US stock market has extended quite very well, with interest rates in the U.S. went near 2.80% level again for 10yr bonds, investors are now really challenging the tapering of the FED in the near term, that is expected to lower bond buying programs or even stop them for a period of time.
Most analysts forecast a rate of 3-3.5% 10yr bonds on 2014, and increase is bonds will further weaken equity and will make 10yr bonds below PAR.
Technically and theoretically speaking, we could be in the upper resistances and could top soon. Three major indicators, which are generally effective 70-80% of the time, are already shouting that a possible correction is due soon. The only reason and the tricky part of all is that, we are still making newall time highs, and whoever institution is doing it, is making the public investments get wary, chase the market and then Kaboom, public investors are trapped and institution making lots of money. The typical emotional trap in a Bull Market.
First and very important indicator: The parallel lines of our entire 4.5 year bull market. SPX/GSPC is pointing to a very strong resistance near 1800-1822. Merely 10pts from where we are right now. This indicator or technique is widely used by any technical analyst or even noob investors, it is widely used in stock as well.
Second indicator: Weekly charts in SPX is pointing a triple negative divergence on the RSI.
Last and theoretical indicator: Elliot Wave Analysis. The market and the investment firms are very good in populating and trading the US markets, every time we call a possible peak, it overextends, making us chase the market again and again. And like what happened in the Philippines and Indonesia Markets, nobody expected it and people are busy counting they enormous gains throughout the day without thinking that market has been exhausted already.
Elliot Wave count suggest 3 scenario:
1. We are in the final waves of intermediate wave v of Major wave 5 of Primary Wave III Bull Market. Next is Primary Wave IV correction which could be 8-20% (50%)
2. We are in the final wave of intermediate wave v of of Major Wave 3 of Primary Wave III Bull Market. Next is Major Wave 4 which could be around 5-8% (30%)
3. Lastly, the smallest chance but fooled us twice already for the past 6months, is an over extending again of intermediate wave v and extending another 5 waves which could run into early January (20%)
Another indicator we usually check is the timeframe of waves.
Sometimes it is just for fun,but sometimes time relation is also important.
SPX weekly charts above shown have green lines.
First green line is the 2009 bottom until Primary Wave I peak around March 2011.
Second green line is the bottom of Primary Wave II until a possible Primary Wave III peak.
Primary Wave III is usually the longest of all,but can be 1:1 ratio with Primary Wave I.
At the end of the month, we could finally find out what is in for us. Good luck to everyone!
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