Some Thoughts

February 7, 2014

11:00am CST

1. This rally has come an awfully long way in a very short period of time to be counter-trend.

2. 1738 was an awfully mild first leg if this correction is to have additional legs to the downside.

3. A bit surprised how easily the SPX pushed through 1775 on the upside this morning. That was the huge support that just broke this past Monday. When that broke it led to a pretty big technical breakdown. A logical target for this first leg down would have been ~1700 which with a 50% retracement back to the breakdown point of 1775 (from 1851) would have been a logical point to really pile on the bearish positions.

4. 1795-1812 is now big resistance on the S&P 500.

Will look deeper over the weekend.

11:10am CST

A few weeks back I mentioned that the Yen is the key to the US markets. A clear inverse correlation dating back to the October 2011 low. I believe that this first leg up in the Yen will likely peak between 99.55 and 101.00 as seen below. This would likely correspond with a low in the S&P 500 between 1700 and 1730.

yendaily

On a larger timeframe the rally will likely carry into the 103.44-110.00 range. The 38% retracement of 129.65-94.83 comes into play around 108.13. If this rally is of the same magnitude as that of last May/June it should be about 10 points which would suggest a high around 105.00 or so. At this point I’m guessing that this top could occur around April. This would suggest that the US market should put in some kind of low in April. If it lasts longer than that I would say July. My cycles this year are January, July, and October. April comes into play from the perspective that the prior 6 month trend tends to change course in March/April as per my studies posted here previously.

yenweeklytargets

Right now I am thinking that if the market doesn’t bottom today or tomorrow, Monday becomes a likely candidate. Keeping my eye on how things play out. The bounce from the lows this morning was more than I expected. Looking for the possibility of an irregular flat from yesterday’s high, today’s low, and then possibly another high just above the highs of yesterday.

8:15am CST

This wave count projection was from the beginning of December but with the market acting the way it has over the past week the odds are increasing that this is correct. It would also fit into my thesis that after the massive gains in 2013 the market could have trouble making much progress in at least the first half of the year. Very similar to 2010 and 2004 following the monster years of 2009 and 2003.

http://elliottwavecounts.blogspot.co.uk/2013/12/oew-count.html

dowwavecount

7:30am CST

Some interesting stats in this piece. Assuming that this bull market lasts beyond 3/9/14 (the 5 year mark) the only bull markets (with no 20% correction) that have lasted longer according to what I am looking at are 1921-1929, 1950-1962, and 1990-1998.

http://www.minyanville.com/business-news/markets/articles/Is-the-Bear-Market-of-2014/1/27/2014/id/53511?refresh=1

Key Support Levels

January 24, 2014

12:10pm CST

I added a hedge this morning via SDS when the S&P 500 broke below the November high of 1813. The risk on the downside for this position is minimal and if the market breaks down here the upside potential is quite substantial. It is currently a 10% position. If I get further confirmation via a breakdown of the Nasdaq and Russell 2000 I will add more. Likely the TWM. Small caps and tech and the most extended and thus the most vulnerable.

S&P 500- Key support at 1799. If  that doesn’t hold 1775 is the line in the sand. If 1775 doesn’t hold we are easily looking at 1625-1675.

Nasdaq Composite- Support at 4178 was broken this morning. Next support is 4082 which is the 50 day moving average and a high point from December.

Russell 2000- 1168 was key support on a closing basis coming into today. Next up is 1138-1142. If that doesn’t hold 1000-1040 is likely the next stop.

 

 

2:00pm CST

No sector has been more hated over the past 6-8 months than the miners of precious metals. There was obviously a lot of tax loss selling at the end of 2013 because aside from any fund that has to be invested in the sector nobody wanted to show the miners on the books heading into 2014. Given the sentiment I think there is a very good chance that the bottom may be in. Right now the HUI is testing a key apex of resistance. I just wish the metals themselves were acting a little bit better.

HUIapex

 

12:45pm CST

Last week I mentioned that I had noticed something that was worth noting on the currency front. At times a currency can be a very good indicator of where the equity market/markets are going.

I discussed this in Q1 of last year because it was confusing me. At the time I wasn’t sure if it was another short term blip like the 2006-2007 period or if the correlation was completely broken. Now let’s take a look again. The S&P 500 vs. the Canadian Dollar. Note that as the bull market began in the Canadian Dollar around 2003, it moved in tandem with the S&P 500 here in the US. When the Canadian Dollar rose, the S&P 500 rose. When the Canadian Dollar fell, the S&P 500 fell. Over a 10 year period the only real divergence between the two was from mid-2006 to early-2007. In that period commodity priced slumped a bit and in my view that was what gave the cyclical bull market here in the US the last push it needed to make new highs and put in a the top back in the second half of 2007. Note that the Loonie and the S&P 500 continued to move in tandem until the calendar flipped to 2013. Since then they have had an extremely negative correlation. I’m not exactly sure what caused the two to diverge at the beginning of 2013 but it is apparent that whatever positive correlation that the two had prior to 2013 is broken.

loonieSPX

Over the past month or so I noticed something interesting while looking over the currency charts relative to the S&P 500. There is a new game in town and it is the Japanese Yen. For those that aren’t aware Japan has been fighting deflation for the better part of 20 years. As a result they have now come to a point where they have had to weaken their currency by any means necessary. The goal is to create inflation in order to make their debts more manageable in real terms. To do so the Bank of Japan is engaged in QE (quantitative easing) on steroids. On a relative basis, their QE is more than double the $85 billion per month that the US Federal Reserve is currently engaging in at the moment.

Here is a 13+ year chart of the Japanese Yen relative to the S&P 500. I want to begin by focusing on early-2005 until mid-2007. As the Yen fell, the S&P 500 rallied. The Yen bottomed in mid-2007 which was when small cap stocks and the real momentum in the market began to fade. The S&P 500 and other big cap indexes didn’t peak until October but that new high wasn’t confirmed by a new low in the Yen.

yencarry

Now I want to look at the action in recent years. Note that right around the time that the Yen hit a peak in 2011, the S&P 500 made a major low in October. Note that the Yen then fell hard in early 2012 but recovered to make a lower high around September 2012.

yencarrynew

Take an even closer look. Note that when the downtrend in the Yen really began to accelerate in November 2012, that was when the S&P 500′s trend really began to accelerate on the upside.

yencarryweekly

Now look at the past year of trading. Note that after the Yen bottomed in May 2013 the S&P 500 had a lot of trouble making any real upside progress until the downtrend in the Yen really began to accelerate again in October. At that time the S&P 500 bottomed and began moving up once again.

yencarry2013

Now here is a potential wave count from the high in 2011.

yenwavecount

We have what could clearly be considered 5 waves down with alternation between waves 2 and 4. Triangles are usually 4th waves and this is clearly what we have here. If this count is correct this would likely end a larger A wave down which would then give way to a fairly large B wave rally before another C leg that goes much lower than where we are now.

1= 132.18-118.93= 13.25

2= 118.93-129.65= 10.72

3= 129.65-96.41= 33.24 (almost 2.618 x Wave 1)

4= 96.41-103.44= 7.03

5= 103.44-94.83 (wave 5 = .618 x wave 1 @ 95.25)

So in summary the S&P 500 is moving inversely to the Yen as part of the Yen Carry Trade, just like we saw from 2005 until mid-2007. Traders are selling the Yen vs. the US Dollar and using those funds to buy US stocks. As long as the Yen continues to go down this trade works, even if the funds are deployed into lower yielding instruments like bonds and leveraged which would be common with hedge funds.

Sentiment on the Yen couldn’t be worse right now. I think everyone is aware of the problems in Japan and shorting the Yen has started to become a mainstream trade. At the same time, the sentiment in stocks here in the US by some measures hasn’t been this bullish since 1987. So if the count above is correct and the Yen has indeed hit a bottom it may explain why the market is having trouble moving north as we are now 3 weeks into 2014. If this count is correct it may also suggest that a correction in the S&P 500 is on the way if the inverse correlation between the Yen and S&P 500 continues. I think we should have our answer on the Yen relative to the S&P 500 sometime in the next week or so.

Based on the evidence above the currency to follow for the direction of the US equity market changed from the Canadian Dollar to the Japanese Yen around October 2011 but the change didn’t really make its presence known until ~November 2012.

3:10pm CST

Here is a an update on key market support levels to watch for the various indexes that I mentioned last Thursday.

S&P 500

Nothing big to see here on the monthly chart. Next up is the weekly chart. Note that there is a key regression that dates back to July of 2011. Market broke above it last March which was bullish and then re-tested it in June. Then back to the upside. Also another regression in the shorter term which is parallel to the one I just mentioned. Will go into more detail on that in the next chart.

weeklySPXregressions

Here is a closer look at the upper regression on a daily basis. There are 5 touches (3 on the upside and 2 re-tests after the break above. Key support here is around 1,775. Should 1775 end up being violated to the downside it would open up potential downside to the lower regression which is currently around ~1,650.

SPX8monthregression

Here is a close up view of the daily. First support is the previous high from late-November at 1,814. If 1,799 (62% retracement of 1850-1768) fails to hold it would seem logical that the regression will be tested at 1,775. 1,775 is key support.

SPXshorterm

Nasdaq Composite

Not much to mention on the monthly chart here aside from the fact that it is now in the 7th straight month in which it has made a new high and not exceeded the low of the previous month. Based on 8-10 record sessions it would suggest that this rally is getting long in the tooth.

Here is a look at the weekly chart. Very nice, well defined uptrending channel. After today the RSI has broken below 70 and the MACD appears to be on the verge of crossing to the downside. Appears as though it may be setting up to test the bottom of the channel.

nazweeklyupdate

Here is a look at the uptrending channel on the daily chart. If the mid-line doesn’t hold around the 50dma it will test the bottom of the channel. Given how extended this is it wouldn’t shock me if it broke through the bottom of the channel and did more damage but I’m not going to jump to any conclusions after one day of selling and some short term negative divergences.

nazdailychannel

Russell 2000

The index has now made a new high without exceeding the low of the previous month here for 8 consecutive months. That is without including this month. I would also note that 8-10 record sessions allows for up to 2 months in between without making a new high as long as the low of the prior month isn’t violated. This accounts for June which didn’t exceed the peak in May of 1008. This is officially 8 record sessions now. A break below the December low of 1100 would break the 8-10 record session streak and likely set up a bigger correction. On the other hand if it holds here and chops higher it could go into February before it hits the official 10 month mark.

russellmonthly

Here is the weekly chart of the Russell 2000. This has the look of a rising wedge which is bearish. If it breaks down from here I wouldn’t be shocked if it came all the way down to the 50 week moving average/lower Bollinger Band which is currently around 1,030.

russell2000weekly

On the daily chart of the Russell 2000 there is a clear defined uptrending channel very similar to that of the Nasdaq Composite. However, I see more of a loss in upside momentum here. Key support near term is 1125.

russell2000dailyupsidechannel

Conclusion

Market internals and key sectors (financials and semiconductors) have been doing very well of late but today the market is showing some cracks. The key indexes to watch in my view are the Nasdaq and Russell 2000. They have been the leaders on the upside and are clearly very extended (6-8 months off of key bottoms in clearly defined uptrending channels vs. only ~3 months for the Dow and S&P 500). They may have already put in a top but its a bit premature to say. As I mentioned last week the market internals remain strong right now. However, even with strong internals corrections can at times come out of left field. Current negatives at the moment are sentiment (very very bullish/complacent), the market is very overbought dating back to last April/June depending on the index, and it has been quite difficult to find much deep value in this market over the past 3-4 months.

Recall that January 2014 is a 9 month cycle date of mine. This is the same cycle that hit in April 2013 (it came 3 weeks late in May), July 2012 (major low), October 2011 (major low), January 2011 (major high), and April 2010 (major high). The dates go back much further but those are just some recent examples. I also noted last week that January and then March/April are the key months to watch in the early part of this year. I’ve been cautious on this market for quite a while and I remain so unless the Nasdaq Composite and Russell 2000 can break out of their current uptrending channels on the upside.

I have noticed something on the currency front that is worth watching but I will hit upon that in another post.

 

11:00am CST

The update has been much more time consuming than I expected. I now remember that when I used to do these official annual forecasts I often didn’t get them out until mid-January or even MLK weekend. It is always best to see how the market trades over the first full week of the year before making big prognostications. At least that my opinion.

The important things to know about my forecast for 2014 at this point is that I expect the year to be relatively flat to down in terms of annual performance. In my 15 years of market experience the only years that rival the straight up performance of 2013 were 2003 and 2009. The difference between the three being that 2013 was straight up from beginning to end. 2003 and 2009 saw bottoms to previous cyclical bear markets in March of both years and then went ballistic for the rest of the year. Note that both 2004 and 2010 were mostly consolidation years. In other words the market went nowhere because it was digesting the huge gains of the prior year. 2004 had no real upside progress until the last two months of the year. 2010 started off with a 9% correction into February. It then rallied to new highs in April. Then the S&P 500 fell 17% from the April peak to the summer bottom (1220-1011). Market didn’t really get going again until September 2010 and that was because Bernanke hinted at QE II during his annual speech at Jackson Hole.2014 could very well be similar to 2004 and 2010 but I don’t think it will end as well as 2010 did. The key difference of these 3 huge years is that 2003 and 2009 were the beginning of new cyclical bull markets. This run in 2013 came 15 months after the bottom in October 2011 and 3 1/2 years off the bottom of March 2009. So 2013 is either part of a blow off top that will culminate in 2014 or we are in a new secular bull market. A new secular bull market is possible but there are some problems with this belief relative to history. Here are a few issues:

1. Previous secular bear markets lasted 16-25 years. In other words from the onset to breaking to new highs they lasted 16-25 years. The high of 1929 wasn’t surpassed until 1954. The high of 1966 wasn’t surpassed for good until 1982. If the S&P 500 broke above its 2000 and 2007 peaks for good in 2013 this would be the shortest secular bear market in history at 13 years.

2. There are two lows in a secular bear market. The nominal (price) low and the valuation low. I believe that we saw the nominal low in 2009 but we haven’t seen the valuation low. Some market pundits have declared October 2011 as the valuation low but it is nowhere close to what we have seen in history. The P/E ratio on the S&P 500 was ~13 at the low in 2011 and the dividend yield was about 2.25-2.50%. Historic valuation lows in prior secular bear markets occurred with P/E’s in single digits and dividend yields north of 6.0%. The reason that secular bull markets can begin from those valuation levels is because they have room to grow both from growth in earnings but also significant multiple expansion.

3. Valuation lows tend to come 8-10 years following the nominal lows based on the prior two secular bear markets. Nominal low of the bear that began in 1929 came in July of 1932. Then the valuation low came in either 1942 or 1949. For simplicity we will use 1942, a full 10 years after the nominal low. The nominal low of the 1966-1982 secular bear came in 1974, almost 9 years after the secular bear began (lines up well with 2000-2009). The valuation low came in 1982 or 8 years after the nominal low. So if we look at these previous two secular bears the valuation lows came 8-10 years after the nominal lows. If I am right about 2009 being the nominal low this would suggest that the valuation low will come between 2017 and 2019. 2017-2018 would be optimal as those would be the first two years of the presidential cycle (which historically are the weakest). This would fit with the 32-34 year cycle ending more towards 34 years in 2016 (from the 1982 low) and then a nasty bear market from there. If the market does crash in 2014 (similar to 1987) one scenario I have pondered is that for the seasonally strong 3rd and 4th years of the presidential cycle the market simply retraces the losses of the crash (similar to 1988-1990) but either fails at the high of 2014 or only makes a marginal new high. The scenarios of how 2014-2017 can play out is what I am currently spending the most time pondering at the moment.

Also worth noting is that 2014 is the second year of the Presidential cycle. The second year is the worst by far of the 4. It is the only year of the 4 to actually average a negative annual return since 1960. See the updated table below.

presidentialcyclenew

Based on my work it will be interesting to see how the market acts in January. More importantly how it acts around March/April as the prior market trend tends to reverse around that time. If the market hasn’t begun to correct by the end of April I think we could see a full fledged bubble in the market that could top out around July and end in similar fashion to the crash of 1987. Take a look at the returns above. Note that the bull market started in August of 1982 and ran until August of 1987 (this bull market will turn 5 years old on 3/9/14). Add up the returns from 1982-1986 above and they are very similar to 2009-2013. Totals for 1982-1986 are 74.4% (14.8%+17.3%+1.4%+26.3%+14.6%). 2009-2013 adds up to 79.3% (23.5%+12.8%+0%+13.4%+29.6%). Also note that in both cases there were two good years, followed by a flat year (1984, 2011), and then two more solid years. Then there was 1987 which started off as a barn burner into August but then crashed in October. In the end of the market was only up 2% in what is normally a very bullish 3rd year of the presidential cycle.

Since this is the second year of the presidential cycle it would suggest that if the market is actually up it will be up by less than 10%. We have had two abnormally strong second years in both 2006 and 2010 with returns of 10% or more. The odds of this happening a 3rd time aren’t very good. I would also like to point out as I have in the past that all of the poor performing 3rd years of the presidential cycle have followed abnormally strong second years. See 1986-1987, 2006-2007, and 2010-2011 (all bolded above). Should the market happen to finish up by over 10% here in 2014 I think it would be pulling performance from 2015. The odds of this happening 3 consecutive times are pretty low. There had never in history been two consecutive minor second year lows until 2010 (also known as the 4 year low). When I say minor I mean a correction of less than 20% from peak to trough. The odds of getting 3 in a row (2006, 2010, and 2014) are extremely low. Thus I think the odds of a correction of greater than 20% from peak to trough are pretty solid here in 2014. The only question is from what level the correction begins.

I hope I have given a pretty good indication of how I’m looking at 2014. Not that bullish on the outcome. What posted above is much of the juicy stuff in the update but there is still more. I should have it completed within the next two weeks. If this market continues to run crazy into July or so the comparisons to 1987 will be frightening. But for now let’s take it one step at a time. At the moment my only concerns are the extremely bullish sentiment, extreme complacency indicated by the put/call ratios, and the fact that I have been having a very hard time finding anything that I would consider a significant value for the past 3-4 months. Market leading sectors such as financials and semiconductors continue to act well and the market internals that I follow continue to look solid (which is bullish near term). Sometime in the next few days I will post charts of the S&P 500, Nasdaq Composite, and Russell 2000 indicating the key levels to watch going forward.

Happy New Year!

January 3, 2014

11:30am CST

Welcome to 2014! Hope everyone had a nice and relaxing holiday season.

As I mentioned recently I am working on my 2014 market outlook and while I had hoped to have it completed by today it isn’t complete as I want to be as thorough as possible. I would be able to finish it over the weekend but I have some final holiday plans so I won’t be able to put the finishing touches on it until next week.

Since I’m not finished I am going to share an email I sent to a friend on 12/28/13 in response to my outlook for 2014. The excel files are posted at the bottom.

From 12/28/13

Seems to me as though the consensus is that there will be a 10-25% correction next year and then the market finishes up 10% for the year. At least that is my observation. Since the masses are usually wrong I would say that the market is either going into the stratosphere with no correction (very unlikely), market goes into full on bubble mode simliar to 1986-1987 and ends with a crash in Q3 or so (we will see where the market is in January and then March/April), or we see a nasty decline and the market finishes down. Since it is the second year of the presidential cycle in 2014 the odds of much upside progress are pretty low. Thus I think the odds are that 2014 finishes flat to down. I would say that the max upside potential for the next 2 years (ending 2015) would be 20-25% and that it is likely to be back end loaded into 2015. If 2014 is even remotely good (up 10% at any point in the year) it is likely taking performance from 2015. Very similar to what happened in 1986-1987, 2006-2007, and 2010-2011. Also note that the performance of 1982-1986 is quite similar to 2009-2013 (with 2 trading days left to go the SPX is up 29.1% for the year). This is where I can see a lot of similarities to 1986-1987 if 2014 goes into bubble mode and doesn’t endure a pretty significant correction early in the year. See the presidential cycle study I have attached. I have bolded the years that the second year took performance from the 3rd year but also note as I just mentioned how similar the returns were from 1982-1986 vs. present. 1982-1983 were good. 1984 flat. 85-86 good. 1987 was good until August and then the crash in October which gave up the previous 20 months of gains. Now 2009-2010 good. 2011 flat. 2012-2013 good. 2014?

The market looks the most vulnerable to me in the 2016-2018 period. 33-34 year cycle would imply a potential top in 2015-2016. Then we get the worst 2 years of the presidential cycle in 2017-2018. In addition look at prior secular bears. There was a nominal low and then a valuation low. Nominal low likely came in 2009. Prior valuation lows came 8-10 years after the nominal lows. If the nominal low was indeed 2009 it would suggest a valuation low from 2017-2019 which fits into the scenario I just mentioned.

Sentiment feels a bit like 2007 to me but the breadth is much better. In 2000 it was pure euphoria. I remember it well. People were quitting their jobs to daytrade and people were “retiring” after huge daily gains in particular stocks. 2007 was just flat out complacency and I see a lot of that now. Some are really afraid that they are missing the “next big bull” but I still think the majority are pretty skeptical of the stock market and where it is relative to the real economy. In 2007 I remember quite well that when the market peaked in October there were only about 10 Nasdaq high fliers that were moving north. Everything else stunk. They were GOOG, BIDU, ISRG, GRMN, RIMM, AMZN, AAPL, and a few others. Then all money went into commodities which did well until about June of 2008.

Below are my bullet points that I need to refine before completing my 2014 outlook. For reference, the past 32-34 year cycles are 1896-1929, 1932-1966, 1942-1974, 1966-2000, 1974-2007/2009, and now 1982-???. I have attached 3 important excel files to help you understand some of what I am talking about here.

2014 Market Outlook etc.
  1. 2013 very similar to 2009 in that both years were essentially straight up from the lows. Market put in a major low in March 2009 and it led to huge gains for the rest of the year. Once the calendar flipped to 2010 about halfway though January profit taking began which resulted in a correction of ~9% into February.
  2. Gains from the November 2012 lows are now LTCG. Add to the fact that by selling in January 2014 vs. November or December the taxes can be delayed for a year.
  3. January barometer likely to be correct this year so January key.
  4. We have had 2 minor 4 year cycles in a row (2006 and 2010) which had never happened before. The odds of getting 3 in a row aren’t very high. Also note that shallow second years of the 4 year cycle lows ended up taking performance from the characteristically strong 3rd years. 1986-1987, 2006-2007, and 2010-2011. Unlikely that for the third year in a row we will see a strong second year that takes performance from the third year but I won’t say it is impossible.
  5. If the Fed continues to wind down QE at a rate of ~$10 billion per meeting QE should be ending around the end of 2014. As per the chart from Tom McClellan the market tends to top in anticipation of QE ending. Without QE what does the market have left with valuations where they are now?
  6. My previous study suggests that the trend for the prior 6 months tends to reverse in March/April. So up into March/April would suggest a correction over the summer.
  7. The vast majority are projecting a correction of 10-20% in 2014 but the market ending higher by about 10%. Since the majority are usually wrong how will it pan out? Up big, no correction? Down big and finish down a decent amount for the year? A correction and a flat finish?
  8. If the market does end 2014 up by 10% or more the odds would highly suggest that performance is being pulled from 2015 and could lead to a nasty bear market in 2015-2016 which would align with the 33-34 year cycle which is due in 2015-2016 (from 1982). However, the presidential cycle would suggest that the years most vulnerable to another bear market would be a top around 2016 and a weak 2017-2018. A bottom in 2017-2018 would coincide with previous valuation lows from the nominal lows. 1932 (nominal) to 1942 (valuation). Then 1974 (nominal) to 1982 (valuation). Essentially 8-10 years from the nominal low. With the nominal low in 2009 it would suggest 2017-2019 for valuation low.
  9. If the market ends up in double digits at any point during 2014 the odds for a correction or a bear market (which would likely be quite swift) become quite large.
  10. If the bear market in the S&P 500 ended in 2013 and the 2000/2007 peaks have been taken out for good this would be the shortest secular bear market in the past century. 1966 peak wasn’t surpassed until 1982 so that lasted 16 years. 1929 peak wasn’t surpassed for good until 1955. This one would have only lasted 13 years if the prior peaks were indeed passed for good in 2013.
  11. Two lows in a secular bear market. Nominal (price) low and valuation low. 2009 appears to be the nominal low. Now we need the valuation low. Historic valuation lows came with P/E’s below 10 and dividend yields north of 6%. 2011 doesn’t fit. S&P 500 would have to fall by 50% from here just to get dividend yields up to 4%. But, some of the funds being used towards stock buybacks could be channeled into dividends if the market begins to fall.
  12. 5 year bull markets with no 20% correction haven’t ended well. The S&P 500 did have a 20%+ correction in 2011 but the Dow didn’t. Past instances are 1932-1937, 1982-1987, 2002-2007, and March 2009-Present could easily fit in to that category.
  13. If the market doesn’t begin to correct in January 2014 we could go into a full fledged bubble which could end similar to 1987. See the market returns from 1982-1987 (beginning and ending in August). Worst year of the past 5 years was flat in 2011.
  14. Leg up from 3/9/09-5/2/11= 26 months. 26 months from the low in October 2011 is December 2013. Has this cycle top just been delayed until January 2014? My 9 month cycles in 2014 are January, July, and October.
  15. Affordable Care act goes into effect in 2014 which means higher taxes. How surprised is everyone on 4/15/14? This event seems very similar to another in history. Taxes for social security began to be collected in January 1937. Market topped just a few months later and had a near 50% decline into 1938.
  16. 2000 peak for the Nasdaq was 5142. I would say that this is similar to the peak of the Dow in 1929 that wasn’t surpassed for 25 years.
  17. 2000 Dow high 11,750, 2007 high 14,198. 20.8% higher. 20.8% above 14,198 is 17,151. 20.8% above the 2007 peak in the S&P 500 of 1576 is 1903. 2000 seems like a nice round # to aim for at this point.
  18. If stocks do peak in 2014 where will capital flow? Precious metals and bonds?
  19. Is the Fed out of bullets? They have managed to get asset prices to rise but what can they do now to help the economy for main street that they haven’t already done? Talk of not paying interest on reserves to inspire lending. The problem is that the government can’t force banks to lend and it can’t force consumer to borrow. It is all about confidence and right now it isn’t there. We need better fiscal policy and the Fed has no control over that. Do valuations for stocks actually reach a level in 2014 where the Fed loses its effectiveness and even if it started QE up again its impact would be limited?
  20. Sentiment measures are off the chart bullish which from a contrarian standpoint is bearish.
  21. How does this feel compared to 2000 and 2007? 2000 was euphoria. 2007 was complacency. This feels more like 2007 but I do see bubbles in the social media sector.
  22. My 2013 cycles were January, April, and October. January was the start of the big move up. April was close to the peak for big caps. They went sideways until October, then started up again. However, tech and small caps have been going straight up since April-June. Follow the techs and small caps. When they start to break it makes the market vulnerable as a whole.

4 Year Cycle Low Study

4yearcyclelowstudy

Presidential Cycle

presidentialcycleupdate

January Barometer

januarybarometer

 

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