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Market Timing

Monday, 18 January 2016

Is the Bear Upon Us

We are smothered with "data and opinions" every day now that prove the market is heading for big trouble.  This bad news is now centered around things like China's slowing economy and failing stock market (yes failing, not just falling); bad U.S. numbers on manufacturing output and retail buying; falling oil prices; fear that the Fed will reverse its course and start QE again, etc.  Even if we knew for sure that all of this reported data was accurate, we would still not be able to figure out the impact on the stock market.

So, what good is this data if it cannot help us decide how it will affect the market.  I am not sure about that, but I do think that there is an "indirect" way we can participate in the correct market moves.  Institutional investors like Goldman Sachs, Morgan Stanley, UBS, etc. (the "fat kats") all have large staffs of hundreds of "Analysts" that analyze this data for them.  Please understand that whatever actions the fat kats implement from their Analysts' recommendations are almost always 100% accurate, if you measure "accurate" by whether or not the market moves the way the analysts said it would.  Well folks, if the fat kats buy, the market goes up whether or not it should; and if the fat kats sell, the market goes down whether or not if should.  In other words, the price action of the market "follows the money".

This is not because the fat kats know which way the market should be going, it's because the market moves the way the fat kats push it (fat kats buying leads to up markets, and fat kats selling leads to market drops).

So, since we cannot predict the way the market will move, we seek to identify the way the fat kats are trading (buying or selling) and mimic them.  MIPS capitalizes on this the by using "volume weighted data", where price action on high volume has a greater impact on the MIPS models than price action on lower volume.

[About a month ago we wrote a blog entitled "Is the Market Topping?"  This was about how the fat kats "dump" their positions when the market is "topping" (i.e., turning from a bull market to a bear market).  See  http://www.mipstiming.com/blog/view/8682/is_the_market_topping_]

We actually thought that there was a good chance that the market was topping then, and we think so even more nowIn the graph below, you can see that we have recently ALMOST completed this latest topping cycle, like the cycles from the start of previous Bear Markets (in 2000 and 2008); including two drops below the SPY's 200-day EMA (where "ALMOST" is explained below this graph).




"ALMOST"

I used the word "Almost" above because there are a couple of things that have to happen before I would "bet-the-farm" on the big crash starting now !!!

The main requirement for the big crash to happen soon is that the SPY has to break through several more very strong "Support Levels" (see graph below).  As you can see, so far the SPY has broken support levels at 202.0 on 1/04/16, and 199.9 on 1/06/16.  Then the SPY dropped all the way down below the even stronger support at 186.9 on 1/15/16 (Friday), but closed above that level at day end. That could signal a reversal.

To turn into a market crash, the SPY still needs to break through strong resistance at 186.9 and 182.36 and finally at 181.9.  Seems like quite a task, but the lower support level at 181.9 is only about 3% from Friday's close.  Even if this all happens in the next few days/weeks, the bulls could still want this market to "top" for several more months before giving in to the bears.

BTW:  MIPS3 and MIPS4 went to cash on 12/30/15, and short on 1/08/16...

Stay tuned...

Posted by: Dr. G. Paul Distefano AT 01:13 am   |  Permalink   |  Email

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