** Trader's Tips Stock Market Newsletter **
Published January 06, 2013 ...by oextradingresources.com
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Market Outlook 2013 Report
The 2012 trading year ended with a positive result for the stock market. The S&P 500 finished at 1426.19, up 168.6 points, 11.8 %.
The OEX (S&P 100) market made it's fourth positive year in a row. From it's 570.8 level at the end of December 2011, 1 year later it stood at 646.6, up 75.8 points, + 11.7 %. Compared to the other markets, the Dow was the looser this time, with it's 6.7 % advance. The tech market, Nasdaq Comp, came out as the winner, it advanced 13.7 %.
P/E - Price/Earnings Update
The below updated 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 15.96, 5.47 points lower than the Jan. 2012, 21.43 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 84.06 to 89.66 in the June 2011 - June 2012 reporting period, giving a double top formation in readings.
The S&P 500 dividend yield climbed 0.1, in the Jan. 2012 - Dec. 31. 2013 period, to 2.07 %.
As of this writing, the long term positive market trend seems intact. Monthly MACD has been in a bullish mode since February 2012. But in my opinion, the 2013 trading year could contain a S&P 500 major Triple Top formation from 2000, turning the bigger market picture bearish thereafter (although not without rebounds on the way). This could drag many other markets with it (deflationary pressure). Key markets like Real Estate, Oil, Gold, Commodities and others, could be affected. But it could turn out good for the Dollar in the coming years. See the various market sections below, to get a more detailed analysis.
There are several reasons behind this long term view. The monthly price position itself, i.e. for the S&P 500 monthly, prices are getting closer to the major resistance line drawn through the 2000-2007 major double top. Prices could continue to oscillate higher within the Wedge pattern, until this major resistance target is reached. Anyway, whatever the price level it finally hits, personally i'll be looking for a confirmed top in place, before considering a long term ETF Short position. More about entries later in the report.
Raw chart data used for most charts in this report, is courtesy of stockcharts.com
In the OEX case, this market is found near a major trendline from 2000, drawn through the major 2007 peak.
From a long term DGL monthly (Dynamic Gann Level) point of view, prices are climbing higher along a convergence of two major L2 resistance lines, projected from the 1994 and 2002 closing lows. But the key L3 lines have yet to be reached. The markets, in any time frame, tend to want to reach the L3 line, 60-70% of the time, before making a reversal, so any clear monthly close above the L2 lines would make the 2007 high or the L3 zone the next likely targets.
The 18 & 42 year composite cycle is pushing sharply lower from 2013, into 2016. The 18 number is part of the full 36 year cycle. Since the updated Bradley indicator suggests an important high in mid 2013 (if no inversion occurs) and because there is a lack of Volume confirmation of a long term market top at this point, the long term positive trend could continue, within the first half of the new year. It depends on the outcome of the delayed budget negotiations, coming up in February or March.
Another possibility, the market could just hold up without much progress, (consolidation) until the time is right. W.D. Gann believed Time was the most important factor in trading. Until sufficient ellapsed time, no change in trend, the Price & Time factor. Gann's research revealed that each decade or 10 year cycle, (1/10 of 100 years) marked an important campaign and he put importance on the 1 to 9 digits. He stated: ..."All you have to learn is to count the digits on your fingers in order to ascertain what kind of a year the market is in"... For example, he saw the years ending in 3 as the start of a Bear. So this is another reason 2013 could mark the start of a Bear leg.
I have revised the long term wave count, which however, doesn't change my long term bearish stance, that a Grand Super Cycle degree bear market is likely underway from 2000. In the S&P 500, the earlier Primary wave 2 count from March 2009 seems less likely, because other markets like the Nasdaq Comp monthly has climbed well beyond the 2007 peak. Another valid and promising count, would be to view the three wave pattern from 2000 to the 2009 major low as a huge a-b-c correction, completing a wave A of Super Cycle degree, at that low.
So this could mean a wave B of Super Cycle degree (for new readers, a free Elliott Wave Principle tutorial is available) is underway from the March 2009 low. In the S&P 500, if not a Regular Flat pattern is developing, a potential Expanded Flat could even take prices slightly above the 2000 & 2007 highs but with not much easing effect on the serious downside magnitude of the Super Cycle wave C, probably starting in 2013 and going into 2016-2020. A huge double bottom pattern is not ruled out then, wave 3 of C termination around 2016 and the wave 5 of C around 2020. So good buying opportunities could show up in the Stock, Real Estate and other markets, later in this decade.
About long term entry points in 2013, with the above scenarios in mind, one way to better sort out the probabilities, is to use the monthly MACD as a more practical entry guide. For example, if the current S&P 100 monthly MACD bullish mode remains intact until June, the odds are good we could deal with a Bradley (no inversion) turn in the market tide.
If, on the other hand, prices breaks down early in the year (below monthly Wedge and trendline support) forcing MACD into bearish mode and this continues into the summer, then a Bradley inversion is possible, suggesting a market rebound from that point instead. As mentioned before, the Bradley is not good in forecasting bullish or bearish market reversals, more so when this could happen within a year. So other indicators, like the MACD can be helpful in sorting out this. More information on the Bradley indicator, is found in it's own section below.
For long term stock investments, it really doesn't matter much what month in 2013 will contain the peak, as once the monthly MACD turns bearish and with chart history as proof, i would avoid Long positions in Stocks anyway.
In 2012 the demographic of 5 year groupings within 45-54 year olds, a driving element behind the U.S. economy, started to decline and will dramatically do so until 2025. This article published in the August 2007 issue of Trader's Tips, gives more details on how it could affect the economy and the markets, in the coming years.
Chart courtesy of Vorago-US database, thegreatbustahead.com
From a long term Volume point of view, there is no sign of a major top in place yet. Even with the weak volume readings seen through the super-cycle wave B from March 2009, (which is to be expected from this type of waves) a larger market peak should at least end with a spike up in Volume.
Volatility (fear level)
The VIX monthly made an intra-month breakout from the Triangle pattern in December but the fear level fell again and the VIX was able to close up against trendline resistance, avoiding a confirmed long term breakout in Volatility, which wouldn't bode well for the stock market.
Mid & Short Term
For market updates in these time frames, use the STU page on the website.
Neural Nets (Artificial Intelligence)
As for what Neural Nets (artificial intelligence) thinks the 2013 trading year may contain, below is a S&P 500 forecast courtesy of chartsedge.com It shows a decline into April and a secondary top in September.
Murrey Math Lines - Long Term
The S&P 500 has pushed higher, after it found support at the major 8/8th MML last summer. In case prices climbs above the 2000 & 2007 highs in 2013, it could form a major top up against the next 4/8th MML, which in the Murrey Math theory is seen as one of the strongest resistance/support lines.
The popular Google stock has experienced a spectacular growth since it's IPO in 2004 and is still near it's all time high.
Cycle forecast courtesy timingsolutions.com
The 4 Seasons of the Kondratieff Cycle.
The ongoing "Winter" part is projected to last until around 2020.
See this important video about The Long T Theory 40 Year Cycle
Statistics based Cycles
cyclelt.com - Now with end of decade projections.
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 2013, dates in bold marks more important turning points:
"Smart Money" (Commercial Futures Traders) is apparently positioned on the Short side (trending lower), in the face of the higher highs in prices, compared to the summer 2011 peak. COT Chart (Commitment of Traders) 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. Article by Wayne A. Thorp about Investor Sentiment as a Contrarian Indicator.
As of 01/02, 2013 the AAII report shows:
38.7 % Bulls
36.2 % Bears
Option Buyers Sentiment
Charts courtesy of market-harmonics.com
Bullish Percent Index
12/31 - Long term BPI (monthly) ended the year at 70, it's soon facing trendline resistance at overbought levels.
See the description
for this sentiment indicator.
Forex - Currency Market
According to CEBR - The Centre for Economics and Business Research, ..."This could be the year when the splits between the UK and the other EU member states turn into something politically serious. It looks like a marriage where love has gone and they are starting to try to sleep on the far sides of the bed. Oddly, rather than the other way round, it could be that the prospect of UK exit triggers the euro breakup."...
Technically, long term momentum readings shows the EUR/USD pair is getting overbought and soon facing major 6/8th Murrey Math resistance, at roughly 1.3670. Any break of trendline support thereafter, would most likely confirm a long term top in place and could open up for more weakness. But at this point, the long term positive trend from the summer 2012 low is not under attack.
U.S. Economic & Fundamental Condition
By Elliott Wave International
Think about one of those movie scenes when the leading man does all he can to defeat the big, bad enemy -- punches, kicks, slams, stabs, shoots -- but the bad guy just won't go down. In fact he doesn't even look fazed.
That's when the protagonist really starts to worry.
In real life, that's where the Federal Reserve finds itself today.
The central bank has thrown everything in its arsenal at the economy, but most key economic metrics have barely budged.
In the epic struggle, the Fed's policy has been turned upside down.
In the latest Elliott Wave Theorist, Bob Prechter noted:
The Fed has changed its policy, and it has done so in dramatic fashion. Look at this history of what the Fed has done.
Prechter continues his commentary:
You can go all the way back to 1929, and [the Fed] was doing what its job is supposed to be, which is to put dampers on exuberance and only make money easier when the markets are down and the economy is contracting.
Following that plan, the Fed raised the discount rate in 1929 to 6%. Here at the 1937 high, it raised margin requirements and bank reserves. In the 1968 bull market, when the public was excited about stocks, the Fed raised margin requirements and raised the discount rate to 6%. In 2000, right at that high, the Fed again raised its discount rate to 6%. In 2006, when the housing market was topping, and a year before stocks topped, it raised it to 6%.
What is it doing now? The market is right back in the rarified areas that it was when the Fed dampened speculation, but now the Fed is doing the opposite. Not only has the Fed not raised the discount rate to 6%, or even to 1%, but it is keeping the Fed funds rate at zero, and it is promising a 0% Fed-funds rate through 2015, three whole years.
This 180-degree turn tells me that the Fed is in a panic.
The Elliott Wave Theorist, Special Video Issue, October 2012
If the Federal Reserve itself is frightened about the financial future, perhaps you should be concerned too.
Why do The Fed and other central banks around the world keep making these types of mistakes? You can find out for free. See below for details.
Take an important step toward understanding the Federal Reserve system
In the free 34-page eBook, Understanding the Fed, you'll learn how the Federal Reserve controls the money supply, you'll pin-point a few critical points in Federal Reserve history, and you'll uncover several important myths and misconceptions, like who owns the Federal Reserve Bank.
This eye-opening report, which represents more than 10 years of research, goes beyond the Fed's history and government mandate; it digs into the Fed's real motivations for being the United States' "lender of last resort."
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This article was syndicated by Elliott Wave International and was originally published under the headline How the Federal Reserve is Showing Financial Fear. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Nonfarm payroll employment rose by 155,000 in December, and the unemployment rate was unchanged at 7.8 percent, the U.S. Bureau of Labor Statistics reported on January 4th. Employment increased in health care, food services and drinking places, construction, and manufacturing.
The number of unemployed persons, at 12.2 million, was little changed in December. The unemployment rate held at 7.8 percent and has been at or near that level since September. Source: Tradingeconomics.com & U.S. Bureau of Labor Statistics.
Work related economic numbers from 2012:
- The percentage of working age Americans with a job has been under 59 percent for 39 months in a row.
- In September 2009, during the depths of the last economic crisis, 58.7 percent of all working age Americans were employed. In November 2012, 58.7 percent of all working age Americans were employed. It is more then 3 years later, and we are in the exact same place.
- When you total up all working age Americans that do not have a job in America today, it comes to more than 100 million.
- In 2000, there were more than 17 million Americans working in manufacturing, but now there are less than 12 million.
- Back in 1950, more than 80 percent of all men in the United States had jobs. Today, less than 65 percent of all men in the United States have jobs.
- The average amount of time that an unemployed worker stays out of work in the United States is 40 weeks.
- Approximately one out of every four American workers makes 10 dollars an hour or less.
- In 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 55.1 percent are covered by employment-based health insurance.
- 53 percent of all Americans with a bachelor's degree under the age of 25 were either unemployed or underemployed last year.
- The U.S. economy continues to trade good paying jobs for low paying jobs. 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.
- The United States has lost an average of approximately 50,000 manufacturing jobs a month since China joined the World Trade Organization in 2001.
- According to the Economic Policy Institute, America is losing half a million jobs to China every single year. Source: The Economic Collapse
As of December, 2012 - CC is at 65.1, down from 71.5 in November.
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 2013
Ron Paul's Facebook post on U.S. National Debt.
Debt related economic numbers & facts from 2012:
- The U.S. national debt is now up to 16.3 trillion dollars. When Barack Obama first took office the national debt was just 10.6 trillion dollars.
- During the first four years of the Obama administration, the U.S. government accumulated about as much debt as it did from the time that George Washington took office to the time that George W. Bush took office.
- Today, the U.S. national debt is more than 5000 times larger than it was when the Federal Reserve was originally created back in 1913.
- Recently it was announced that total student loan debt in the United States has passed the one trillion dollar mark.
- One out of every seven Americans has at least 10 credit cards. Source: The Economic Collapse
A few Personal Finance & Debt Tips excerpts, from the source debt elimination section of zenhabits.net:
Make a budget
Purpose every dollar (including some buffer).
Create a balance sheet
Update it every month. List your assets on one side and your liabilities on the other. Assets should only include things you can easily sell and there approximate value. Liabilities should include all of the money you owe others. If your starting value is negative your goal should be to make that number smaller every month. If your number is positive your goal should be to make that number larger every month. The real value of this exercise though is it puts you in the habit of checking your financial situation every month which will reinforce habits that are increasing your wealth and hopefully allow you to catch and stop habits that are decreasing your wealth.
Pay off your smallest debt first
To get the momentum going. Some people go by the rule to pay the highest interest ones off first, but others like the rush from paying a card off completely and closing it. It's a great motivation to continue.
Make more money
Sometimes you can only stretch your current income so far. But how can you start an online business, without spending a lot of money? And without your own product? One way is by selling other people's products as an Affiliate.
Start a garden
Grow tomatoes, peas, beans, and herbs in pots if you don't have a yard.
From the January 2012 update
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
Earlier comments on debt.
The outlook for the Bond market is negative. The proxy used here, TLT is breaking out from a long term positive trend from 2011. First Fib. support comes in at around 112. So as a result of Bond market weakness ahead, we may experience higher interest rates in 2013, which also the analysis in the Yields section below indicates.
The TYX index has climbed higher after it formed a large Double Bottom in the summer last year and has just penetrated trendline resistance . So this paints a picture for Yields which points upwards in the new year. First Fib. resistance is right under the 35 level, a minimum target for 2013. But even the 50% - 62% retracement levels could be tested at some point.
As also stated in the previous report, the long term outlook for the buck should still be positive. The minimum target suggested in the 2012 report was reached in the summer. Given the possibility of a long term stock market bear trend starting this year, this should be good for the Dollar, as it tend to move in the opposite direction of the stock market.
Fundamentally, as mentioned in the previous report, with people trying to sell their assets to raise cash for paying off debt, the demand for the dollar should still be there, in the coming years.
Technically, the USD index is resting at channel support after going through a several month long consolidation phase. As long as this bullish channel and 50% retracement support remains intact, the positive price trend is also viewed as active.
Like in the S&P 500, the Real Estate market (using the Dow Jones REIT index as a proxy) is most likely working on a major Double Top pattern, which can often have a quite bearish outcome. Early this year it's probably going to re-visit the high made in the Fall 2012 but it should not climb too far above the major resistance line coming in from 2007, before this special pattern formation comes under doubt. The lower peak in RSI 25 vs. the current double top in prices, (classic bearish divergence) gives support to this scenario. Improved odds of a long term top in place, would show up with any break of the Nov. 2012 pivot low.
The XOI - Oil Index monthly has oscillated sideways into a tighter and tighter trading range, since Spring 2011. This pattern is caused by a Symmetrical Triangle which
should reach it's termination point, sooner or later in 2013. So awaiting a breakout, either to the upside or downside, to get more clues of where this market is heading thereafter. The Oil market tend to follow the stock market, so given the major stock market top possibility in 2013, the OIL market could also turn long term bearish later this year.
The same goes for Light Crude which is trading within a similar pattern.
After Gold broke out from a long standing bullish channel in Spring 2012, it went into a consolidation phase, trading within a tight Triangle range. The directional breakout from this Triangle should give more clues of where this market is heading thereafter, so awaiting the situation here. These triangle patterns are often formed by a wave four, so if this is the case here, once the Triangle pattern has reached it's termination point, one more thrust up towards the old broken channel is not out of the question, to complete a full five wave structure. But any breakdown of the Triangle right away, would negate this scenario. Overall, the long term outlook for Gold seems bearish.
XAU - Gold & Silver Index
The Gold & Silver index is oscillating within two converging trendlines and should break out before the Apex is reached.
Any downside breakout should lead to a test of key Fib. support at around 130.
Larry Connors "An Introduction to ConnorsRSI", a 43 page pdf report is available at no cost.
For new readers, download link (.zip file) to my RSI 25 Market Timing Article.
Good luck trading in 2013!
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