Monday, April 28, 2014

No correction after all

The stock market has actually rallied back since the April 10 "day of panic", and the S&P 500 index only managed to fall 4% below its recent all-time high before recovering, so we didn't have an official correction.  As of this afternoon, the S&P is only 1% away from returning to the April 2nd high mark of 1890.

Short-term indicators are still bearish, as the recent market action was not sufficiently scary to panic traders.  I expect another real correction (> 5%) to manifest sooner than later.

The long-term prognosis for the stock market is also unfavorable.  According to seasonal cycles, the expectations for the next six months are as bad as they can be.  In addition, a new measurement of "market health" that will be part of the Version-2 MarketBots indicates that conditions are favorable for a crash of 20% or more.  In other words, if I see a pre-crash signal in the next few months then I'll sound the alarm without hesitation.

Thursday, April 10, 2014


Yahoo Finance: Market nose dive...
Bloomberg: Nasdaq falls most since 2011...
MSN Money: Nasdaq falls 3.1%, worst since Nov. 2011...
Drudge Report: Stocks collapse - Nasdaq plunges...
CNBC: 2014 crash will be worse than 1987's: Marc Faber 

The S&P 500 index fell 2% today, which is hardly a "collapse" or "nose dive".  What the headlines don't tell you is that after the Nasdaq fell more than 3% in one day November 2011, it went on to gain nearly 80% in less than 3 years.  So much for today's drop signalling a crash.

Although we had a 5% correction (over several days) in late January, it was barely a correction, and it wasn't enough to cause real fear in the market; the resulting lingering complacency is bad for prices in the short-term.  The last correction of 10% or more was in the Spring of 2012, so I think we are still overdue for a decent fear-inducing correction.  A 10% correction in this case would take the S&P 500 index down to about 1700.

The Internal Price Forces numbers are still on the positive side of neutral at 6.1 out of 10, and I don't see an official pre-crash pattern in the S&P or in the Dow, so the bots (and my own judgement) are still bullish on a multi-month time frame.  I expect this correction to bottom out over the next few weeks, accompanied by more pessimistic headlines, after which the long-term rally will resume.