MAX,
what do u make of this post?
regards,
BAG
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Afternoon,
Long and really boring.
But a good exercise for me.
I recommend ignoring.
After all its from Normy.
And ya know how wrong he can be…
THE CASE FOR COMP 1600 NOW
Well, what a week. Glad its over. Did ya hear that the same guys that declare Recessions officially beginning or ending, with a look in the rear view mirror of course, stated the September was the official end of the Recession. Fascinating, as a day or so later we got the Greenspan Experiment Surprise. Guess that they’ll never officially state their reasons, whether it was the worry of Deflation or the Double Dip, or a combination of the two, but maybe in a couple of years we’ll find out when the Minutes are released. Sure to be a fascinating read. So, what’s the story? Yep, I’m obsessed with this, cause I believe that the answer to the bigger picture holds the key.
Greenspan is a student of history. History repeats. At least I believe that it does. Maybe he does too. The Greatest Bear Market Rally of All Time will be liquidity driven, it’s a given. But this ain’t it. Though it’s pretty darn good. Looking at history, and I must thank whoever posted the Hayes study last weekend again, I cannot ignore what happened 70 years ago in similar Market conditions…
"Out of the 21 previous occasions, in only four did the Dow keep declining until the second cut was made. In every case but one, the Dow rallied, usually powerfully, after the second cut.
The striking exception was an initial discount rate cut on Nov. 4, 1929, right after the crash. The Dow lost another 11.2% until the second cut nine days later. The Dow rallied until April 1930, then tanked massively.
The Fed started another round of cuts on Feb. 26, 1932. The Dow dropped 45.4% before a second cut on June 24. That did it. The Dow was up 113.4% a year later, according to Hayes’ research.“
OK, so that’s my basic premise. We’ll do fun with lines and math and FIBs and cycles and a bunch of good stuff from here. But the Hayes piece was the critical missing piece of the puzzle. So maybe, just maybe, we can figure out how this Bear progresses from here for the next year or so. At least, this is what I ‘m attempting to do.
COMP 1600 or BUST
We keep on looking for a good low. Guilty as charged. But while we’re looking, we’ve rallied over 28% and most of us have totally missed the run. Guilty as charged. And we keep on looking to go down to new lows from whatever then next high we decide will be resistance. Well, not so guilty as charged. Most everyone thinks that this is like the July rally, some think its like April or September 2001 rally, or others. Me, not sure exactly what it is, so I’ll call in the October 2002 Rally.
So, I’m more inclined to think that we’re in the process of putting in a significant top than looking for a bottom. And my case for COMP 1600 goes something like this…
1) Over the last year we’ve made two significant tops. January 2001 we topped at 2099 at a poke above the 240 Month Moving Average. March 2001 we topped at 1946 with a peek above the 240 Month Moving Average. The 240 Month Moving Average as of today is at 1601. stockcharts.com[w,a]daclyyay[de][pb240!b200][vc60][iUb14]&pref=G
2) I can point to several patterns and counts that suggest 1600. There’s the Cup & Handle posted last night. stockcharts.com There’s also and Inverted Descending Triangle if you look close. There’s an ABC count that goes if A was 1108 to 1420, and B is 1420 to 1300, then if C = A, the target would be 1612. So, again, if we hit Max Pain and head up again, 1600 is in the sites.
3) There’s a FIB relationship off of 1946 where 1600 is the 50% retrace off that last significant top. Thanks to Lee, here’s the Chart marketswing.com
4) Now, fun with lines. Pull up a long term Chart, or use Saavy’s 2nd Chart saavycharts.info and we’ll play connect the dots. Draw a trend line thru the lows. Copy it and flip it for the upper upper line. And position it on the late July swing high of 1426. The apex of the Expanding Symm Triangle should be at about 1310. The line should intersect falling resistance at about 1600 about the 2nd week of December.
5) OK, now fun with cycles. The DOW’s high for this move was 10,729 on March 8th. On March 11th the COMP high was 1946 and the SPX hit 1173. Nine months from March 8/11 is December 9/12. Note that of the 3 Indices, the SPX made a higher high on March 19th at 1174, so not sure if that would be in the 8.6 months cycle range. But ya get the point, and its possible that a marginally higher high will be mad in early January by at least one of the Indices. In early 2001, the COMP actually topped 2-months before the DOW. So, the point is that I think that we’re in the window for a significant top to be put in, not a bottom from what I can see. And given seasonality, and the story that’s been spun by the stock pimps, and what’s at stake, and performance-chasing performance for bonuses and the desire to say employed, just can’t see selling off too hard at all. But Max Pain does have to be respected, as we know, so a pull back is in order.
BACK TO THE BIGGER PICTURE
OK, lets say I’m right, far-fetched at it seems. Where to from there? More fun with math, and we’ll do it with the numbers from Hayes as previously quoted. Should we get to COMP 1600, and lose 45.4% after reaching there within about 1-month of the first rate cut in the second round, we get to 874. If you follow the support line on the long term charts, we could get there in If you follow the long term support trend line we would get there in May of 2003. Sounds good to me. But don’t think that we get all they way there.
Should the FED follow the same timing model of the 1932 FED, they would do the second cut in this round 4-months later, say in early March. I would guess that there’s an FOMC sometime in there. The support line in early March is in the 900 range, and I’m picking 910, cause I like it <ggg>. And it time it took 27 months. Anyway, here’s the fun with math. A 113.4% rally from 910 gets ya to around 1942, for a 100% retrace of the entire move off the January 2001 high. If ya follow the upper line, it gets ya there in around October/November 2003. One year after the 1st cut. So, by acting now, is he trying to out do the 1932 FED in the Experiment? Seems to early to peak, but just for the heck of it, if we were to get there, he could start raising rates, which would be Bullish. Its not the first rate cut that tanks the Markets, it’s the 3rd. So, he would have a year to continue the Experiment and push the Markets up even higher going into the Presidential Elections in November, 2004. Quite a scenario. And one day I do want to get back to that May, 2001 high of 2238, or whatever it was, for some reason.
So maybe the cycles are 4-9-months cycles down, then 2-9 months cycles up. From March 2000, that would take us to March 2003 down, then to November, 2004 up, if I counted right. Now, that’s what I would call a coincidence. The question is, will the Greatest Financial Experiment of all Time work? And it if does, for how long? And if all the Bubbles are either re-inflated and/or continue to inflate, depending on what Bubble one wants to look at, what happens if they should all burst at the same time? One could only guess…
SO, WHAT’S THE POINT OF THE STORY?
The point is that as Bearish as I am long term, I’ve accepted the fact that this will take years to unwind, cause they just won’t let it happen as it should. And, the invested public will stay invested and think more about averaging in than bailing out until the time comes that they have to cash out. I’d guess this could go on at least 10 or 20 years, maybe longer, until the Market gets to fair value, or below as in a true, lasting bottom. In the process might never see a real capitulation selling climax.
That’s the bigger picture as I see it now, and my vision of where we go. And how we get there. With that clarity, I can develop a trading plan, and watch and wait to determine if that pattern holds. Something might happen by Monday’s open to make me change my view yet again, who knows, but this exercise keep me going, and for me its fun.
In the very short term, I may go a little short on Monday if we go up in ‘2,’ like I think we will, and catch the ‘3’ down. Who knows, we could be in for some serious down here, and 1600 is just a myth, just still don’t think so. Then, I gotta get ready to think long, cause I’m’ betting that we could be going to around 1600 by December 10th. We’ll see…
Norm
PS And always remember, when I'm wrong, I'm VERY wrong. |
