Stocks Rally 10 Days and Counting

October 15, 2011
In case you are wondering what this symbol is all about and what it is doing in my blog, I am now an official contributor to the TraderPlanet, which is a website "where traders gravitate".

Stock Markets
The latest rally started on a strong note,and still shows no signs of exhaustion.  This is significant, because unlike the previous attempts in August and September, this rally is not just a function of 'short covering' or bears being wrong footed.  Carry traders are getting back into action (=USD retreats from highs] and money flows reach beyond the US circle of influence.

Recognising a change in trends is about as challenging as correctly assessing winds when sailing out at sea: a sailor often 'smells' winds and knows when - and where - danger lurks.  He does not consciously note down all his observations, the variance in wind conditions, the accompanying signs precluding such change.  It is the 'smell' that dominates his senses. Similarly, many years of stock market experience increase your powers of observation, prioritisation and decision making, if you have watched and learned without a preconditioned mindset.

Ten trading days ago, I told you about the change in stock markets I could smell, - and it wasn't a rat.  It was right. Once again, swift action allowed our investors to participate to a large extend.  Moreover, I warned as early as 25th September, to not fall into the bull trap, BUT CHILL OUT AND HANG ON to the equities you were holding, because a change was imminent. You'd be glad you did.

Trend Change after correction since April 2010 is on 12th level Fibonacci time line, GREEN ARROW: upside to December 2011

We are now going into the third week, a crucial test as to how far this rally can go. Once again, we stick our neck out and ask you to stay the course for stocks, - and for gold and commodities. The most promising signs for equities are found in European stock market indices, like the FTSE and the Swiss market. The Swiss market is particularly interesting as the authorities had decided earlier to semi-peg the CHF to the Euro, whenever it hits a certain ceiling level, in the hope of avoiding excessive stress levels on Swiss exporters. Swiss exports are predominantly within the  Euro zone, so this decision brought great relief to its equity markets.

 

Fibonacci 12th time zone level

As an interesting observation, the 12th time zone level Fibonacci time lines in many indices are all gathering around the most recent crach in early August or shortly thereafter.  This cycle (i.e. from level 1) started on March 9th, 2009. The 12th level can turn into the 'fullness of time', and hallmark the start of a new cycle. 

Gold and Commodities

Gold prices and commodities have rallied strongly in this first phase, too.  In tandem, the so-called commodity currencies like AUD and CAD have gained in strengths.  As the advance is rather measured in preference to the volatile swings of the last few months, I believe that we may see a longer term trend emerging.  But do not expect the same volatility for a while: New price highs are unlikely this side of 2011. 

A preview of the Santa Rally?

There is reason to believe that we are seeing the first phase of an extended Santa rally, all the way to the end of 2011. As it should, it comprises all markets, with special attention given to commodity producing countries and sectors, perfectly in line with major trends as highlighted for most of this year. 

But. - at present my purely positive outlook is restricted to the next 3 weeks at best.  The structure and gains to be exploited during this period will dictate whether more volatility will ensue before the traditional year end rally in December.  As it stands, we can see clearly, the September did indeed present a month of change, and the changes appertain to most markets, and all asset classes.  Some find such changes unsettling! I think of it as 'markets working like a clockwork', meaning there is clear price structure and purpose in what is happening, a sign that there is thankfully not a lot of market manipulation in progress. So, market chaos or uncertain sentiment are but perceptions in your mind only, reinforced by the ever ready 'talking heads' sensationalistic approach to reality. 

We can do without that.