Feb 19

A long lasting decline is underway “Calm before storm”

Markets pushed a little higher on SPX on Friday and were pretty much flat on the day. Russell small caps closed in red with Nasdaq , which seems to me have topped out with AAPL making a reversal from a long term trendline at 525 from past years.

This post will give you some clues where markets should be going from this year and a bit longer term forecast for the markets.

The picture of the markets looks 100% the same as 1 month ago – as I called the rally and went heavy long markets early October at 1075-1080 area and said a rally to 1300+ were possible ,, no one believed me at that time.

Today many people is getting way too bullish again and dont believe we even can get a 5% drop in markets – this is the normal nature of sentiment as it is getting to extremes.

What is yet to come – is a very very long lasting decline ,,

The fear index imho already bottomed with VXX, TVIX and VIX bottomed last 2 weeks with the markets grinding slowly higher. This is a very good indicator that the top of markets is most likely about to turn and a big decline is yet to come.

With an inverted head and shoulders pattern on the VIX, TVIX and VXX ,, we could see a breakout of those this coming week with the markets starting to go down.

SPX need a weekly close below 1330 to confirm that the top is in , vica versa TVIX needs a close above +21 to confirm that the bottom of 2012 is in.

But again after this is done ,, we should see a long lasting decline where we wont get much of any kind of bounces at all – but a long and steady decline in the markets. No one really believes this at the moment as markets just keep going higher slowly , but no one thought the same last summer 2011 before markets crashed down into Sep/Oct.

This 2012 is just going to get even worse and a much bigger decline is to be expected – so I would call it “Calm before storm”.

The NYA target actually give me a move to below March 2009 lows on it – so I wont rule out that we would go close or even below 2009 lows, but the pattern targets 750-1000 area on SPX later this year.

We will come to a time where markets will keep dropping without much of a bid in the markets. Someone has also been holding the VIX, TVIX, VXX very much higher as the markets has been grinding higher. The smart money are short and insinders has been selling out on a very fast pace lately.

All in all , like I held my THLD for 6 months and suddendly it gave me 150-200% profits I’m going to hold my TZA/TVIX as they seems to me like they already have bottomed out. I wont rule out that TVIX could take out the highs for last year either , but to be conservative I think 80+ is very likely this year 2012.

To make a time table for TVIX and SPX possible scenario (with decay on TVIX) – target at end of each month)

March 2012
TVIX: 30+
SPX: 1250-1275

April 2012
SPX 1200
TVIX 45

May 2012
SPX 1150-1200
TVIX 55-60

June 2012
SPX 1075-1125
TVIX 70-80

July 2012
SPX 900-1000
TVIX 80-100

The conclusion is that the markets are right about to turn down and I think its calm before the storm – I dont know what is going to happend , a possible greek deffault or Portuguese deffault – I dont know. But something is going to happend which would make this markets turn down in a long lasting decline where markets will have big troubles getting small rallies. What we have seen from October 2011 is just a powerfull “bounce” higher in the markets (looking a monthly charts) which wont last and we are now going to see a longer lasting decline to below October lows this year 2012 and possible near March 2009 lows looking at some indexes.

Indexes looks very much exhausted at current levels and have had a hard time moving higher. Actually small caps has not been moving higher in past 2 weeks (sideways) , and SPX only been moving up from 1350-1360s (10-20 points overall in last 2 weeks)

Fear indexes has been bottomed out for 2012 imo and with this markets is about to turn down. By 2012 summer I think you are going to look back at this post and see how bullish the current sentiment is and that this would be the major top of 2012.

All in all holdin steady my TVIX and TZA position as I’m confident with those holdings. From March 2012 we should start to see the real downside in markets begin.


 

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