Guest ike Posted December 9, 2002 Report Share Posted December 9, 2002 ?For week ending 12-6-02 ? Last week (11-29-02) we said: "Once again we have mixed signals from a short week which tends to be notoriously unreliable with regards to the validity of the signals. Judging from the divergences that have continued unabated, our opinion is that we are very close to a 4%-7% correction and perhaps even more than that. Notice that all the short-term indicators have turned down, while the intermediate term ones, are still pointing up. That means we should see price weakness near term, followed by another advance." (12-6-02) On 10-26-02 the SP was at 897, it had advanced 130 points from its lows two weeks earlier, while none of our indicators had confirmed the advance. At that time, we said that given the divergences that had taken place, it would be statistically improbable to get additional gains in excess of 6%-6.5% without a significant correction first. The SP managed to go to 954, which was 6.46% above the 897 level. Our research has shown that once those gains -which were built in sand/divergences- are achieved, 100% of the time they are immediately given up in their entirety. That is why as the SP appeared to be closing in on the 955 level, we made last week the comment that "... we are very close to a 4%-7% correction and perhaps even more than that..." The SP fell from a high of 954 on Monday, to a low of 894 on Friday, thus giving up all of the gains that were built on divergences. The question is what happens now. Our research has shown that in the last 15 years for which we have complete data available for input in our models, 72% of the time the initial decline was halted at 7%. The lows of 894 on Friday represent a 6% decline, thus there might be one more percentage point down risk from the Friday lows. Assuming, Friday was the low, we should rally for about 3-5 trading days. Sixty two percent of the time the bounce is between 3% to 4.5%, which means we should expect the SP to rally to the 924-935 zone. (30% of the time the bounce has ranged between 4.5% and 7%)? Twenty five percent of the time, the initial decline ranged between 7% and 9%, which means 1:3 odds that Friday was not the low, and we can see an additional decline to 870, before we get a bounce. Clearly the odds 1:3 favor a bounce without further decline, thus we have to go with the odds, of course keeping in mind that favorable odds, does not mean 100% certainty.?? The real important thing to keep in mind is that after this bounce -whether it comes from the Friday lows, or, even lower- is that it will be followed by a much more substantial decline. Thus, we can play the long side with 30%-40% for now, but we should be ready to move to 100% short, once this bounce is over, which is what we also said in discussing trading strategy in our latest newsletter. Notice that:? 1) momentum has topped. ?2) the 21 day EMA of the put/call ratio is in the vicinity that has marked important intermediate term tops, which have been followed by substantial declines, and finally ?3) the market came under pressure, not because of "healthy profit taking" as the morons were proclaiming on Bubble TV. The markets came under pressure due to a simultaneous hit by higher oil prices, and a lower dollar. We have said several times, that the U.S. equity markets will decline when oil prices rise and the dollar falls. As long as this combined trend stays in place, the markets will be under pressure. We expect this trend to stay in place, as long as, war with Iraq is a real possibility, and the U.S. keeps running huge current account deficits, while the economy is deteriorating.? SEE CHARTS BELOW: One of the? indicators we look at is our own proprietary Sentiment Indexes. The one on the bottom left takes into consideration dollar weighted Put/Call ratios, VIX readings, premiums on out of the money nearby month SPX calls and puts.? Notice that the ABS indicator rose while the market fell. Collectively, market participants got more bullish as the market lost ground. This is not a development that bodes well for the intermediate term.? The "buy the dip" mentality once again is going to get people in deep trouble. Marketviews LONG LIVE THE "DOC!" Thus spoke Ike. Link to comment Share on other sites More sharing options...
DrStool Posted December 9, 2002 Report Share Posted December 9, 2002 I like IKE! Didn't vote for him in '56 though. Had I known what a great guy he is, I woulda! Link to comment Share on other sites More sharing options...
Guest ike Posted December 9, 2002 Report Share Posted December 9, 2002 Hey Doc, I think I am going to run again, in fact what do you say if we run together as one ticket? That would be something! Doc for Prez, and Ike for VP, or, vice versa, it doesn't matter to me. I think we would make the most entertaining ticket in history! Link to comment Share on other sites More sharing options...
richmtn Posted December 9, 2002 Report Share Posted December 9, 2002 Very well thought out report Ike. Doc uses different methods but I believe his conclusions are very similar to yours. :grin: Link to comment Share on other sites More sharing options...
ThorAss Posted December 9, 2002 Report Share Posted December 9, 2002 Sorry Ike, I'm afraid you're going to have to settle for being Henry Kissinger if I understand the constitution. Maybe a Doc, Yobob ticket. :grin: I could do Foreign Affairs or Energy. <_< And we've got a ready-to-odour AtGen. Link to comment Share on other sites More sharing options...
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