November generally is a good month for the stock market. But this time may be a bit different and do not expect November’s bounty. Perhaps, we all should run for a temporary cover.
The Stock Market certainly seems like topping or overbought or even a bit irrational; after all, it seems to go up every day without any much needed correction. Is the market getting frothy? At least in the short term!
Despite the sluggish growth in major economies, a new all-time record on a daily basis just doesn’t seem unbelievable. As long as the taper delay is on the card, Mr Market seems like to charge on. But based on my technical, Cycle Timing and Sentiment Analysis, I would not be a buyer anymore. Rather, I would focus on shorting the market. Look at the following charts.
After what seems like weeks of no retreat, we finally get some reasonably strong signals that a short-term peak is likely in place. First look at the sentiment analysis of the Bull and Bear which can give a very good accurate picture of the market condition at times.
Not surprisingly, some analysts at top banks are beginning to issue a bearish note. Generally, I don’t want to pay too much attention to their calling but One of the following statements was made by a Bank of America analyst seems matching my call based on my own interpretation of sentiment analysis.
"Based on the American Association of Individual Investors (AAII) Bulls to Bears ratio investors are more bullish now than they were in late May and mid-July. In terms of sentiment, this is a contrarian bearish condition. Since April, near-term peaks and troughs in AAII Bull/Bears have coincided with near-term market peaks and troughs."
“Bears drops to 16.5% = too few bears; As of October 25, Investors Intelligence (II) % Bears extended deeper into contrarian bearish territory below the 20% level with a reading of 16.5%. This is down from 18.5% the prior week and the lowest level for II % Bears since April 2011 – this suggests too few bears among newsletter writers. II % Sentiment is an equity market risk and confirms the complacent readings for the 5-day put/call ratios.”
“NYSE margin debt at record high; confirms S&P 500 high; As of September 2013 NYSE margin debt stood at a new record high of $401.2b and exceeded the prior high from April of $384.4b. This confirms the new S&P 500 highs and negates the bearish 2013 set up that was similar to the bearish patterns seen at the prior highs from 2000 and 2007, where a peak in margin debt preceded important S&P 500 peaks.”
“Risk: Net free credit at $-111b & back at 2000 extremes; Net free credit is free credit balances in cash and margin accounts net of the debit balance in margin accounts. At $-111b, this measure of cash to meet margin calls is at an extreme low or negative reading not seen since the February 2000 low of $-129b. The risk is if the market drops and triggers margin calls, investors do not have cash and would be forced to sell stocks to meet the margin calls. This would exacerbate an equity market sell-off.”
What can the Technical picture and Cycle Timing analysis tell us about the state of the market now?
SP500 and DOW
COMMENT: Based on Gann’s Cycle and ABCD (ignore the noises in between caused by debt ceiling impasse last month)
- SP and Dow has hit the interim peak at 1774 and is now expected to pull back to 1698 –the expected interim bottom
- The correction seems to be modest and after this correction, it will continue to go to all time high sometimes in early January before the major top is set in for the major correction that I have been waiting for. This major correction will last for at least 2 months.
- Based on Fib derivation Ratio (1 to 1) , the likely bottom will set at 1698 on the 1st week of December-4th ( see chart below)
In this challenging stock market, never say never with respect to what you see but on the contrary, It may suddenly goes against you. Look at the chart above, it still has a reasonable chance to punch through the upper boundary line to create a new all time high.