Market Overview

We called 1275, don't get emotional.


We called 1275, don't get emotional.

This past Tuesday we got news that the EcoFin (Finance Ministers) meeting was canceled for Wednesday. Then we find out from CNBC's Steve Liesman that the Ecofin meeting was actually never needed. Then it is reported, they will meet after the summit of EU leaders on Wednesday. Mid-Day Tuesday while the S&P 500 was down 16 to 20 points trading in the 1230 to 1238 range, we told our readers to look for 1275 in the short term and don't fear the EU noise. This noise can make anyone insane. We told readers and members to stay the course for now and look for 1275 before reducing long positions and 1300 before selling more.

Last week, we put out an article on where we thought the S&P 500 was going and the relationship between human behavior and historical price action. If you are a current reader of our publication or FREE news letter, you will recall, we were calling for 1255 on Monday the 17th with a potential parabolic move to 1300. This weekend we updated our price objective and stated we are looking for 1275 and if reached we are looking to reduce 20% of our long positions. This has been a sharp incline and would only be prudent to raise some cash at 1275.

Many of our trading and investment peers have repeatedly been non-believers in this 180 point rally off the intra-day low in the S&P 500. DO NOT GET EMOTIONAL, if you are investing, emotions need to be removed from the equation. Whether the bears are right about the global fundamentals and the EU being a complete house of cards, it is irrelevant to the short term price action.

We believe this rally is purely constructed on human behavior – behavioral finance. You can see from the chart above the natural progression of human behavior in the markets: you have a cycle led by optimism, excitement, relief, anxiety, denial, panic, maximum amount of pain, and lastly, optimism.
These human behaviors are purely based on primal survival instincts. Our theory is that we are approaching the excitement/relief phase with a now EU resolution. We will see the anxiety phase once the market questions the validity of the EU backstop package.

So here we are, two days later hitting our price objective. For our readers, our S&P 500 market call proved to be valuable. Our members received our 1275 price alert over a week ago. We also told readers to reduce some risk at 1275 in the short term. On Saturday, we told long term investors we were looking for 1300 in the short term (1 to 3 weeks) with a parabolic move. We have remained bullish since we told our members to get long the S&P 500 On Sunday October 2nd at 1090. At this juncture, it would be prudent to take some profits if you caught this rally. Look to reduce risk at 1275 and 1300.

So why have we been bullish? Last week in our article, "Where is the market heading?", we demonstrated our theory on behavioral finance when applied to the current S&P price action. Below is the chart we demonstrated this theory.

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Stock chart: 
Stock chart

Posted-In: Long Ideas Hot Intraday Update Trading Ideas


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