This Week: Hope and Thanksgiving

This is an excerpt from my weekly market outlook post at ElliottWaveTrader.net:

For the week ahead, there is little in the mood pattern in the way of bearishness.  The mood pattern combines a "rose colored glasses" component in which news or data will be seen in the most positive light possible, and a "denial" component which will facilitate brushing off any bad news.  Perhaps people are wanting to keep a hopeful outlook as the holidays approach (U.S. Thanksgiving).

The main take away from the weekly forecast charts (at Elliottwavetrader.net) is that the market continues to be seriously overbought.  The extent of the divergence is beginning to be concerning.  When this "rubber band" snaps, it will not be pretty.

Qualitative Analysis Notes:  This week's identified social mood components: 1) Low Manic/Vulnerable (with inversion) => "Rose colored glasses;" seeing news in a positive light. 2) High Expansive/Controlled (with inversion) => denial, delusion.

  

Stock Market at Major Top

You have already decided that the stock market is making a major top now.  Actually, we collectively decided this when we voted about what mattered most to us.  I'm not talking about an election.  Our choices are reflected in what we most searched for on the internet... a few months ago.
Research that spans two decades has shown that daily internet search trends are reflected in the markets a few days later and weekly search trends a few weeks later.  What was important to us on a quarterly scale, well, that will show up a few quarters later.

The source data for the fourth quarter of 2017 comes from internet search trends in the first quarter.  There were many events in the news, including the Inauguration of President Trump.  However, what matters for this purpose is what we focused on the most, not what the news media thought was important.  What we cared about, as judged by our search trends includes Melania Trump, the New Year, the Oscars, the Grammy Awards, St. Patrick's Day, the Spring Equinox, the lunar or Chinese New Year, Alabama vs. Clemson, the discovery of an exoplanet, and the death of Bill Paxton.  While none of this is directly about the market, it reflects cycles of sentiment and social mood, and this is, or soon will be reflected in the markets.

The top trends for the period under review is first converted to themes.  For example, Alabama vs. Clemson can be seen as men, sports, and schools.  After all of our trends are converted to themes they are converted to four primary mood qualities which change over time.  This is shown in the chart below:



When the purple line (Expansive) is on top, and the pink line (Vulnerable) is on the bottom, and the two are moving away from each other, that is bullish.  It reflects the very essence of "bull market."  When these lines start coming back together, it reflects a decline within a bull market.  It is clear from this, that there is a top occurring or about to occur somewhere in Q4 of 2017.

From that point it begins to get complicated.  Every so often the signals "flip," and what was positive becomes negative and vice versa.  One of these should be occurring around Q1 of 2018.  Exactly when this happens will make all the difference in the world.

No matter which way the signal is oriented, Q1 is not likely to be a pleasant period for many.  If it is oriented one way, it points to a background of international issues, people feeling extremely vulnerable or risk averse, and the government trying to prop things up.  If it is oriented the other way, it points to the primary focus being either international issues or the president (or both), a background of victims or people feeling attacked, and things in general appearing to deteriorate.  However, most of the effects of this normal or inverted mood signal in the markets should primarily be seen in Q2.
The charts below illustrate an estimated market track (dashed blue line) using the MarketMood quarterly S&P forecast as a guide.

Base case (signal flip by end of Q4 2017):


Alt case (signal flip after Q1 of 2018):


Needless to say, for the sake of the economic stability and social well-being of our world, I definitely prefer the Base Case.  Even better, that scenario is the most probable one.

At MarketMood.net, we take internet search trends and convert them to daily and weekly forecasts in the stock market, crude oil, gold, and U.S. Dollar   These are presented and discussed in our live trading room.  You are welcome to come check it out!

Keeping Watch on Sunday (August 7, 2016)

Overview
Sunday may be a very important day in the scheme of things, and according to the mood generated forecast, may have a significant impact on the entire week.  One thing to watch for, which will confirm a bearish immediate forecast is evidence of Sunday's Mood/Effect polarity flip.  Every 1-3 weeks, the effect of the current mood pattern inverts, and what was a positive mood brings negative effects.  Sunday should start out very positive or bullish.  At some point there should be a shift to a strong bearish mood.  This may or may not occur before futures open, but would have to occur before markets open for regular trading hours on Monday.
Qualitatively, the mood pattern points to geopolitical issues as a likely focus.  The YTD chart is pointing down through Tuesday (assuming the polarity flip occurs Sunday).


MMI Monday RTH open: down.  MMI Monday close: down (below open).

The Details

I. Stock Market Forecast
Big picture:  Looking for a sharp drop followed by a sharp rally.
Latest forecast info:

SPX	MM Trend Signal	MM Daily Trade Signal	H.P. Trade Signal**
8/8 (open)	UP	DOWN	NONE
8/8	UP	DOWN	NONE
8/9	UP	DOWN	NONE

**Higher Probability SPX trades have a 5-10% higher success rate than standard MMI trade signal, i.e. approximately 65-70% vs. 60-65%.
Today’s action: N/A
Hypothetical next trade: Short SPX MOO¹ Monday.
¹ MOO is market on open.     ² MOC is market on close.
II. Social Mood Pattern Analysis (this bonus section is provided on occasion to assist readers to gain further insight into how analysis is developed)
Themes in search trends for Sunday's mood data: movie, wrongdoing, hero, critic, criticize, image, communication, business, woman, mother, violence, death, police, technology, denial, news
Combined MoodCompass scores: .2N  .4E .8W 1.2SW 1SE .2NW =>  11% NE (Vulnerable)   39% SW (Expansive)   28% SE (Manic)  22% NW (Controlled)
Mood / Effect inversion status: Normal (since 7/31); inverts 8/7..
Qualitative Analysis notes (refer to Mood Qualities Timeline, below):   Sunday: SW high, NE low => strong bullish flips to strong bearish as inversion hits.  NE much lower than other three => watch for geopolitical escalation.  NE lowest => Not conducive to diplomacy or "nice."

Like what you see?  This is a sample post from http://marketmood.net.
Come visit!

MarketMood Weekend: A New Paradigm

The past week has had its fill of sideways, meandering, and confusing moves.  While this may have been frustrating, there is some good news!  The mood pattern over the weekend signals a new paradigm.  This will usually signal the beginning of different market action, a new Elliott Wave subwave, a new focus, and a new news cycle.  Here’s to a new beginning in the new week!

MarketMood Indicator for Monday open: UP.    

Want to know more about what the markets might be up to next?  Go HERE.

Not the Edge of a Cliff, Yet...

If the stock market is going to fall sharply, as some are looking for in the month of May, this isn’t the week it’s likely to happen.  While we may (or may not) be in the midst of an Elliott second wave down, from a sentiment perspective, we are hovering at a strong support line that thus far has refused to give way.  While it’s hypothetically plausible that a large market selloff could happen first, and then people would get really down in the dumps about it, mood almost always precedes market.  Right now the mood says, “No, not going down there yet.”

(click to enlarge)

The chart above shows the MarketMood Indicator daily signal vs. S&P close year to date.  Back in March through early April, the Mood Signal, after some struggle, broke above the 2100 resistance line (see chart).  In late April, the market finally reached this level, but couldn’t maintain a solid break above it.  The Mood Signal in the year to date chart here goes through this weekend (Monday open).  Once again, it’s back to this line, except from above, hovering right at support.

While markets may indeed drop tomorrow, the stock market won’t likely be able to stay dropped for long.  What the market really “wants” is to try to solidly break above that 2100 line and stay there, at least for a bit, if it can.  In order for it to “give up” on that, the Mood Signal will need to solidly break below that same line.  The message for the moment is that the Mood has not done that, and won’t do so through Monday open.

MarketMood Indicator for Friday: close down.

Want to know more about what the markets might be up to next?  Go HERE.

Global Agression, Market Correction

This week looks notably bumpy, and worthy of a special public post.  As U.S. society is a part of the global system, U.S. social mood is a subset of the global mood pattern.  There is an abrupt shift (see chart below) in the U.S. pattern showing up sometime tomorrow (Tuesday).  Slight optimism becomes passion and "mild panic" (circled in the chart).  Then by Wednesday there is a sharp deflation of spirit, as the Expansion quality quickly drops below zero, and everyone holds their breath in a tension that lasts through Thursday.  The abruptness indicates that this may show up as something quite intense.  The smallness of it reflected in the U.S. mood, may indicate that the larger effect is happening somewhere else.

In addition to this abrupt shift in mood, the MarketMood weekly model is showing a brief, but possibly sharp, market correction, of up to 2% this week.  Also, the weekly social mood (not shown) shows an aggressive configuration that often goes with geopolitical escalation.  So, hang on, there may be some turbulence.

 

More Trouble Ahead? - 16 Nov 2015

It would be great if the bad news was over.  However, the corrective look of the recovery in social mood since the tragic attacks in Paris (see chart below) means that there is likely at least one more big downward move left in mood and market.

(click to enlarge)

 

Social Mood and Stock Market Abnormally MANIC!

Social mood (as well as the stock market) has ups and downs, but arising in the last couple of days, a MANIC spike is concerning.  The chart below shows a normal range of ups and down in social mood factors since August.  The spike showing up is clearly NOT NORMAL.  Manic mood often accompanies instability, protests, and sometimes terrorist activity.  A "crazy" news event of some type is likely.

 

Update: 31 Oct 2015 Russian jet downed by ISIS That definitely is Not Normal and terrorist activity.

 

(click to enlarge)

 

The stock market is clearly overly excited as well.  The daily social mood signal is at resistance and doesn't seem to be able to break through.  The stock market has continued to move higher in spite of the anxiety the public is experiencing. Either people are about to be feeling a whole lot better, or the market is going to hit a wall.

 



(click to enlarge)

Moving onward: Mood and Market Aug 23-29, 2015

There is a growing desire to move beyond the serious mood of the past week as this week moves forward.  However, there may still be some serious news very early in the week as the mood factors from last week (background of violent or volatile news and serious tone) reach their climax.

Market dropped sharply last week, 6.7% from Wednesday through Friday.  As of Saturday, social mood shows that markets are currently 3% oversold.  That is, they are 3% below where social mood would place them.  Markets could be confused as they shift direction early in the week, but a large 3% bounce would not be surprising as the desire to move beyond last week's big losses takes hold.

 

A Very Scary Week: Aug 16-22, 2015

Next week's news stories will be violent and volatile, and the mood in the U.S. extremely serious, according to social mood projections. 

The stock market the week of Aug 16 should see an end of a pattern.  The most likely move is sharply down at least through sometime on Friday.

 

A News Driven Week: Mood & Market Aug 9-15, 2015

 

This week is all about the news (or data), especially news outside of the United States, and building tension surrounding it.  People are feeling generally anxious as the week begins.  There should be a shift around Thursday as the background news becomes more volatile or violent, and people begin to feel more cautious.

 

The way this pattern plays out in the market is not exactly bullish, but is markedly different from the previous week.  There should be a noticeable shift on Thursday from what takes place on Monday through Wednesday.  Whether the "Aversion" taking hold on Thursday manifests as short covering in the stock market or a sell off will depend on how the market does on Monday-Wednesday.

 

Rising Uncertainty: Mood & Market Aug. 2-8, 2015

(click to enlarge)

 

Change is in the air, and uncertainty is rising, according to U.S. collective mood projections for the week of Aug 2.  Expect earlier understandings and assumptions to be challenged, and people to be even more challenging.  A background of international issues are likely to be in the news, and have the attention of U.S. people.

 

Markets could be extra confusing or constricted for much of this week.  Although there is the possibility of a market disruption of some type, overall, it looks like it would probably be a good week for traders to take a vacation.     

The big climax: Market Mood July 27-31, 2015

(click to enlarge)

 

Risk aversion reaches a peak the week of July 27 with a backdrop of violence in the news, according to this week's projected social mood pattern.  Spatial analysis shows risk aversion in the United States to be greater than the previous week, indicating further market losses are likely.  However, the bearish mood will not likely continue past this week, at least in the near term. 

 

A "new paradigm" pattern early in the week indicates that markets could attempt a new direction as early as late Monday.  Thursday and Friday volatility should pick up, and large moves are likely.   

 

Uncertainty vs. Hope: Market Mood July 13-17, 2015

(click to enlarge)

 

The week of July 13 is characterized by a struggle between uncertainty about the global situation and the desire to hope that everything is going to be OK.  This will create an unusually choppy (or whipsaw) condition in the markets.  Spatial analysis shows risk aversion in the United States to be slightly less this week than last week.  While conditions are not yet clearly bullish, they appear to be less bearish than the previous week.

 

 

Tentative optimism is projected to wane early in the week and be replaced by a nervous hope midweek.  By the end of the week, it may seem that it was too early to hope, as strong market moves return to the picture.

 

U.S. Market & Mood July 6-10, 2015

(click to enlarge)

 



According to social mood projections, Monday should be the most solidly bearish day for the stock market, and the middle of the week, the most clearly bullish or optimistic.  A major shift in the market pattern should take place near the end of the week at the same time that social mood shows increased instability of one type or another is likely to be a focal point of the news.  Spatial analysis shows that the most disruptive events are likely to occur outside of the United States.  Regardless, they should to get America's attention.

U.S. Market & Mood: June 29-July 2, 2015

Risk aversion may peak early in the week.  By midweek, a shift in the pattern shows a new mindset beginning to take hold. Market losses this week are likely going to be greater than last week's.


Social mood shows less willingness to cooperate and an increase in belligerence and willingness to challenge authority.  Tension is likely to lead to a climactic action either during this week or the following one.

Update July 2: Markets were down 1.1% this week.  This is a greater loss than the previous week's 0.5%.




 

U.S. Market and Mood: June 21-27, 2015

Change is in the air as the week begins.  Instability, large moves, and uncertainty are all likely themes (see chart left), especially in the first half of the week.  Tension and anticipation build near the end of the week. 

A large directional move is indicated in the markets this week.  The increasing sense of vulnerability (chart below, right) is most often associated with risk-aversion, decreased spending, and down markets.

U.S. Market and Mood (June 14-20, 2015)

The week begins with an effort to put on a positive, "yes we can" attitude.  There may be some lingering, ongoing economic concerns and domestic issues, but the sense is that they can be addressed and turned around.  Competing with this resolve to look at the bright side, is a background of destabilizing factors, some of which comes from outside the U.S.  People begin to get agitated and anxious as the week goes on.  Midweek could even see a "mild panic" or moment of passion (strong emotions), as a general sense of increasing vulnerability begins to take hold  By week's end, risk aversion is becoming more pronounced, and markets are getting more decidedly bearish.  People have fixed ideas and opinions of "the facts," and are more willing to talk about them.  Protests and demonstrations are on the increase.

Analysis of U.S.-China relations shows China posturing in a more aggressive tone near June 18.

U.S. Market and Mood (June 1-13, 2015)

Social mood patterns for the first week of June indicates anxiety and restlessness.  Markets should be choppy for the most part with little clear direction.  Sometime near the end of the first week or very early in the second week, a directional move should occur.  The most  likely direction is down, as this transitory pattern is most often associated with bearish markets and risk aversion.  Spatial analysis by the MoodCompass team shows economic concerns likely arising from outside the United States having some effect on U.S. markets (see The Crow's Nest blog entry for June).

By midweek the week of June 7 and continuing through the end of the week, a "new paradigm" pattern is in play.  This marks a new chapter in U.S. social mood.  Things should become a lot clearer as to global conditions and market direction as the week plays out.   A shift to this new outlook and new priorities will be in process.  Be ready for something different!

Analysis of U.S. - China relations shows a significant development near June 11.

U.S and Global Trends, Remainder of 2014

In January, we published a summary of expectations for 2014.  Using a translation of then available social mood data into cyclical projections for the upcoming year, we filled in the blanks with a best-guess narrative for 2014.  The data showed a large spike in oil/fuel prices in March and April, surrounding an international crisis.  There were indications that the Iran negotiations could run into difficulty.  We put those together in our narrative.  The actual picture was much more complex, with several new situations.  In March and April the Ukrainian crisis was accompanied by an increase in oil/gas prices and volatility of global markets. In fact, on March 2, from our daily data, we were able to announce as imminent, a large international crisis impacting the U.S. only a few hours before news broke about Ukraine and possible Russian involvement.

The global situations continued to unfold.  In June, ISIS was an issue, and the continued stability of Iraq was a concern.  Social mood data continued to lack the signs of full relief and release that would indicate things might settle down for more than a moment.  In our last post (August 7), our conclusion was that these waves of global disasters were not finished.  We stopped posting after that.  What more could we keep saying that would be of any use?  Why continue to drone on with "more disasters to come?"  On September 29, a reader commented, asking for an update.  We decided to oblige.

Looking back at the data we had at the beginning of the year, we can now add to the narrative, as many of the details surrounding context has been filled in (Undoubtedly, there are also new surprises yet to come). 

Our forecast for the stock market (S&P) for the year was near unchanged.  Based on that, in our January presentation we said not to worry about a total market meltdown, and assured the Fed would do what it needed to keep the market at least near unchanged.  At this point, with the market still up about 5% for the year, many different scenarios could result in ending the year with the market near 1850.  One of those would include a sharp drop (crash) and modest recovery.  Another is a large rally followed by a sharp drop.  Another would be a slow meltdown from current levels.  No matter how we get there, the expectation is that we end the year somewhere near 1850.

Health issues came up in our data for the year, but we decided not to emphasize this point.  We mentioned in the summary that it would be a good idea to get rest, exercise, eat healthy, etc.  Six months ago, the data started showing signs of an approaching epidemic affecting the U.S.  As we saw stories of Ebola in West Africa, we were quietly crossing our fingers that this had nothing to do with the U.S. indicators (what could we say, and to who?).  As of a few days ago, Ebola arrived in the U.S.   If the data reflected actual likely U.S. numbers of Ebola cases, this would not be anything like the plague in fatalities, but would definitely cause people to be concerned, possibly changing behaviors in public places.  It is likely that there would be quite a few more cases (more than double digits) before this is over.

Finally, a major turning point was mentioned in the summary occurring shortly before the November elections in the September/October timeframe.  We are in the midst of this now.  During this period, the focus of the U.S. government (and people) shifts from international issues to domestic issues.  There is not a lack of international issues, but a shift of priorities.  Economic concerns should increase,  and possibly other matters of a domestic nature.  Also mentioned in the summary, is that incumbents are not likely to do well in the elections.  These internal issues are the reasons why.  As the year comes to a close, the U.S. may also look more weak or vulnerable to the rest of the world than it has for some time.  This may be due to the issues now beginning to come into focus.

On the positive side, there is a better chance than there has been all year, for diplomatic agreements to be reached in November or December.  It will be seen how this affects dealings with Iran, Russia, and China in the coming months.