Buying Opportunity Coming?

By: Chris Ciovacco | Fri, Feb 10, 2012
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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

 

 

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.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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