Wednesday

Nadeem Walayat MarketOracle Bullish Forecast

Post a Comment November 11, 2009 – 9:37 pm |   | Permalink |  Print This Post |

Thought I would share a very interesting article I read yesterday from Marketoracle by Nadeem Walayat:

Seems like Déjà vu where virtually on every correction the mega perma-bears re-emerge to pronounce the demise of the bear market rally only to be beaten back down by the subsequent rally to a new high for the move as we witnessed today with the Dow closing above the previous mid October peak of 10,120, by closing at 10,226.

Current Price Action

First let me quickly cover today’s (9th Nov) price action. My recent analysis as of Dow 9,712 concluded with the Dow targeting 10,350 to 10,500 during December 09. Today’s price action clearly puts the Dow ahead of projected path as illustrated by the graph, but no I am not going to contemplate revising the target even if it is soon breached. Therefore my reaction to the rally is seek to distribute into it earlier (time wise) in the target price range i.e. bank profits! My next in depth analysis and conclusion on what follows after the current bull market swing peak into 2010, will be in December.

Bears Crushed Again

October was no ordinary month for the reality of the matter is that most widely read analysts have seen this rally as a bear market rally that was expected to resolve to a move back to and in some cases below the March low of 6470.

As the stealth bull market has gathered space, so has it ironically accumulated more bears pronouncing its imminent demise on every correction. The last correction of October 2009 being the most significant to date as it carried the most overwhelming bearish conclusions emanating from right at the top of the analyst food chain.

What does this suggest ?

It suggests that independent thought is limited, it appears to me a lot of the analysis on the web which like a pandemic virus can be traced back to a small source from which it is regurgitated around the world by analysts based on the conclusions of a few media mega-bears.

For instance every time Dr Doom Nouriel Roubini talks about stocks falling it gets regurgitated as fact across the media and internet. My recent analysis concluded with the following chart following his latest call for a 10% to 20% drop -

The problem with the mega perma-bears that re-emerge on each correction is that they do not have the ability to recognise when they are wrong so the purpose of analysis cannot be towards the management of actual positions that are subject to money management.

The Bear Market Rally

Another trick pulled out of the hat is to ‘pretend’ that the whole rally to date has been accurately called as a bear market rally, however the whole notion of a bear market rally is that it’s end is always imminent on each correction. However as I pointed out in early April, one cannot monetize on a trend that one is skeptical of. Without conviction of a high probability of success there IS NO TRADE ! NO INVESTMENT, NO DECISION, JUST NOISE.

On each correction repeatedly presented is the argument that the “bear market rally” and the illusion that the preceding trend had been called all along.

On the other hand for someone that recognised the rally as a BULL Market, the opposite is the case, where every correction is viewed as a potential accumulation opportunity, the problem exists that one does NOT know how far the correction will run, neither does one know how far the subsequent rally will rally, all one knows is that THERE is a high probability for a rally to a new high. Therefore best guesses are given to the degree of the correction and the size of the subsequent impulse wave. How accurate the calls are on pinpointing turning points in advance is more or less comes down to a mixture of skill and luck, one may get some calls spot on but others will be missed by good %. However the key point remains in that ONE IS ACCUMULATING during the correction WITH-IN the bull market whereas THIS IS NOT POSSIBLE WITHIN A BEAR MARKET RALLY SCENERIO, where the termination point is always imminent therefore those that allude to a bear market rally have NO chance of profiting from it as THEY are always trying to pinpoint turning points AGAINST the trend.

Fundamental Reasons ?

The key problem with many analysts is that they think too much, they get carried away by looking for fundamental reasons to explain what the market will do next. However the problem here is that the reasons at any particular point in time can only really be used to explain what the market has ALREADY DONE, and NOT what the market is going to do next. Which is why fundamentals are a red herring that repeatedly sucker in highly publicised analysts into constructing mega-scenerios that whilst immensely convincing , however in reality are near totally worthless when it comes to ACTUALLY participating on the profitable side of the unraveling trend.

Today’s ‘red-herring’ is the debate surrounding that of a ‘V’ shape or ‘U’ shaped economic recovery i.e. ‘V’ shaped would give is the present bull marker whereas a ‘U’ shaped implies a bear market rally, in either case a complete and utter waste of time that would be better spent focusing on the market! Just remember this - The Fundamentals FOLLOW the market, NOT LEAD! Therefore those that continue to use fundamentals to attempt to forecast stocks and other markets will near always be found chasing their tails, eventually de-evolving into commentators that are always looking in the rear view mirror to explain what has already transpired and even then the explanation will probably be WRONG i.e. just a best fit of trying to make sense as there are a near infinite number of fundemental indicators to pick and choose between to explain all scenerio’s and outcomes.

The market will do what it wants to do, you either go with the market or you lose money, analysts building mega fundamental scenario’s in the air just confuse ordinary investors into indecision or the WRONG action / in-action.

The market subsequently peaked in the middle of the target zone and began a correction which took the Dow down to 9,430.