Buying Opportunity Coming?

Even the early stages of new bull markets experience corrections. After surging off the March 2009 lows, the weekly chart of the S&P 500 experienced what is known as a “perfected sell setup” in DeMark speak. Following the sell setup signal in early June 2009, the S&P 500 corrected 9.1% in the next six weeks. At today’s close, we should see a perfected sell setup on the weekly chart of the S&P 500 Index. We also have extended charts in Europe as measured by indicators such as RSI (Relative Strength Index). The video below expands on the rationale behind increasing odds of a correction in risk assets. DeMark indicators were developed by Tom DeMark of Market Studies, LLC. Video contents:

  1. 00:00 – 04:15 Market outlook
  2. 04:15 – 14:26 DeMark indicators for the S&P 500 and Germany
  3. 14:26 – 19:31 CCM Market Models

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video: S&P 500 Analysis

Video: Technical Analysis

If and how the markets come down will help determine if we have a buying opportunity or a resumption of a deflationary bear market. Given the current readings of proprietary CCM market models, the odds currently favor a correction followed by more liquidity-induced upside (a.k.a. a buying opportunity). The bearish case could follow the “decoupling path” taken by emerging markets in 2008. Our approach will be flexible based on market action. During an orderly pullback, we will consider taking a stake in numerous markets, including Germany (EWG), gold (GLD), silver (SLV), agriculture (DBA), and Australia (EWA).

There are two possible ways to interpret the European Central Bank’s (ECB) program which offers unlimited three-year loans to European banks:

  1. The ECB will print as much money as needed to save the euro.
  2. The ECB wants to flood the financial system with liquidity to prepare for a hard default in Greece.

Fitch Ratings today reiterated its view that Greece will default even with the rescue package. Excerpts from a Reuters article on the current state of affiars in Greece are below:

Greek workers went on strike against austerity measures on Friday, docking ships and halting public transport, hours after euro zone finance ministers said Athens needed to make more cuts to convince them to release a financial bailout.

The euro and shares fell on Friday, reflecting concern over a possible failure in the debt restructuring after the European Union and International Monetary Fund indicated that a hard-won Greek deal on spending cuts and wage cuts did not go far enough.

Before they release more aid, Greece’s financial backers have demanded parliamentary ratification of the new austerity package this weekend, the identification of a further 325 million euros of spending reductions by next Wednesday and a strong commitment from all parties to implement the reforms.