BullBear traders have been catching intermediate term swings in the stock market throughout 2010, including the bottom made a couple of days ago. Here's the history of my S&P 500 trading signals for 2010:
With a few exceptions, particularly during the turbulent bottoming process from June-July, I've been consistently on the right side of the market.
Here's a peek inside the process which produced these results. All of the text and charts are excerpted from BullBear Trading reports and updates during the month of November.
Noting a number of significant divergences in the breadth and momentum indicators that I track, on October 30th I wrote in the BullBear Weekend Report:
Technical divergences can persist for weeks before fulfilling their downside potential. That would give enough time for a sharp, quick wave v which would then be followed by a reversal.
That's exactly what happened after the Fed announced QE2 on November 4th.
On November 5th I wrote:
The other news of the day is a better than 1% drop in the EuroDollar. Other components of the Dollar Index are fairly flat. The drop in the Euro may have something to do with persistent news on Greek and Irish debt. There may be a "European Debt Crisis" shakeout soon.
The selling in Euro in conjunction with a European debt scare should shake out metals, commodities and stocks and create a buying opp just in time for the ECB to pull off some kind of QE3 of their own to bail out the situation. At which point asset prices will surge again.
This is pure speculation, of course. But the action in the Euro is curious and has been wonky for a couple of weeks now. It's one of the things that have made me question some of the inflationist assumptions that are ingrained in the markets now. In my opinion should the above scenario come to pass we should not panic out of longer term positions but should be ready to buy FAST as soon as we see an abc correction to support.
On November 7th I updated BullBear Traders:
There is some chance of a short term top in asset prices and a short term bottom in the dollar.
Tonight there is general weakness in Asia and in commodities while the dollar has strengthened. There is no real "reason" for it, though I suspect that some kind of European sovereign debt jitters are brewing. The Euro has broken down out of the rising wedge indicated in the last update:
If this is an early warning of a debt crisis shakeout then I say "great"! The bears will think it's "The Top", the "D" word will once again be spoken in fear, the ECB will print tons of cash, bailout whatever needs to be bailed out and then things will rocket back up to new highs. That is likely to be the pattern over and over again...crisis, fear, mini panic, bailout, rally, new highs.
The full post continues here.
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