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Market Timing

Saturday, 13 December 2014

Last week the SPY broke two important support levels, one being its "first" new high of 201.9 from weeks ago and the other being its 50-day EMA (immediately below).  In and of itself, this is NOT a big deal (2nd graph below).




The "damage" above looks scary on a daily chart, but the weekly chart below shows that the action on the daily chart is just "noise" created by the traders on the floor of the NYSE (Ebola one day, Ukraine the next, Fed intentions after that, etc).  Nothing sustainable... 

Observing the chart below, one would simply ignore any fear of a big correction or bear market soon, and maybe rightly so. After all, bull markets can go on for YEARS after the market is oversold and getting worse (like in the 1990's). Maybe that is where we are today.




Bear Markets
Most bull markets that turn into bear markets need a "Catalyst" to get the fat kats to sell the shares that have made them richer (and when they do start selling, its all over).  BTW, the fat kats (or big guys) in this blog are the big institutional investors, like Goldman Sachs, Morgan Stanley, UBS, Credit Suisse, etc).  Basically the fat kats will ride the bull for years.  In fact, as long as the little guys are feeding the bull (buying), the fat kats stay invested, riding the bull until it drops dead.  But, of course, NONE of the fat kats want to be long after the bull dies and the bear moves in.  Since no one really knows that day, and since the fat kats have their finger on the sell button now, any BIG NEGATIVE ISSUE that can last for years may push the fat kats to the sidelines fast and we all know what that leads to.

Right now, we may be sitting on the edge of that type of phenomenon with oil prices dropping like a rock (see graph below). Energy is one of the biggest industries in the world.  As the price of oil goes, so goes some countries' entire gross national product.  Oil prices have taken a 40% dive in the last six months (from $100 a barrel in May to under $60 today)!!!   And, economies all over the world are weakening (Europe, China, etc.), which will result in less worldwide demand for crude oil.  Those issues may be enough to keep oil prices low for a long time, and disrupt stock markets all over the world (as it did in the early 1970's, when the Dow tumbled 50%). 

Are we there now?  It's certainly possible, but not guaranteed. However, the risk is there and real. 

We will have to wait for MIPS to tell us what to do.

Posted by: Dr. G. Paul Distefano AT 11:06 pm   |  Permalink   |  Email

MIPS Timing Systems
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