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Market Timing

Monday, 03 December 2012
As we all know, there is now somewhat equal pressure to push the market up as there is to push it down. The optimists are banking on our leaders solving our budget problems before we go over the fiscal cliff and on a Santa Claus rally that they have become accustomed to as in past Decembers.   On the other hand, the pessimists are concentrating on a weakening EURO from defaults in some of the PIIGS countries, and are betting against the fiscal cliff problems being solved prior to Dec 31, 2012.

The graph below shows the recent market action (SPY price graph).  From this, you can see the SPY breaking out of its November downdraft (red line) and forming a new, short-term up-trendline (rightmost green line).

Today (Dec 3rd), the SPY hit a strong upside resistance level at $143/share and bounced back down.  That, of course, is bearish.  This upside resistance is from the neckline of the recent triple-top (cyan box).  The fact that the SPY hit and held above the 50-day EMA is bullish. The next support level is at $135/share on the SPY.

The greatest threat facing intermediate-term traders is if the SPY goes into a fast sideways trading pattern, like the one seemingly forming with tops at $143/share and bottoms at $135/share.  This pattern would result in a sideways trading pattern with highs/lows plus and minus about 3% around the midpoint at $139/share.  Unless an investor can trade close to these high/low points, they could get whipsawed and lose lots of $'s.  Most investors cannot trade this pattern successfully on their own, and these investors need to follow a good timing system (like MIPS) or go to cash until the market breaks out of the sideways pattern, if it does form. 

Or course, the SPY could simply turn around and break above $143/share into a rally or fall straight through $135/share into a new bear market.  This is the type of market where MIPS can issue frequent trades because there is no solid intermediate-term trend, but that is better than being out of sync with the market and getting clobbered with fewer trades.

Posted by: Dr. G. Paul Distefano AT 05:37 pm   |  Permalink   |  Email

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