I talked stocks at lunch, and the theme I keep returning to is the significance of the December 1994 launch. It marked the start of the bubble phase, and coincided with Greenspan eliminating the reserve requirements on banks. Now they have FDIC equity limits to observe, but as far as I know, zero cash reserve requirement.
Notice that the monthly BKX now looks like a neat bounce off the 1998 and 2002 lows, and now it has taken them out. Of course that won't be conclusive until I'd say another six weeks from now - a November stick save would make a reversal candle on the monthlies. Of course, if it visits 30 before then it will be irrelevant. I've said all along I thought the 2002-2007 action was THE wave five, representing the topping of the credit bubble. Looking like a lucky guess. <g>
The next support on that chart is - you guessed it - the 1994 base.
I think the S&P ultimately unwinds to its 1994 base as well. My long-term target:
400.
Of course, I think that's either in the cycle low of 2010, or more likely 2014. Will probably be two cyclical bear market rallies in between for waves 2 and 4.
That bugs me somewhat here. The four-year cycle low isn't due until 2010, and I don't know how to reconcile that with the oversold we've got now. I guess with the extreme leverage within the U.S. system, we could see a 1930s-style event - complete wipeout into the 2010 low, followed by a deep retest in 2014. Yikes.
I've said all along, this is going to get extremely difficult here in a very short while. Sure, a lot of stocks will have fallen a BUNCH (see Alcoa - OMFG! DJIA or pink sheets?!?) But they will soon have little income due to economic conditions. So many of them have "returned capital to shareholders" (bought back stock) and have levered to the hilt that they have dangerous leverage and zero book value. How the heck do you value them? Price-to-sales coming soon to a market near you?
`BC |
