Elaine Gazarelli, Joe Granville, and Abbey Cohen may be bullish, but Martin Armstrong is very bearish. Sees Dow below 7,000 before the bear is over. My money is on Armstrong. By a mile.
The Crash of '98
Continues
By Martin A. Armstrong
August 14, 1998
Copyright Princeton Economic Institute
While of our clients have been amazed that our computer model called for the
peak in the stocks markets as July 20th, 1998 more than 4 years ago, some
visitors to this site have sent their emails of disapproval. We have even
received a nasty email suggesting that our forecast was perhaps
self-fulfilling due to the fact that so many institutions rely on PEI models.
Quite frankly, what we find more shocking is how the vast majority of
analysts and commentators can still be bullish even with technical models
aside. The more compelling fundamentals behind the decline in the world
share markets is none other than the fact that world news is overwhelmingly
disturbing. How anyone cannot see the seriousness of events building in
Russia, China and Asia as a whole and their potential impact upon global
economy is simply blind faith. We cannot expect the world to continue
upward and onward just because we wish it to do so. There has NEVER been
a bull market that was not followed by a correction. We do NOT see the end
of the world - merely a correction that might be 2 years in duration if
government gets its act together. The faster the decline in the early stages,
the higher the probability that we will also see a final low sooner rather than
later.
With the closings achieved as of today (Friday, August 14, 1998), a sharp
continued decline appears to be inevitable. If this weekend brings more
chaos in Russia, next week may bring a significant continued decline
throughout Europe; Asia and US share markets. From our perspective, there
is no debate whether or not our computer has once again succeeded in
predicting what many consider impossible. Nonetheless, the precise turning
points of the Economic Confidence Model have been etched in stone since it
was first discovered back in 1971. The dates do not change for July 20th or
for the peak of the next business cycle come on February 24th, 2007. The
more compelling question among those who have become students of this
mode remains the next 4.3 years into the bottom of this current business
cycle due on 2002.85 (November 6th, 2002) following the US congressional
elections at that time.
In our upcoming World Capital Market Report due next week, we will
discuss these issues with the target dates that lie ahead. For now, new highs
do not appear to be likely given the fact that the US market has now elected
3 Weekly Bearish Reversals for the first time in nearly 8 years. This
indicator provided by our models has clearly differentiated the current
decline from that of even just last October when no sell signals were
achieved beyond the daily timing models. Thus, we must remain objective
looking for a test of the Dow in the mid-6,000 range before a reversal of
fortune can be expected.
While there will be hate-mails from some, we all must realize that many
analysts who are employed by brokerage houses do not enjoy the freedom of
speech that others in the analytical community cherish. Those who do have
the courage to change their views should not be ridiculed when they try to
speak the truth even when the truth is not what everyone would like to hear.
We cannot forget the analyst who was fired because he warned about
Trump's bonds before his troubles. While he was sacked by the brokerage
house for speaking the truth, in the end he was proven to be correct.
The majority never wants to hear about a bear market. Everyone wants to be
told how much money they can make effortlessly forever. Nonetheless, it is
always the bear market that eventually distinguishes independent analysis
from that, which is viewed to be only a token cost of doing business.
For now, we remain bullish on the US bond market at least going into 1999.
The US economy will also suffer the least decline when the final low print
has been established. The greatest danger remains that of Europe where
optimism over the coming Euro has blinded many to the problems faced
today by the world economy as a whole. We must be most concerned about
Europe for it is this region that is showing the highest tendency to unfold
into a bear market of significant proportions.
As of the close of Friday, August 14, 1998, the percentage declines for
those markets that peaked precisely on July 20th, 1998 stand as follows:
US Dow Jones Industrials.. 11.21%
S&P 500 Cash...... 11.47%
S&P 500 Futures..... 11.78%
British FT100 Futures... 14.00%
German DAX Cash.... 15.94%
German DAX Futures... 16.09%
French CAC40 Futures.... 14.12%
Swiss Futures....... 13.15%
So far our forecast for a decline in Europe that would outpace that of the US
market has begun. The above table illustrates that as of August 14th, the US
market has declined the LEAST. Given the fact that the European markets
have gained the most on the upside due to the view of the coming Euro, we
will also see the greatest tendency for a bubble top to form within German
and French markets in particular. A collapse in Russia will have a far greater
impact upon Europe than the United States. It is European banks that hold
90% of the exposure to Europe compared to US banks.
For now, we remain bearish as we look ahead to the weeks of August 17th
and September 7th/14th as the next key targets for turning points ahead. The
most concerning factor that we must consider is that there has been no
significant rally whatsoever since the July 20th peak. This warns that despite
the bullish outlooks that prevail, real selling is taking place and far less
bottom picking has emerged. The phrase "buying opportunity" appear to be
falling on closed ears. While at some point in time there will be a 7-10%
recovery from an initial low, the risk of a second leg down still remains
quite high by mid September.
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