Henry and Thread,
Here's one of Martin Armstrong's recent articles
Crash or Breakout
That is the Question
By Martin A. Armstrong
Princeton Economic Institute
© Copyright April 12th, 1999
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We have clearly reached a decision point for the share markets here on the 8.6 month timing interval in April. Up to this point, the last two months have been building a nice sideways base at a higher level. The volatility indeed has begun on our target week of April 12th and today even fulfilled our Daily Panic Cycle target as the S&P 500 Futures first crashed and then soared following the pattern of late – lower opens followed by a strong close.
Monthly timing models continue to show key targets as April and August with June appearing to be a minor irritation. We show extremely high volatility in early May and again in September/October. We had warned at the start of this year that a high by April 8th would be very good for the market long-term. However, we also cautioned that making new highs BEYOND April would put the entire global economy at risk because the U.S. market would then appear to be moving into a classic "bubble top" as was the case in Japan. Such a pattern would then indeed warn of a very serious correction into 2002.
While it is still too early to declare the outcome from this current 8.6 month target period, continued pressure on the upside is biasing the outcome toward a bubble top type pattern where the NASDAQ could reach the 3000-3500 level by late summer. This, by any standard, is total insanity and the collapse that would follow would be of outstanding proportions.
In our upcoming edition of the World Capital Market Report, we will revisit the critical study "Sectorial Shifts" and released back in 1984 updated for our current time. It is important to understand the investment and business cycle moves not merely up and down, but it also moves through patterns of sectorial investment. Capital may concentrate for each business cycle in a particular sector – such as real estate, stocks, commodities and so on. Because of this sectorial investment shift, the majority are often left waiting and watching a particular sector to repeat history. Goldbugs continue to watch for signs that their prized investment will rise from the ashes into the spotlight of its former glory. Unfortunately, those who are biased towards gold have waited 20 frustrating years believing that every $10 rally is the start of a change in trend.
Equity investors suffer the same fate. However, because the equity market itself is far more diverse in its sector makeup than commodities, equity investors will get the chance to experience additional opportunities for bull markets. Still, within equities, the sectorial shift prevails.
It is important to understand that prior to 1929, the industrial stocks were not very popular. The main focus during the late 19th century moving into 1907, had always been the transportation stocks – namely railroads. The Panic of 1907 was devastating to many of the railroad companies most of which never survived. The industrials began to capture the eye of the investor and for the next bull market going into 1929, the Dow Jones Industrial stocks had become the new blue chips.
The bubble top syndrome applies NOT to the broad market, but to the "hot" sector within the market. For this reason, our models continue to suggest that the likelihood of a major collapse for the Dow or even the S&P 500 beyond the 60% correction mark is almost nil. However, the NASDAQ is starting to show signs that IF this turning point indeed produces ANOTHER Directional Change to the upside, then there is indeed a danger of a serious meltdown.
The battle between long-time professionals and the new breed of day trading novices can end only in a blood bath. While there are plenty of people who continue to cheer and tout how this market will never end, one must begin to fear those first few days of a true meltdown and its impact upon the housewife day trader depicted in TV commercials right now.
The verdict is still out. The month volatility appears to begin during the first week of May. In order to produce a serious Directional Change to the upside, new highs must be achieved during May. Still, this does not quite "feel" like the grand major high. We do show that an April high could be followed by a 2 month correction into June, but one more rally would still be in the cards pressing into August. It is possible that April could remain as the major high with an August retest of the highs. If this were the outcome, then expect a base building period next year and a possible rally into 2003 for the final major high.
The key still remains the dollar. Any sell-off in the dollar at this time would most likely be coupled with a correction in the share market for up to 2 months. The key fact will remain the closing of this week. If we close higher, then it will be off to the races into the end of the month. A closing for this week BELOW 1358.20 on the S&P 500 Futures, and we may indeed see a correction FIRST followed by a summer recovery.
The BIG ONE appears to be likely from a high either in August or January of 2000. Even Quarterly Panic Cycles appear for early 2000. For now, we must be careful of the higher open. If this pattern changes, then the higher open will lead to the lower close. |
