Stock Market Inflection point and long term view update‏

By: Tony_Caldaro

After a total review of all the relevant data we have arrived at several potential scenarios going forward. These scenarios, are of course, based on the current existing and potential future waves, plus two tidbits of fundamental data. First tidbit. Recently the FED extended the present currency swap arrangement to August 2012. This swap arrangement helps to create a lower USD in support of the EUR, while Europe goes through its debt problems. Unfortunately, a lower USD negatively impacts many of the other developed economies and emerging economies as their currencies rise against a declining USD. Or, those pegged to the USD are forced to expand their monetary base. We have already seen a deterioration in several of the world’s stock markets, partly due to this policy.

The second tidbit is the much awaited QE 3. First a little history on the FED’s Quantitative Easing (QE) programs. The FED initiated what has been called QE 1 in October 2008 with the SPX around 750. It helped, the market did rally, but not much, as the market then continued to fall. In early March 2009, at a CFR meeting, FED chairman Bernanke announced a major expansion of QE 1. The market then took off, from near the SPX 667 bear market low, and started the current bull market. When the program came to an end and the FED started talking about unwinding its, then $2.2 tln, balance sheet the market experienced the April-July 2010 17% correction. That month, July, there were rumors of the FED expanding its balance sheet with another QE program. The market rallied into August, then started to drop hard when nothing happened. Then in late August, at the Jackson Hole conference, the FED chairman mentioned expanding the QE program. The market took off and the bull market continued. In June 2011 the second Quantitative Easing program (QE 2) ended, with the FED’s balance sheet now at $2.8 tln, and the market has been quite choppy for months. Using the past as a potential criteria for the future. The FED is unlikely to expand its QE program until the stock market falls more than 10%, and morely likely 15%, before it is forced to act. By that time the long term upward bullish OEW pattern will have already be broken, and at best, they will only get a bear market rally for their efforts. These two tidbits of fundamental data suggest the currency swap program will continue to pressure foreign stock markets, and a potential expansion of the QE program will not only worsen its international impact, but will also have no effective impact on the US stock market. Using these two tidbits of fundamental data as a backdrop we examined the current bull market pattern from many angles, and arrived at several potential scenarios.

The first scenario is to maintain the original count: Primary III continues, and the market is now in Intermediate iii of Major wave 3.
The second scenario suggests the stock market already topped: Primary III ended in Feb11, Primary IV Mar11, and Primary V ended in May.
A third scenario suggests: Primary III ended in Feb11 and the market is currently in a triangular Primary IV, with Primary V to follow.
A fourth scenario suggests: Primary III ended in Feb11, Primary IV in Mar11, and a diagonal triangle Primary V is currently underway.
And the fifth scenario suggests: Primary III ended in Feb11, Primary IV ended in Jun11, and Primary V is underway now.
This is what we call an inflection point. Over the next several weeks/months the market will eliminate each scenario, one by one, until there is only one left: the market’s count. Until then we are going to post each of these scenarios in the tentative green labeling. Scenarios two and three will be posted on the SPX charts. Scenarios one and four on the DOW charts. And scenario five will remain on the NAZ chart. Just updated the charts. It may appear a bit confusing, but just remember four of the five scenarios point to higher prices.

Best to your trading/investing as the market sorts out its future path.

CHARTS: http://stockcharts.com/...

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After about 40 years of investing in the markets one learns that the markets are constantly changing, not only in price, but in what drives the markets. In the 1960s, the Nifty Fifty were the leaders of the stock market. In the 1970s, stock selection using Technical Analysis was important, as the market stayed with a trading range for the entire decade. In the 1980s, the market finally broke out of it doldrums, as the DOW broke through 1100 in 1982, and launched the greatest bull market on record. 

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Copyright © 2011 Tony Caldaro - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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