to drop is that everyone who followed me to the short side of this market, which has been very painful the last 6 months, is planning to, or has abandoned their short positions. We are in the last throws of this rally. There are a lower number of new highs daily and the volume is drying up.

Watching Bernanke sweat on 60 minutes last week was also a sign. I have never seen him that nervous and worried and his concern was deflation he said, not inflation. His efforts to lower yields on the 10 year Treasuries has failed so far. 10 Year Treasuries closed well up over 3% on Friday, while the Fed would like to see those rates go to 2.25% or at least stay below 2.50%, where it was before Quantitative Easing 2 was implemented.

The third reason I believe we are close to a market reversal is that the Put to Call ratio has had a total of 7 consecutive days at 0.79 or lower. Going back over the daily data from Oct. 17th 2003 to the close of trading yesterday, this has never occurred. We are extremely overbought condition in the markets and in all Indexes.

Everyone is responsible for their own decisions when it comes to buying and selling stocks. All I do here is tell you what I am doing and what I am seeing. So from where I sit being long right now is fool hardy except in some rare exceptions and specific stocks. I recently purchased FXF, which is the symbol for the Swiss Franc currency. I bought it in the $90's and it is now $101.19 as of the close yesterday. I am expecting more an more pressure on the Euro currency. The video clip I have posted a number of days ago was a clue of how bad it is getting there with Sovereign debt issues. So I believe the Swiss Franc will rise on any pullback on the Euro. I also see Financials pulling back as well as many banks are in real trouble and with continued foreclosures, I see more banks holding the bags and getting into more trouble.

It is hard to give the positive financial message that everyone wants for the Christmas holidays. But there are positive things this holiday that should be the focus, instead of the markets. It's with your family and the blessings you have for having them in your lives. Friends too. I have several very close friends and I consider it a significant blessing in my life to enjoy sharing small talk and sometimes big talk with them. There are people doing good deeds every day that we don't hear about. We only see the negativity by watching the news. Doing that constantly can make you depressed. It doesn't mean the world is bad, it just means that the focus of the news. Occasionally, someone like Brian Williams of NBC shows people doing good deeds on his shows. It's the best part of the broadcast. The real world is full of people being blessed by other human beings. Look for that and you will have a better Christmas holiday.

Merry Christmas and a Happy New Year for all. Yeh, I know I'm early, but so what!

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Anonymous Anonymous said...

I have not abandoned nor do i intend on selling my short position. TZA

There has been many a time the last couple of months i have said "what the hell have i done?"

After reading this latest post I am again at ease with my decision.

Thank You for the deciphering of charts and analyst view of the markets. Looking at the charts one can see that a significant drop is visually bound to happen eventually.

happy holidays!

8:57 AM  
Anonymous trade4target said...

Thanks for adding your valuable information here. Really nice of you. Keep in touch and have a nice day ahead.


1:59 AM  

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