Stocks Above 200MA 34.07 –5.56% – Something I always look at when doing a BPG analysis is the chart of the stocks above 200MA. It’s a good trick anticipate coming 4-year market cycles and bottoms. To anticipate market bottoms, I look for 20% and less and a trend bend up above it. The following was mentioned on the 10/25 BPG update:
Below is a chart I loaded on 3/13/07 which is the best way to spot those corrections. Since the 3/1 correction did not end up to be a significant one, as expected on the 3/1 S.O.M.A (BPG), the next one, meaning the one we are in, has to be a significant one because the 5 years limit is up, if one believe in these 3-5 years cycles, and I happen that I do."
“Well, when I loaded the chart way back in March, I didn’t know what would be the excuse for the coming correction that we are in so I put a question mark underneath it. Now I know what will be written there: Sub-Prime and China bubble burst. LOL! Anyway, the indicator has not yet reached my 20% line meaning that odds are this correction is not over.”
So in March of last year, I expected to see a bear market starting this year but I wasn’t too sure about what would be the excuse Mr. Market would use to get the ball rolling downward. In October, it became clear that the sub-prime mess would be be a factor and seeing the China bubble getting out of hand, I figured that China combined with sub-prime would be the perfect cocktail for lots of pain for the bulls.
I continue to believe that China will be the catalyst to break this market sending it to touch the 2200 target and probably lower.
In March of last year, I felt that China would recover and would continue running higher until after he olympics. But then in September, after reviewing the China stocks, I changed my mind and this was one of the reason which made me believe it was time to switch to bearish for the mid to long-term horizons as per this excerpt from the 9/13 BPG :
« – On the 3/1 State of the Market analysis (BPG), when everybody was panicing about China, I mentioned that the drop in China did not mark the end of the China bull market yet and wrote:
"I feel the China scare of this week was just a small warning to give us a taste of the coming big one. There is still a lot of construction and growth to see in China until we get to the olympics."
I now feel that this bubble in China will probably not wait for the end of the olympics to burst due to the unsustainable run this market went through since March as per this TA : »
Since that date in September, the Shangai Composite continued to run higher before turned south below 6,000 and has closed today at about the same level than in September at 5361. The bubble has not popped yet and I continue to believe that odds are that the bubble will burst before the olympics and not after.
All this to say that until we see China’s bubble bursting, I feel the stocks above 200MA will continue to trade in the wide 30/70 trading range as anticipated on the 11/16 BPG as per this excerpt:
« So according to the 200MA indicator, odds are the market is entering into a wide churning/reversing/consolidating trading range for as long as Mr. Market wants it with tradeable bounces up and down in a slowly declining market. This will make the short-term traders and reversal players very happy but the long-term investors and the one-sided people (either a bull or a bear) will go absolutely nut as per this TA below»
And we all know now that both bulls and bears went nuts in the last quarter of ’07! LOL! So the conclusion on this 200MA indicator is that it all depends to what happens in China. Assuming China will not dive in the coming days, then because we are approaching the 30 range support line and that it is only the second test, odds are the selling of this week will probably subside in the coming days and this is supportive of the VIX analysis.
But if China collapses, all bets are off and we going much lower sooner than later. Here is the updated TA :
FXI 163.61 –1.91% – Speaking of China, let’s look at the popular FXI. It went down quite a lot since the 11/16 BPG update. We need to see what happens to the 160 support line to have a better feel of the bias. RSI hints at a possible bounce coming so we’ll see how that goes.
