Stock Market Analysis

Monday, October 05, 2015

Has the Market Found a Bottom?

US market extended its rally today even as economic data continued to turn in worse than expected. This is also the 5th consecutive trading day that the SP-500 has been positive, which is something we hadn't seen since December 2014.

So, has the market actually found a bottom?

I still don't think so. 

Well, I will refer to this 5 days rally as a "Rate Hike Rally" from now onwards. Indeed, the only reason for this rally is the fact that economic data is now bad enough for the Feds to postpone their rate hike plan. What does this do for a sinking economy? Nothing. Soon enough, when this exuberance over the delayed rate hike dissipates, reality will set in... what is reality? Reality is the fact that the US economy, as well as the Chinese economy, are both sinking and that could set off that overdue global economic crisis, an event which myself and many other analysts are expecting to happen in 2016.

On the technical front, this Rate Hike Rally has all the characteristics of a classic dead cat bounce. A rally on weak fundamental reasons and weak internals. Technically, 5 consecutive positive days is also usually when people starts selling. This means that we could and should see the market turn around back down to test the 30MA for support for the rest of the week. This was what happened almost every single time the SP-500 makes 5 consecutive up days. Options traders seemed to be more aware of such behavior as they kept total equities put call ratio in the uncertain zone throughout this rate hike rally rather than trade in favor of call options like they do in real rallies. (Learn more about Put Call Ratio for free)

No market crashes go straight down. There will always be months of struggling up and down in a generally sideways downwards inclined manner (like right now), before a few big drops that academics only recognise as a market crash after it has been done. In fact, this should be where I would strategically spot and enter into good bearish positions for my Master's Stock Options Picks service. (Don't miss out on these profits! Profit with me!)

Market Crash Timer: ORANGE

For now, the US market remains in short term bull trend within an intermediate and primary neutral trend.

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