Friday, October 7, 2011

Just a quick update.
We are approaching another time window that may represent an end to this current leg down. Market movements in the primary directiontend to move in 5 wave patterns. On the S&P Master chart (attached) we can clearly see the starting of a 5th wave from the pattern beginning from the Top on May 2nd 2011. The end of this 5th wave can continue to subdivide as an extended 5th wave however we are approaching significant levels where the big money may support the marketsfor a trade able rally over the next 1 to 3 months before the next expected set back in the early part of next year. At that point a more certain and durable rally may begin with little fan fair. 
Sentiment indicators are at extreme bearish levels so averaging here is not a bad idea but a full position is not recommended because there is always a possibility of a panic move down to much lower levels. Again, if we do stabilize here this is not the start of a new bull market but most likely a significant retracement of the recent move down.
Watch carefully over the next week to see if we see divergence within the market. If we do we may have the bottom at least for a 1 to 3 months. 
The market to really watch is the bond market. I have always said the smart money is in the bond market. The bond market was forecasting what we are see now 6 to 8 months ago and the best investment this year has been north american governments bonds. I got a lot grief from colleagues at the beginning of the year, becausemy recommended allocation was close to 70% bonds and 30% equity. This allocation would yield you a positive return this year compared what the majority are holding. However government bonds are at a great level to re-balance out and position into corporate bonds or dividend paying stocks.

Take Care
This is just "One Man's Opinion"

It has been a number of weeks since I updated last.
The dynamics of the market has not changed and the intra-day market volatility has been extremely news driven with little progress. The pattern that has developed is daunting and will cause great confusionover the net 12 to 18 months. This environment will not be for the faint of heart however these are times where going against the majority consensus at the right TIME will pay off in the long term. Picking a bottom in this environment is a risky game so averaging in quality dividend paying investments is a sound long term strategy. However not every sector and industry will recover as it didin the previous cycle. Understanding the global economic landscape and future catalysts will be key to get expected returns. 
We are not quiet there yet , however there will be time where the stock market indexes rise as the economy gets worse and this confusion will cause many to miss out on this profitable wave. It will be important to remember during this phase that "The Stock Market is Not the Economy". For instance the worst part of the Great Depression was between 1932 and 1937, however the DOW Jones Industrial Index rose from 41.22 to 194.40 by the end of 1936 (a gain of 373%). I am not saying we are at the bottom but to always be aware of this contrarian dynamic that may face us.
February 2012 looks like a interesting TIME for this down leg to stabilize. We are at a point of recognition therefore if governments step up here we may see a TEMPORARY bottom in the next few weeks.However the TIME cycle is telling us that this down leg may have further to go with dramatic rallies and drops over the next 6 to 9 months.