This is an update to the long term outlook we presented in February.
We pointed out that the 3200-3300 level on the Nasdaq was going to be a tough resistance zone. And indeed, the market has now spent several months trying to overcome that level, and failing so far, with the Nasdaq currently sitting at 3264.
So, for all the talk about an unstoppable bull market, the Nasdaq is only 50 points higher than it was in mid February.
Our forecast was made on the basis of this chart, now updated (click for larger image):
We can see that the large arc formation remains in play.
Notice how we have had four equidistant declines/bottoms within this arc formation, which may call for another bottom by the end of 2013.
Also notice how we got three equidistant peaks, which point to a possible fourth peak right now.
If this pattern holds up, then look for an initial decline towards 3000 support level. Then a rebound, followed by another leg down in autumn or winter of this year. The scenario is drawn in thick orange on the chart.
Only a clear breakout to the upside, which becomes evident when the Nasdaq climbs to 3350 or 3400, would move this scenario off the table.
So, I have sold most of my stocks by now, only keeping some core holdings. If I am wrong then I can buy back when Nasdaq reaches 3400, and will have given up a potential 5% of my profits. If this analysis pans out, then I will be able to buy back my stocks 10-20% cheaper somewhere down the road.
That’s what I call a good “no-risk/reward ratio”.
At major crossroads like this, markets trying to overcome resistance levels, I prefer to let other investors do the heavy lifting and I try to pick up the somewhat “easier” profits that come in between.