Saturday, June 12, 2010

Stock Market Update

In my 27 March 2010 Stock Market Update[Link], I wrote:

1. Despite naysayers saying this is a market is 'double topping' (the first top was in the early Feb and we are at the 2nd top and poised for a fall), there is enough liquidity to drive this market higher. In fact, I believe the market will rise and the rate of rise will increase.

2. The market will peak in mid-May 2010 (12 May 2010 as the best estimate) and
fall abruptly.

3. It will fall until roughly the
1st week of July 2010 before it attempts to rebound and peak in the last week of Aug 2010. This 2nd peak may or may not be higher than May peak will mark the end of this rally.

This is what the stock market did following my March 2010 forecast:


My first forecast that the market will continue to rise from March turned out to be correct. I identified a peak in 12 May 2010, but it turned out the market peaked on 27 April 2010 which was 2 weeks earlier. After that peak my forecast was for an abrupt drop in the markets which was realised when we saw the biggest drop in May in the past 40 years.

I'm quite surprised that my models were off by 2 weeks for the peak while it was able to forecast the abrupt drop we saw after the peak was formed. I ran everything through with the latest data and this is what I got:

1. The market will recover from the recent abrupt drop from now until end Jul 2010.

2. In end Jul 2010 to Aug 2010, the market will form a 2nd peak that will be close but lower than the 1st peak. You should really get out if here if you miss the 1st chance to end out in end April early May.

My models look at liquidity and things will dry up as govts implement austerity and stimulus spending wears off as we get close to the end of the year. The rise from June to late Jul should materialise as we still have liquidity and we should be able to see another round of good economic numbers from the US (look at the Ceridian Index for May). For medium term moves the market is largely driven by liquidity - the DOW was able to close up even with yesterday's very poor consumer spending numbers. The actual longer term macro-economic picture remains bleak and this combined with diminishing liquidity will suggest an exit from the stock market towards the end of the year - my model puts it at end-Jul.

8 comments:

Anonymous said...

Mr Lucky

... psst ... Mr Buffett allegedly said that technical charts looked the same even when you flipped it upside down ...

//
2. The market will peak in mid-May 2010 (12 May 2010 as the best estimate) and fall abruptly.
//

I forecast that after next extended rally there will be an abrupt correction ...

//
3. It will fall until roughly the 1st week of July 2010 before it attempts to rebound and peak in the last week of Aug 2010. This 2nd peak may or may not be higher than May peak will mark the end of this rally.
//

I think it will rain today. Or it may not rain.
And traders will return to the market after the World Cup ends in early July. Or they may not.

You have no faith in the power of Obama?
Maybe he will magically resolve BP oil spill, the euro mess, housing bubble, jail the banksters, promote green technology and restore full employment?

Musicwhiz said...

Just 3 words - Does It Matter?

Lucky Tan said...

Music Whiz, and Anon 12:18:

I've read my Buffett books and is well aware of the strengths of value investing.

But beyond Buffett's style of long term investing is another game. I've been a buy to hold investor most of my life and a large part of my money is set aside and some of the stocks I've invested in have been held for more than 2 decades....good returns, no need even to bother about what the stock is trading at today, one month ago and so on....if you were to ask my how my long term portforlio is doing today, I don't really know because I don't look at it.

I've come to also understand the mechanics of the markets a whole lot better over the years and found the manic depressive Mr. Market left us with plenty to exploit...not just value investing. Enduring as value investing may be....I think there other ways to win and profit...but they are not necessarily easier than value investing.

These 10-15% gyrations matters to those who are exploiting these 10-15% gyrations for gains. They mean nothing to Buffett. But Buffett is richest man not the only rich man around.

ice cube said...

Hi Mr Lucky,

you mentioned that in your model you looked at liquidity. Can I know which indicators or combination of indicators do you use to have a feel of the liquidity?

Thanks for your time.

Nosedive said...

I think you are right and so do quite a few traders:
http://www.telegraph.co.uk/finance/comment/edmundconway/7825880/Investors-are-betting-on-a-Black-Monday-style-collapse-BoE-warns.html

Anonymous said...

nope, black monday din come. it was rosy, really...

Anonymous said...

Hi Lucky Tan,

You are completely wrong in your forecasting. Can you explain why you are wrong?

Anonymous said...

Hey Lucky,

Since you are wrong in your stock forecasting analysis, will you admit that you have embarassed yourself?
Please do not escape from admiting of embarassment.