An october to remember

After  my forecast target area of 1065 in ES was reached, the next day, on October 5th, when i sent out an email  titled "Red October turning green?", i expected green, but not a 20% gain, within a 3 weeks !! As you can see from the headlines, this is the best October, since 1974. About 10 days ago, i started a poll for members of my blog titled "Does this market remind you of 2009 bottom?" To my surprise, all the votes that came in said "NO".  If you are wondering who was that one person who said "YES" in that poll....that was me ! Even though this is a small sample of general sentiment of the public, this is not far from truth. I have looked at various market sentiments and polls conducted within the past 2 weeks.

The consumer's assessment of current conditions is at its lowest point since December while consumer expectations are at their lowest point since 2009. From a long term perspective, NFIB small business optimism index is lowest since 2009. Meanwhile, the weekly  AAII sentiment index shows a jump up of 7% in number of bulls, which probably increased by friday's close. Still the number of bulls is way below the 75% bulls that was seen at market top in 2011.  NAAIM survey of money managers showed that over 50% of them were still bearish, as of last week.

These sentiment readings confirm my long term assessment of market. Market will continue its bull run into early 2012, until an extreme value on these sentiment indicators are reached, with minor corrections along the way. The fundamentals are in place to support this view, as listed below.

• European leaders have stalled the debt crisis, with various tools, and bought at least 6 more months, if not more, before we see another episode of this debt crisis continuation from PIGS of Europe;
• Fed in the US has initiated policy measures that help stability with a bond re balancing program that has been equated to 0.5% interest rate reduction (this on top of the assurance that interest rates wont be changed until 2013); 
• US is working on programs for job creation as well as debt reduction (although i don't expect much from the divided government);
• China is not showing any serious slowdown or housing problems, like many pundits were predicting for past 1 year;
• Earnings are coming in better than expected again, in fact better than past 3 quarters.
• And, best of all, the latest GDP number in US came in at 2.5%, easing the fears of  many (including me) who were expecting a slowdown to continue from Q2 into Q3.

So,  while i maintain my long term forecast of  increased probability for recession in US/europe in 2012, the intermediate term looks good for at least 6 months more. I notice that the revenue figures are in fact down during this earnings season, even though companies have beat expectations handily.

Considering all these factors, my kudos to those of you who bought long term holdings at my forecast bottom of 1065 area; you can be very proud of yourself for being brave. Now, after 4 weeks, it is pretty much clear to all technical analysts where the market is heading.  My Q4 targets have already been surpassed, and in a private email i indicated next target of 1300 area. We are close to it, all within 1 week.  I am increasing my long term target to 1350 area now. Also, I expecting this number to be surpassed by the end of Q1 2012. As indicated in my chartwork (comparing 2008 to 2011), the highs will probably be set 42 trading days from Oct. 4th, which takes us to end of November.  So, with minor corrections along the way, i am expecting this long term run to complete its first leg by early December.

Last week's  analysis (and comparison to 2010) forecast 3 days of down days last week, but we got 2 days of lower lows, and then  broke out higher on the news from Europe.  This week's  chart  is directly linked to the poll i started 10 days ago to see how many of you catch the dimension of this bullish move.  This chart adds to the probability and forecast shown in prior chartwork, that gains will continue into end of  November;  but the time to be aggressively buying is gone, so think about money management and buy points (which i may address in my next blog, during the week).