** Trader's Tips Stock Market Newsletter **
Published January 08, 2012 ...by oextradingresources.com Market Outlook 2012 Report The 2011 trading year ended with mixed results. The OEX (S&P 100) market made its third positive year in a row but just barely so. From it's 565.9 level at the end of December 2010, 1 year later the OEX stood at 570.8, up roughly 5 points, + 0.88 %. The S&P 500 ended somewhat flat for the year, it had its smallest prices change for any year since 1947. The Dow came out as the winner this time, it advanced 5.6 % while the tech market, Nasdaq Comp fell 1.7 %. P/E - Price/Earnings Update The below P/E chart gives support to the view that a possible Grand Super Cycle degree bear market from 2000 is still underway, with the P/E ratio currently at 21.43, slightly lower from the Jan. 2011 23.21 reading. As mentioned in the 2010 report: ..."It would take a reading between 5 - 10 to change this view. Compared to the 30's great depression low, even a P/E of around 5 - 6 is probable, before the bear market is likely over. Especially because a bear market of Grand Super Cycle degree could be underway from the 2000 peak."... The S&P 500 Earnings improved from 67.46 to 84.06, in the June 2010 - June 2011 reporting period. Its facing strong trendline resistance, possibly in 2012. 
Dividend Yield The dividend yield climbed 0.21 points higher in the Jan. 2011 - Jan. 2012 period, to 1.97. Stock Market Long term, the MACD guide/strategy (as outlined in the 2011 Outlook Report) once again did its job ok in the 2011 trading year, suggesting it was time to leave the the stock market (and with it, most long term stock investments on the Long side) in the Fall 2011. It would take a clear break of the monthly trendline (closing basis) and the Spring 2011 Primary degree wave 2 high, to change my current long term bearish stance. Until an Elliott Wave revision is forced through, the stock market is viewed as currently being in an Intermediate degree wave (2) corrective phase to the upside, from the Oct. 2011 low. Many Elliotticians knows what this could bring thereafter, if this wave count turns out to be correct (a move beyond the Spring 2011 high would prove me wrong).  A few significant reversals will be looked for in 2012. In case i'm wrong about a Primary degree wave 2 top (May, 2011) already in place, then mid March is the next likely time target for a peak. If the market has already stalled long term (preferred scenario) then any bearish trend going into mid March, would indicate a countertrend advance starting instead. Later in the year there is a weekly Gann Angle Cycle due on 06/22 (+/- 1 week). It marks the important 180 trading weeks from the March 2009 major low. The mid or long term directional trend going into this time window, would indicate a reversal in the opposite direction. In my opinion, 2012 could also contain a notable stock market bottom in the September - December time frame, as several important long term cycles are bottoming out around that time. Then a temporary Bull run could bring the stock market higher into 2013. A key here is to watch the monthly MACD indicator for further clues, regarding possible long term trend changes at some points in 2012. If the Oct. 2011 and 2010 lows fails to hold, to come up with other likely targets for a bottom this year, I've projected major DGLs (Dynamic Gann Levels) for the Dow and OEX and S&P 500. These charts gives a rough estimate, the more accurate level depends on when the DGL is reached. Chart data courtesy of stockcharts.com W.D. Gann discovered many cycles but the importance of the 10 year, 41 month and 24 month cycles when it comes to forecasting the general trend and direction of the stock market, can't be overlooked, according to this great trader. The influence of these 3 cycles often predominates the entire trend, when looking at 5 year sections of the market, in his words. All these 3 cycles are bottoming out in 2012. Gann discovered that throughout time, Bear markets often are active for 5 years, the first leg down for 2 years, then 1 up year and thereafter 2 years down. This is a typical 5 year downswing (in this case from Oct. 2007) completing in 2012. Overall, i think the next economic "Spring" (and with it great new opportunities) is not coming before in the early 2020s. But a year or two of temporary relief is possible from around 2016, before heading to new lows again thereafter. A less serious bearish scenario is the great bear market Primary 3 ending around 2016, then an advance for a year or two, before a huge Double Bottom pattern may have formed around 2020s. So in this case, the market may not go much below the 2016 low, if at all. So best case scenario, the most serious part of this huge bear market from 2000, could be over around 2016. This is partly the Winter phase of the Kondratieff Cycle at work. So if the Bear entered the stage again in May 2011, then also deflationary pressure in most assets may resume. I.e. Commodities, Real Estate, Gold & Silver and Oil could experience weakness along with the stock market. Its good for the consumer to some extent but not so good for companies and with it, employment. History shows that credit bubbles tend to end in deflationary collapses.  As for the tech market, below reflected by the QQQ Monthly chart, in the Outlook 2011 Report a major "Double Top" in the Q's was a scenario focused on. This Nasdaq 100 index tracking stock finally peaked slightly beyond the Oct. 2007 major high. Excerpt from the Outlook 2001 Report: ..."In this market i don't rule out a larger "Double Top" formation from 2007. Technically, Double Tops can be very bearish in nature, when correctly identified. And because of the current sentiment extremes, the upside potential beyond the 2007 peak is probably limited. So this is another reason a Double Top could be the outcome. At minimum, it should at least go through some mid term weakness first, if it intend to go well beyond the 2007 high."... But in the Dow, the even bigger picture looks more of a huge "Head and Shoulders" top developing, (biggest in history?) with the 2000 major peak possibly being the left shoulder and the Oct. 2007 top the head part, while the Spring 2011 peak could be the right shoulder under construction.  Updated Nasdaq Comp and Dow 30 charts. Volume Analysis Long term Volume patterns (10 year perspective) shows a bearish mode, with SBV readings below 25%, despite the advance from the Oct. 2011 low in prices. 
Gann Angles Short term, the next daily based Gann Angle Cycle comes up in just over a week on 01/17, +/- 1 day. If the current short term positive trend continues or consolidates into that time window, it may mark a top in the market. Any sharp sell-off into it, on the other hand, could mean a positive reversal around that time. This GA marks roughly 90 trading days from the August 2011 rebound high and more important, 180 TD from the May 2011 larger high.  Mid/long term, the next larger weekly GA cycle is due June, 2012 (+/- 1 week). With past GA's as proof, significant market reversals can be the result, when these weekly GA cycles occurs. In this case, it marks 180 trading weeks from the March 2009 major low, a GA which could have an impact on the market. The 180 number, even if in no convergence with other cycles in this case, is strong enough to cause reversals on its own. The mid/long term trend going into the suggested time window, would indicate a reversal in the opposite direction. I.e. if the trend is clearly bearish at that point, a positive reversal is looked for and vice versa.  Neural Nets (Artificial Intelligence) As for what Neural Nets (artificial intelligence) thinks the first 3 trading months of 2012 may contain, below is a bullish S&P 500 forecast to March 23, courtesy of chartsedge.com  As for the current NN Signal from the Neural Nets i use, its still Long on the OEX weekly, after it turned positive on this market in mid December 2011. These weekly Neural Nets signal charts are more frequently updated through the STU (Short Term Update) newsletter, available at no cost.  Volatility (fear level) The VIX exploded in mid 2011, reflecting strong investor fear in the summer and early Fall but has since then gradually coming back to the Tringle pattern it broke out from in the Fall. If it fails to enter into it again, it wouldn't bode well for the stock market long term, as this could be a classic snap-back move towards a broken trendline, before resuming its new long term trend higher. The Dec. monthly close came exactly on the upper Triangle line support, so the outcome of the Jan. trading month should be interesting. A reversal here, could mean the mid/long term Bear is back. 
Mid & Short Term The weekly trend chart gives some mixed readings but the important 13 - 34 EMA part is still barely in bearish mode, despite the S&P 500 price advance from the Fall 2011 low. The daily NYSE Summation index shows a firm positive trend underway from the Dec. 2011 low but is likely tracing out a bearish divergence these days. I'm using a 3 day EMA on it, to better see the true trend in prices. Any divergences observed in this indicator, (like now) often warns about tops/bottoms forming and possibly a stronger move in the opposite direction thereafter. On the weekly chart, the OEX has met some trendline resistance challenges it needs to overcome first, if it decides to go for a test of the May 2011 high, mid term. With the weekly Cycle10 now well into sell territory and showing divergence weakness compared to higher highs in prices, one of these trendlines could cause a reversal or at least lead to a pull-back in prices. So the market is at an interesting juncture. If it falls below trendline support in the coming weeks, the odds of an Intermediate degree wave (2) top in place, would increase. Using weekly closing prices only, also here the market has to overcome strong trendline resistance (585 area) first, to open up for even higher prices thereafter, towards the May 2011 high. 
To zoom into the finer wave structure of the market, a look at the daily chart shows a series of a-b-c wave patterns developing from the Oct. 2011 low, an overall w-x-y pattern which may terminate the Intermediate degree wave (2) soon. The 01/17 GA mentioned above is one ideal candidate to produce a top, in case the positive trend continues or a consolidation into the GA occurs. But daily Cycle10 has already started a new downside pressure phase, so only time can tell for sure if this will take the form of a pull-back only, towards lower wedge line support, before heading higher again. Or that the market its going for a wedge breakout. Any daily close below the lower wedge line, would increase the chances of an already completed wave (2) at that point. 
Volatility (fear level) The short term VIX daily shows a possible Falling Wedge formation. An upside breakout is looked for, given the bottoming RSI 25 these days. If it breaks to the upside sooner or later, once again a Volatility explosion could be the outcome, in line with what is expected from the upcoming Intermediate degree wave (3) impulse to the downside. 
Dynamic Gann Levels - DGL Prices are currently near a larger L2 DGL which has caused a significant short term top in the past and it could do it again. A mild bearish divergence is observed in RSI 25 versus the slightly new highs in prices. RSI 25 at more or less current levels in the recent past, shows several top formations in prices. Murrey Math Lines The MM chart shows a momentum bearish divergence, with the market at the same time struggling to get out of the 3/8 - 5/8th MML range, a well known fact in this theory. Once inside (entry difficult) it is also difficult to get out of this range. In retrospect, the major 4/8th MML was partly the cause of the wave (1) bottom in Oct. 2011, as seen on this longer term MM chart. Get more short/mid term updates delivered to your inbox, through the free STU (Short Term Update) Email Newsletter available on our site. Individual Stocks The popular Google stock has once again met major Triangle line resistance and is at the same time tracing out a bearish RSI 25 divergence vs. the higher high in prices. A mid/long term decline is in the cards for this stock.  Cycles T Theory See this important video about The Long T Theory 40 Year Cycle Kondratieff Cycle The 4 Seasons of the Kondratieff Cycle. 54 Month Cycle The 54 Month Cycle is projected to bottom out in Spring 2012. Statistics based Cycles cyclelt.com Bradley Indicator For those new to Bradley, here is an excerpt from an earlier Outlook Report: ..."The Bradley Siderograph is a popular indicator many traders rely on, to get an overview of possible larger turning points in an upcoming trading year. It is known for it's inversions, so it's not so good in showing whether highs or lows are coming but more so ... when major highs and lows can be expected. So using other indicators in combination with the Bradley, could give useful clues about future larger tops and bottoms."... Bradley dates indicating market turning points in 2012, dates in bold marks more important turning points: 
Sentiment COT Report "Smart Money" (Commercial Futures Traders) is positioned on the Short side, despite the market advance to new highs. As of 12/27 2011, the COT Report (Commitment of Traders) shows they are net Short with - 13,823 contracts. Chart courtesy of timingcharts.com AAII (American Association of Individual Investors) This survey report is used to determine the percent number of Bulls to Bears, to find sentiment extremes that can lead to market reversals. As of 01/05, 2012 the AAII report shows: 48.9 % Bulls 17.2 % Bears In the latest AAII Sentiment Survey, Bullish Sentiment soared to an 11-month high. Bearish sentiment plunged to December 2010 levels.  Bullish Percent Index 01/06 - BPI Daily closed at 73, so its getting overbought again. Its also facing strong trendline resistance soon, below the 85 mark. See the description for this sentiment indicator.  Forex - Currency Market The Euro weakness could continue in 2012, with the increasing debt problem in the EU zone. WSJ video documentary. With the dollar getting stronger, more pressure on the EUR/USD pair is likely, long term. But a countertrend advance is not ruled out, as monthly momentum is getting oversold and the pair is near the major 5/8th MML. Any monthly reversal bar formed here, would indicate a rebound starting thereafter. More evidence of this, when/if momentum is entering bullish mode. The EUR/USD still trades within a large bearish channel, developing from 2007. 
-------------------------------------------------------------------------------------- From the Outlook 2011 Report (still applicable information): Predicts the fall of the Euro within 2020 - It is only a 20 percent probability that the currency cooperation stands until 2020, means british thinktank The Center for Economics and Business Research (CEBR). The top chief Douglas McWilliams points to the big unbalances in the Euro zone and states the differences between weaker and stronger members will only increase in the future. This will contribute to undermine the cooperation in the long term. I suspect what will break up the Euro, is that most of the countries will not be able to take the medicine which is necessary to make own economies more competitive, says McWilliams. CEBRs analysts warns that the Euro can get significantly weaker against the Dollar in the coming year. If not the Euro is collapsing, this can be the year the Euro is weakening towards pari against the Dollar, adds McWilliams. U.S. Economic & Fundamental Condition Unemployment Nonfarm payroll employment rose by 200,000 in December 2011. The Unemployment rate continued to trend down, to 8.5 percent. Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 5.6 million and accounted for 42.5 percent of the unemployed. Source: U.S. Bureau of Labor Statistics. 
Consumer Confidence December, 2011 - CC is at 64.5 Consumers represent two-thirds of all domestic spending in the United States. So measuring consumer opinions is an important part in gauging future consumer spending and in turn the economic condition. High Consumer Confidence holds up the economy. 
Debt - Last updated, January 2012 16 facts about debt: 1 During fiscal year 2011, the U.S. government spent 3.7 trillion dollars. It brought in 2.4 trillion dollars. 2 When Ronald Reagan took office, the U.S. national debt was less than 1 trillion dollars. Today, the U.S. national debt is over 15.2 trillion dollars. 3 During 2011, U.S. debt surpassed 100 percent of GDP for the first time ever. 4 The U.S. government spent over 454 billion dollars just on interest on the national debt during fiscal 2011. 5 The U.S. government has total assets of 2.7 trillion dollars and has total liabilities of 17.5 trillion dollars. The liabilities do not count 4.7 trillion dollars of intragovernmental debt that is currently outstanding. 6 It is being projected that the U.S. national debt will surpass 23 trillion dollars in 2015. 7 According to the GAO, the U.S. government is facing 34 trillion dollars in unfunded liabilities for social insurance programs such as Social Security and Medicare. 8 Others estimate that the unfunded liabilities of the U.S. government now total over 117 trillion dollars. 9 According to the GAO, the ratio of debt held by the public to GDP is projected to reach 287 percent of GDP by 2086. 10 Others are much less optimistic. A recently revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050. 11 If you divide up the national debt equally among all U.S. taxpayers, each taxpayer would owe approximately $134,685. 12 Mandatory federal spending surpassed total federal revenue for the first time ever in fiscal 2011. 13 Between 2007 and 2010, U.S. GDP grew by 4.26%, but the U.S. national debt soared by 61% during that same time period. 14 In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers. According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States. 15 The U.S. government now says that the Medicare trust fund will run out five years faster than they were projecting just last year. 16 Right now, spending by the federal government accounts for about 24 percent of GDP. Back in 2001, it accounted for just 18 percent. Source: The Economic Collapse Blog 
Source: usgovernmentdebt.us ------------------------------------------------------------------------------------- January 2011 Update: As of October 2010, the U.S. Total Debt (public, corporate and personal) is over $60 trillion, which is $186,000 per person or $750,000 per family. The total debt increased by $3 trillion, about eight times faster than GDP. ..."Normally in a recession, you'd expect to see total debts fall. But not here. Our government believes it can borrow an unlimited amount of money and then print more to pay it. That's like lighting matches next to gas tanks. We can't solve our country's problems with more debt. Why not? Diminishing returns –s one of the core ideas of economics our leaders have never considered. As the debt load grows, it takes more debt each year to produce growth. In 1960, it took roughly $2 in new debt for each $1 in growth. By 1980, it took $2.25. By 1990, it took $3. By 2000, it took $3.50 in additional debt to finance $1 in additional economic growth. It now takes $5 in new debt for each $1 in economic growth. As you will hopefully understand intuitively, we can't sustain this trend. But that won't stop our politicians from adding, massively, to our country's debts. And eventually, people will figure out we can't ever repay these debts. At that moment, the value of the dollar will simply disappear. Once a country has used up all its credit, its Treasury Secretary begins to say things like, "We will never devalue..." That's a sure sign devaluation is right around the corner. And even though I knew it would happen here... I'm not happy to see it. It means terrible things for our country. I hope you've already acted to protect yourself."... writes The Daily Crux National Debt The U.S. National Debt has for the first time passed $14 trillion, getting close to the roof (14,29) the Congress has set. In February 2010 president Obama signed the law that put a roof to this debt and the federal government in Washington now has to stop lending more money, if the Congress doesn't raise this level. Some republicans in the Congress have made it clear they will vote against any suggestions to open up for even higher national debt, if they are not followed by a plan for significant cost cuts. For only 7 months ago this debt passed the $13 trillion mark, while it was around 10.5 trillion when president Obama took over in January 2009. The Secretary of the Treasury Timothy Geithner has warned the Congress of catastrophic economical consequences if this debt roof is not raised, fearing loss of millions of jobs. In a letter to central Congress members Geithner is warning that this roof can be reached already in March, if its not raised from today's level. Never before in our history has the Congress decided not to raise this level when needed. If it now fails, it could lead to several million job losses, writes Geithner. He is also warning about increased loan costs for US sitizens, which he thinks could have a worse impact on the US economy than the finance crisis. The finance minister means the dollar's status as the world dominating currency is threatened and that the consequences in general would be catastrophic for the US economy if not the debt roof is raised. Earlier comments on debt. Bonds The long term positive trend is still intact in this market, below shown by the 20 year Treasury Bond etf TLT. But a significant pull-back is probable in 2012, towards key Fib. support or even the major trendline support coming in from the early 2000s. The RSI 25 (now overbought) bearish divergence reflect underlying weakness, despite the advance to new highs in Bond prices, at the end of 2011. Overall, only a clear break below the major trendline (monthly closing basis) would indicate a change in the long term positive trend. 
Yields The long term trend lower is still intact here too it seems. It would take a convincing break above the trendline from the 80s to indicate seriously higher interest rates ahead. But Cycle10 is bottoming out, so a countertrend advance is starting soon. 
USD Index The outlook for the buck is positive in my view. With the dominant stock market trend likely being bearish within a 5 year perspective, this should bode well for the dollar, as it tend to move in the opposite direction of the stock market. Fundamentally, as people tries to sell their assets to raise cash for paying off debt, the demand for the dollar should increase even more. With RSI 25 currently at mid readings, the larger trendline (84 area) should be an attainable and minimum target in 2012. If overcome, the horizon would be clear for even more strength, towards the 2005 high and possibly higher. 
Real Estate Real Estate should fall along with the stock market, so the overall outlook for 2012 is bearish. Currently its the same situation here as in the stock market, about to test a larger trendline. If overcome, a test of the Spring 2011 and 2007 highs are the next events looked for. But as long as it trades below this strong trendline, its vulnerable to fall back for support. Any monthly close below the support line, would most likely confirm a long term countertrend top in place. 
OIL As the stock market goes, so goes the oil market too, more or less. So the long term outlook is negative for oil prices as well, which can be good for the consumer, i.e. with lower gasoline prices as a result. Light Crude monthly has reached key Fib. resistance and has come back to a trendline (probably to kiss it goodbye) it fell below in the Fall 2011. The Dec. reversal bar formed up against this resistance area, suggest weakness coming. Support comes in around 80. 
Gold Gold broke out from a long standing bullish channel in December, which doesn't bode well for stocks and other markets. The RSI 25 bearish divergence flashed a warning signal that weakness was in store for this popular market, when it climbed into overbought territory. So the tide could be changing here, generating a bearish outlook for 2012. First Fib. support is down around 1300 but a test of trendline(s) support is possible at some point this year. 
Charts courtesy of stockcharts.com XAU - Gold & Silver Index After a snap-back move towards the bullish channel it broke out from in the Fall 2011, the Gold & Silver stock market is now pushing lower. Any monthly close below trendline and Fib. support, would indicate more weakness coming, as there is plenty of room left, before RSI 25 is getting oversold. So as with many other markets, the outlook is bearish. Free Resources Free Trial - TsuBot, an automated trading assistant. Eliminate subjectivity, emotions, indecision, hesitation, and missed trades from your trading. Stocks and Commodities Review Free Report - The European Debt Crisis and Your Investments. In 1999, 11 European countries surrendered their currencies for the euro and a shared monetary authority. Barely a decade later, the once-celebrated EU and its currency are facing collapse. Elliott Wave International has just published a free report to help you gain a valuable perspective on the European debt crisis and get ahead of what it could mean for your portfolio. For new readers, download link (.zip file) to my RSI 25 Market Timing Article. Good luck trading in 2012! -AM info@oextradingresources.com http://oextradingresources.com P.S. Please tell your friends about this free Market Outlook Report. Webmasters & Bloggers: Feel free to use this newsletter as content for your website, blog, newsletter, forum etc., as long as it's not used for SPAM and the content is not altered in any way, active links included. |
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