May 27th, 2011

May 2011 = August 2010

Time moves awfully slowly when you’re waiting for something to happen and it’s no different during consolidations or corrections. You wonder when momentum will pick up again? You begin second quessing your operating assumptions and wonder whether the market isn’t actually at a reversal turning point rather than merely a much needed consolidation?

Whenever I begin asking those sorts of questions I go back to earlier posts to see whether the market has vered far from the game plan. If they have then I’d have to trash those earlier assumptions and come up with a plan; if they haven’t then there’s not much to do but wait.

For the time being, the current game plan (i.e., view of the market’s near term projection) goes back to January 20 in a piece called “Pivot Points and Sell-Fulfilling Prophesies” in which I included the following chart (click on images to enlarge):

I wrote: “the market is edging ever closer to a zone (1300-1350) that has seen six pivots since 1999. As a matter of fact, the last pivot was in 2008 …. No one can predict what the market will do now but there’s a good chance that, in its pursuit of symmetry, it will replicate the 2008 pattern…” This chart followed:

And here we are, four months after that post and, as expected, the market stalled out just about where I thought it might (today’s close was 1325.69). We’re back to the original question: Where to from here?

For that I turn to what might be considered a contra-indicator, Individual Investor Sentiment. The AAII published their most recent poll of how individual investors felt and concluded that their members haven’t been this negative since August 2010:

Do you remember what happened in September 2010, the month after the last bottom for sentiment? It marked the beginning of a stupendous bull run that carried the market 30% higher in 8 months. The market’s current February-May course looks fairly similar to the May-August 2010 path. I wouldn’t rule out the possibility that this one could also be followed by a rise to at least the all-time high of 1550, or 15-20% above today’s close just as the symmetry charts indicated.

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  • Brett’s Stock Market Pulse

    Nasdaq closes gap down level from Friday/Monday at 2,796

  • Anonymous

    guru, thx for the post…hope you did not sell your BRCM !!

  • Joe

    If you had subscribed to Instant Alerts, you would have known that I sold it on 1/20 at 44.77, or 22% higher than the current price.

    If it continues improving, I may jump back in. Thanks for bringing it to my attention.

  • Anonymous

    1520 S&P 500 next stop!!! Momentum stats predict this.

    Minnesotalee

  • Joe

    Minnesotalee, welcome back, long time no hear.

    Hope you're right but what momentum stats are you looking at? Can you share them with us?