"There is no such thing as market timing"
Tinhat is dedicated to no such thing. It's an attempt to assess the risk-on risk-off tides of the global stock market.
Topping process. There should still be a recovery period to come within the current chop before a proper down starts. I donít know the exact timing or the levels, merely that we have one more move up to make before we can start falling heavily. It might only be a slight rise. We may even have seen the true top in terms of market highs, but we should see at least a slight positive move before the real fall begins. Also Wednesday was a strong down day and itís unlikely that Thursday will be the same. Itís possible that we only get one dayís respite, as the undercurrents are now quite negative.
Looking at the longer term charts I think weíve now started on a long term bear market with lower highs and lower lows lasting more than a year, assuming the Fed doesnít step in. We may crash heavily through February or it could be April before the waterfall begins.
Still a topping process. The US fall on Tuesday is unlikely to have marked a true US top, as there are still positive undercurrents, for example in Tick and small caps. For European stocks there's a higher chance that a top may have formed yesterday, but it's not yet clear. For the markets in general it's most likely that we're still in the choppy area of a topping process rather than at the true top.
Possible topping process. There is still a mild positive undercurrent but it's very weak. Greece voted anti-austerity but I don't think that's a huge big deal. Maybe a few months down the line it might be an issue, but not yet. The markets could spend weeks stuck in a topping process or an event could trigger them to fall. Currently it's unclear and there is still a chance of a slow grind up, so I'm not short yet. Most international markets are now aligned at relatively high levels in terms of their cycles.
How deep will the next fall be? It's earnings season which is always dangerous, plus there are some bad patterns in breadth, for example the last NYSI peak was below 500, and SPXA200R has formed a pennant. So the next fall has a higher than average chance of turning into something serious. Certainly I expect to play it.
Mild positive trend. While it's positive it's quite feeble. My guess is we form a topping formation over the coming week. This positive trend isn't strong enough to play. The QE announced by the ECB last week was big but greatly weakened by the lack of shared risk. It may paper over the cracks for a while or it may not. Certainly it will allow EU countries to monetise their debt for half a year or so. Is that enough? I think the markets are unsure. The impact of this QE will be nothing like as great as the US QE that preceded it. We should see some good cyclic patterns emerging soon, starting with a good top and playable fall. But for the past few weeks the cycles have been weak and unplayable.
Waiting. It's all down to the ECB announcement on Thursday. In advance of that announcement there are almost no cyclic patterns. Or what little we have is positive. I believe a high level of European QE is already priced into the market, so a feeble announcement would take us down.
Unclear. Last Thursday we bottomed and Friday we recovered, at least from a North American perspective. The markets recently have not been coordinated, with US falling while the DAX rose. We have heavy European politics this week with the ECB QE announcement on 22nd and Greek elections on 25th. It's still a puzzle why the US did so consistently badly last week. Normally I would now expect two or three weeks of bullishness but we do not have the standard patterns for a full accumulation phase following a bottom. There are some negative patterns that we still need to break. My best guess is we zigzag for about two weeks and form a proper top in early February.
Neutral. Yesterday was another bad day for the US indices. I have plenty of indicators saying we're already in a bear phase, but a couple of important ones are missing, particularly Tick. I shall wait for this important indicator because until it gives a signal there is still a chance of quick recovery and a bull phase. The European Court of Justice has given an interim green light for some form of ECB QE. On the 22nd we shall see what form that takes, and how much help it gives to peripheral EU states, which are the ones in need.
Neutral (trend). Frankly my cyclic approach to the markets isn't all that useful at the moment. Cyclically the markets should be rising, and they're not. And they cannot be argued with. So I am standing aside and waiting for the cyclic top. At that point we will have a cyclic downtrend in an already weak market, and that should give excellent opportunities on the short side. But we're not quite there yet.
Bullish (trend). Despite the drop on Friday I still see a bull market for the next seven trading days. On the other hand I don't have sufficient confidence to play it. We are lining up for a significant bear phase within weeks and that bear should be more playable than the up phase that precedes it. I still expect a top around 20/21 January, and at that point the markets may be only one or two percent higher than they are now. The Greek elections on 25 January are far more important than how they're being portrayed in the mainstream media. If Syriza wins then a dangerous game of bluff with creditors will follow. If you understand the Greek people then you know this is true. Also I'm continually astounded by mainstream media reports that the ECB will launch full QE and buy government debt (ECB meets on 22 Jan). If you understand the German people then you know this is false. I assume this false reporting on both counts is intended to inflate stock prices.
Oil remains a wildcard and a continued deterioration in prices could bring the global market top closer. If oil falls early in the coming week then I'm not sure I'll get to see seven bullish days.
Bullish (trend). For the past three weeks I've not been able to read anything from Tick, which is probably my favourite indicator. Finally it's starting to say something. And what I believe it's saying is that over the Christmas period we had an extended double bottom lasting three weeks. The recent bottom on the 7th was wholly connected with the bottom on December 16. The peak between the two wasn't much more than noise. If this reading is correct then we are now in a safe bull period through the rest of January. I need a few more days of strong Tick to confirm this interpretation. If it's true then it will negate a lot of bearish trendlines and they will easily be broken as stocks rise. I'm not expecting a top until the end of the month.
I'm abandoning the theoretical connection with oil prices. Oil showed weakness yesterday while stocks were strong. TRIN finished very low yesterday so there is a chance that today the US market starts artificially low.
The bounce came a day later (yesterday) than expected. It also came without the usual pre-bottom signals, so in that sense it was unusual. I believe the bounce is wholly associated with the recovery in oil prices, though I can't prove this. Certainly it varied in strength during the day in line with oil prices. So far the bounce hasn't proved itself, it's weak. Today we find out whether it has any strength. My expectation is that this recovery is short-lived. I'm not expecting it to continue beyond Opex+3 (21st). I have not gone long though I might do so if I see enough strength.
Mild up (trend). We're in a relatively tricky phase, many of my bear indicators are now active, but the recent few days down have been on low holiday volume. Plus if we had reached a top then it would have been very sudden, too sudden. On balance, I think the big bear that's around the corner will be delayed by one or two weeks. A lot of retail punters want to see a new SPX high and the big boys who control the market have no reason to disappoint them. A small rise at this stage would be a good way to collect sucker money. The only problem is that in terms of breadth the market is now itching to go down, so any rising trend will be very short term and might not reach its target.
In the medium term (weeks) there is strong downward pressure from the 200 day participation indices (such as SPXA200R) and margin debt, which is faltering around a high. Most cyclic breadth indices (such as ITBMNYA) are at a high and ready to come down. Also we haven't yet seen the full post QE3 fall that we have every right to expect. We are set up for a fall. In terms of timing Q4 earnings season would be ideal, starting mid-January.
Down (trend). This top is surprising me. It's very sudden and most of our recent tops have been slow. But I can't discount the fact that many of my bear indicators are now active. Yet volume is low, due to the holidays. I'm left with a down phase that I have no faith in, at least not yet. So I have not gone short. I'm certainly thinking about it.
Wednesday was an extreme down day so Friday is unlikely to be as powerful, more of a recovery day.