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Birchtree's Account Talk
- Thread starter Birchtree
- Start date
robo
Well-known member
imported post
Weekend comments from a Tech.....A new HIGH in August?Dennis, this tech echo's your comments, thought you might enjoy reading some of his.......
current Position of the Market
SPX: Long-Term Trend - The bull market which started in October 2002 is now nearly three years old and it would seem unreasonable to expect a dynamic new up trend to develop at this time with the 4-year cycle low expected in about 15 months. However, the Decennial pattern has an unblemished history for the past 125 years, and if history repeats itself, the Dow Jones industrials and the S&P 500 will be higher on December 31[suP]st[/suP], 2005, than they were on January 1[suP]st[/suP].
SPX: Intermediate Trend The intermediate trend which began in May has entered a corrective phase. So far, there is no evidence that it is anything more than that.
SPX: Short-Term Trend - 7/7 marked the low of dominant intermediate cycles which took prices to a high point on 8/3. This has been followed by a mild but volatile decline.
Because of market volatility, the short-term trend is better analyzed on a daily basis with the help of hourly charts. This is done in our daily market updates and Closing Comments.
What’s Next?
In the last newsletter, I showed how all trends were at the top of their respective up-channels where they were meeting resistance and were unable to make much progress. After reaching a short-term projection at 1245, the SPX has begun to correct. So far, that’s all it is: profit-taking correcting an overbought condition.
Not a great deal has happened in the past week to change last week-end’s analysis. It still looks as if the market may have one more up move to reach its 1254 projection, but it has to do it soon, before the 12-month cycle mentioned above takes over.
The other breadth indicator, the NH/NL index has remained positive for 12 consecutive weeks but has lost momentum in the past few days since the correction began.
My daily Buying/Selling pressure indicator, like the market, is in a corrective phase but has not yet signaled that a top is in place.
After showing some mild negative divergence at the top, the daily RSI is, once again, in gear with the price pattern, giving a neutral reading.
It is always helpful to put the daily indicators under a microscope and look at the hourly readings. Here again, the BSP index and the RSI have gone from an overbought to an oversold condition and, for the past week, they have hovered around neutral.
The Nasdaq 100’s relationship to the SPX is always worth tracking. Right now, the daily patterns have remained slightly positive, but on hourly charts, the QQQQ shows a slight negative divergence with the SPX.. I interpret this to mean that the correction has a few more days to go.
Taking all of the above into consideration, and considering that a very short term cycle is due to make its low about Wednesday, this would be the logical point for the short term correction to end.
Another chart that will be shown below is the weekly chart of the Securities Broker Dealer index. This is one of the leading market indicators and until it shows that it has topped out, it is not likely that the bull market high has been made. Currently, it is still in a very strong up trend, having made an historical high a month ago and challenging that high last week.
Oil is probably the most talked about commodity today. There seems to be no end in sight to its up trend. According to some analysts, this is “irrational exhuberance” considering the present level of world supplies, but one cannot argue with prices. There is never a direct relationship between fundamentals and technicals. Human emotions make sure of that.
From a technical point of view I had estimated that, based on Point and Figure analysis, oil could reach about $65, but it has already exceeded that target. However, since it is trading at the very top of an intermediate channel that began forming in December 2004, it should meet some resistance at its current price and begin retracing.
SUMMARY:
My analysis tells me that we have not yet reached the top of the bull market. In fact, it is probable that we have not yet even reached the top of the intermediate trend which began in May/June.
Weekend comments from a Tech.....A new HIGH in August?Dennis, this tech echo's your comments, thought you might enjoy reading some of his.......
current Position of the Market
SPX: Long-Term Trend - The bull market which started in October 2002 is now nearly three years old and it would seem unreasonable to expect a dynamic new up trend to develop at this time with the 4-year cycle low expected in about 15 months. However, the Decennial pattern has an unblemished history for the past 125 years, and if history repeats itself, the Dow Jones industrials and the S&P 500 will be higher on December 31[suP]st[/suP], 2005, than they were on January 1[suP]st[/suP].
SPX: Intermediate Trend The intermediate trend which began in May has entered a corrective phase. So far, there is no evidence that it is anything more than that.
SPX: Short-Term Trend - 7/7 marked the low of dominant intermediate cycles which took prices to a high point on 8/3. This has been followed by a mild but volatile decline.
Because of market volatility, the short-term trend is better analyzed on a daily basis with the help of hourly charts. This is done in our daily market updates and Closing Comments.
What’s Next?
In the last newsletter, I showed how all trends were at the top of their respective up-channels where they were meeting resistance and were unable to make much progress. After reaching a short-term projection at 1245, the SPX has begun to correct. So far, that’s all it is: profit-taking correcting an overbought condition.
Not a great deal has happened in the past week to change last week-end’s analysis. It still looks as if the market may have one more up move to reach its 1254 projection, but it has to do it soon, before the 12-month cycle mentioned above takes over.
The other breadth indicator, the NH/NL index has remained positive for 12 consecutive weeks but has lost momentum in the past few days since the correction began.
My daily Buying/Selling pressure indicator, like the market, is in a corrective phase but has not yet signaled that a top is in place.
After showing some mild negative divergence at the top, the daily RSI is, once again, in gear with the price pattern, giving a neutral reading.
It is always helpful to put the daily indicators under a microscope and look at the hourly readings. Here again, the BSP index and the RSI have gone from an overbought to an oversold condition and, for the past week, they have hovered around neutral.
The Nasdaq 100’s relationship to the SPX is always worth tracking. Right now, the daily patterns have remained slightly positive, but on hourly charts, the QQQQ shows a slight negative divergence with the SPX.. I interpret this to mean that the correction has a few more days to go.
Taking all of the above into consideration, and considering that a very short term cycle is due to make its low about Wednesday, this would be the logical point for the short term correction to end.
Another chart that will be shown below is the weekly chart of the Securities Broker Dealer index. This is one of the leading market indicators and until it shows that it has topped out, it is not likely that the bull market high has been made. Currently, it is still in a very strong up trend, having made an historical high a month ago and challenging that high last week.
Oil is probably the most talked about commodity today. There seems to be no end in sight to its up trend. According to some analysts, this is “irrational exhuberance” considering the present level of world supplies, but one cannot argue with prices. There is never a direct relationship between fundamentals and technicals. Human emotions make sure of that.
From a technical point of view I had estimated that, based on Point and Figure analysis, oil could reach about $65, but it has already exceeded that target. However, since it is trading at the very top of an intermediate channel that began forming in December 2004, it should meet some resistance at its current price and begin retracing.
SUMMARY:
My analysis tells me that we have not yet reached the top of the bull market. In fact, it is probable that we have not yet even reached the top of the intermediate trend which began in May/June.
Birchtree
Well-known member
imported post
Robo,
Thanks, that was interesting. Here is a little something from one of the Elliot Wave people that was written this weekend. They believe that a top may have been formed with the Dow approaching 10,750 and the S&P approaching 1254. But like smart TAs they hedge for the future - and that is a very interesting probability.
EWP - on both the Dow and S&P are in rising wedge patterns - these in most cases break down. When they break upward they result in very fast-sustained large moves. The S&P is still basically holding the two support lines - the first one at 1229.11 and the other slightly lower at 1219.70. Obviously, if this rising wedge breaks upward, EWP will reassess its long-range paradigms to a much more bullish outlook.
WE could see the break this week - which way is the question. Lots of data will be unleashed this week and the market will respond during the lazy dog days of August. If we break to the upside no one will believe - classic bull move.
Robo,
Thanks, that was interesting. Here is a little something from one of the Elliot Wave people that was written this weekend. They believe that a top may have been formed with the Dow approaching 10,750 and the S&P approaching 1254. But like smart TAs they hedge for the future - and that is a very interesting probability.
EWP - on both the Dow and S&P are in rising wedge patterns - these in most cases break down. When they break upward they result in very fast-sustained large moves. The S&P is still basically holding the two support lines - the first one at 1229.11 and the other slightly lower at 1219.70. Obviously, if this rising wedge breaks upward, EWP will reassess its long-range paradigms to a much more bullish outlook.
WE could see the break this week - which way is the question. Lots of data will be unleashed this week and the market will respond during the lazy dog days of August. If we break to the upside no one will believe - classic bull move.
robo
Well-known member
imported post
I just received a email from one of the tech's Ifollow and he gave a sell signal onFriday, but pointed out he is not shorting this market just going to cash....He islooking for some more pullback, and that A buy signal is just around the corner.... Some comments about the smart money.....I'm not sure how smart they are, but they sure getplenty of attention.........
Thesmart money indicator(bright blue line) gained 57 points Friday and 40 on Thursday to more than make up for the 100 point loss the day before. As regular readers are aware, the poor performance by this indicator over the last 2-1/2 years is the main reason form my concern that there will be a significant decline in the Fall. However, there is no inference that I can make about the precise timing or extent of such a decline. It is not likely that the new Quick Summary Index sell signal will be the kick-off of the anticipated decline, since we are already so close to its reversal, or to a standard Summary Index buy signal following a decline below 4.5. It is more likely that there will be an intervening rally following the present weakness, before a major decline is even possible.
olume-Enhanced Smart Money Indicator
through Friday, August 12th >>Learn more
Other evidence that the anticipated fall decline is not ready to begin includes the Russell 2000 and S&P 500 Boomerang Indicator charts. The sell lines are moving up, but at -36 and -60 respectively, there are at least a couple of weeks between now and their sell signals.
I just received a email from one of the tech's Ifollow and he gave a sell signal onFriday, but pointed out he is not shorting this market just going to cash....He islooking for some more pullback, and that A buy signal is just around the corner.... Some comments about the smart money.....I'm not sure how smart they are, but they sure getplenty of attention.........
Thesmart money indicator(bright blue line) gained 57 points Friday and 40 on Thursday to more than make up for the 100 point loss the day before. As regular readers are aware, the poor performance by this indicator over the last 2-1/2 years is the main reason form my concern that there will be a significant decline in the Fall. However, there is no inference that I can make about the precise timing or extent of such a decline. It is not likely that the new Quick Summary Index sell signal will be the kick-off of the anticipated decline, since we are already so close to its reversal, or to a standard Summary Index buy signal following a decline below 4.5. It is more likely that there will be an intervening rally following the present weakness, before a major decline is even possible.
olume-Enhanced Smart Money Indicator
through Friday, August 12th >>Learn more
Other evidence that the anticipated fall decline is not ready to begin includes the Russell 2000 and S&P 500 Boomerang Indicator charts. The sell lines are moving up, but at -36 and -60 respectively, there are at least a couple of weeks between now and their sell signals.
Birchtree
Well-known member
imported post
Here is an oceanic update from last week - not much happening by the time one shakes it all out - at least it didn't go down like the previous week. I made 2K on the week. The account now sits at $923,251 which is 10K light from a sale I made Friday. The energy stock CNX went out at $68.90 for a 5K profit. Buys were made at $31.45, $35.67, $33.84, and final purchase $45.75. You can see how I try to dollar cost average my buys. I'm sure they'll declare a 2 for 1 split in the future - if so maybe I can rebuild another position. There are just so many other good opportunities waiting to be brought home.
Now a few words regarding seasonality and the next supposedly bad couple of months. This is from my WSJ. September is when investors tend to re-evaluate strategies and sell laggards. Inflows into mutual funds often are weak in September, because people have spent savings in the summer. Investment banks begin arranging new-stock issues after a summer hiatus, pushing stock supplies up. Rising supply and stagnant demand push down stock prices. September also marks the end of the quarter, a period when companies warn of coming profit disappointments.
But in Cctober, companies report third-quarter results. Optimistic investors believe that corporate profits will be so strong that they will permit stocks to rise despite worries about interest rates, oil, and seasonal weakness.
"The stock market follows corporate profits, not oil prices, not terrorism, not inflation"says Douglas Cote of ING. He notes that stock analysts have significantly underestimated profit growth for more than two years, having turned conservative after being too boosterish in the late 1990s.
With 91% of companies in the Standard & Poor's 500-stock index reporting, second quarter profits are up more than 13%. That is nearly double the 7.4% gain analysts expected six weeks ago. In addition, dividend payments are rising and the Fed is keeping inflation tame. The companies in the S&P 500 have posted double-digit profit gains for 13 cosecutive quarters, matching a record set from the fourth quarter of 1992 through the fourth quarter of 1995.
For the current quarter, analysts forecast a profit gain of almost 16% for the S&P 500, more than twice what they expected for the second quarter. The forecast for the fourth quarter is 13.6%
Here is an oceanic update from last week - not much happening by the time one shakes it all out - at least it didn't go down like the previous week. I made 2K on the week. The account now sits at $923,251 which is 10K light from a sale I made Friday. The energy stock CNX went out at $68.90 for a 5K profit. Buys were made at $31.45, $35.67, $33.84, and final purchase $45.75. You can see how I try to dollar cost average my buys. I'm sure they'll declare a 2 for 1 split in the future - if so maybe I can rebuild another position. There are just so many other good opportunities waiting to be brought home.
Now a few words regarding seasonality and the next supposedly bad couple of months. This is from my WSJ. September is when investors tend to re-evaluate strategies and sell laggards. Inflows into mutual funds often are weak in September, because people have spent savings in the summer. Investment banks begin arranging new-stock issues after a summer hiatus, pushing stock supplies up. Rising supply and stagnant demand push down stock prices. September also marks the end of the quarter, a period when companies warn of coming profit disappointments.
But in Cctober, companies report third-quarter results. Optimistic investors believe that corporate profits will be so strong that they will permit stocks to rise despite worries about interest rates, oil, and seasonal weakness.
"The stock market follows corporate profits, not oil prices, not terrorism, not inflation"says Douglas Cote of ING. He notes that stock analysts have significantly underestimated profit growth for more than two years, having turned conservative after being too boosterish in the late 1990s.
With 91% of companies in the Standard & Poor's 500-stock index reporting, second quarter profits are up more than 13%. That is nearly double the 7.4% gain analysts expected six weeks ago. In addition, dividend payments are rising and the Fed is keeping inflation tame. The companies in the S&P 500 have posted double-digit profit gains for 13 cosecutive quarters, matching a record set from the fourth quarter of 1992 through the fourth quarter of 1995.
For the current quarter, analysts forecast a profit gain of almost 16% for the S&P 500, more than twice what they expected for the second quarter. The forecast for the fourth quarter is 13.6%
imported post
All this talk ofsmart money makes me wonder who really label them so? Hedge funds that cheated by buying joe six pack's mutual fundsat stale prices is smart money? May be they are until they get caught? That Hedge fund that Uncle Al atthe Fed bailed out is smart money? The hedge fund in Florida that ripped off a bunch of retirees in Florida the other day would be smart money? You must mean those institutions that sold en mass during the 87 october crash must be the smart money? It is laughable if it is not so sad to see folks even bother with "smart" money. Yeah right. smart money indeed
All this talk ofsmart money makes me wonder who really label them so? Hedge funds that cheated by buying joe six pack's mutual fundsat stale prices is smart money? May be they are until they get caught? That Hedge fund that Uncle Al atthe Fed bailed out is smart money? The hedge fund in Florida that ripped off a bunch of retirees in Florida the other day would be smart money? You must mean those institutions that sold en mass during the 87 october crash must be the smart money? It is laughable if it is not so sad to see folks even bother with "smart" money. Yeah right. smart money indeed
imported post
I talk a lot about smart money and dumb money based on sentiment surveys. But the smart money indicator I watch, which may or may not be the same as the one above, compares the first hour of trading (dumb or emotional money) vs. the last half hour of trading (traders taking advantage of the day's excess overbought or oversold condition).
It's not a great indicator but it does usually show strengthwell before the market rallies and vice versa.
I talk a lot about smart money and dumb money based on sentiment surveys. But the smart money indicator I watch, which may or may not be the same as the one above, compares the first hour of trading (dumb or emotional money) vs. the last half hour of trading (traders taking advantage of the day's excess overbought or oversold condition).
It's not a great indicator but it does usually show strengthwell before the market rallies and vice versa.
G
Guest
Guest
imported post
Birchtree wrote:
....otherwise, an informative post. 
Birchtree wrote:
Birchtree
Well-known member
imported post
Today is the kind of day when the smart thing to do is back up 100 feet and find the mountain to regain perspective. Money is finally starting to drift away from real estate and is returning to the market - that demand is a necessary move to provide the gunpowder to blow this market through over head resistance while most others are concerned about breaking support. The Fed will provide the catalyst in the form of a surprise - the pause that refreshes.
Today is the kind of day when the smart thing to do is back up 100 feet and find the mountain to regain perspective. Money is finally starting to drift away from real estate and is returning to the market - that demand is a necessary move to provide the gunpowder to blow this market through over head resistance while most others are concerned about breaking support. The Fed will provide the catalyst in the form of a surprise - the pause that refreshes.
coolhand
Well-known member
imported post
Birchtree wrote:
So where does that money go??? The stock market!
The fed has to be getting a little concerned at this point. They do not want to stall this market.
Birchtree wrote:
You got that right! Housing has about peaked and I've seen quite a number of builders execute new homebuilding rules that prevent a buyer from selling while under contract, or to sell back to the builder at the price paid. Real estate speculation is being muted by the builders who are beginning to realizethat inventory may begin to exceed demand. Nationally it is estimated that 15% of thehomes built are bought by speculators. How much money is that?!
So where does that money go??? The stock market!
The fed has to be getting a little concerned at this point. They do not want to stall this market.
G
Guest
Guest
imported post
Wonder Woman wrote:
I can lend you some of my G Funds if you need...
Wonder Woman wrote:
Well this post proved to be poor timing.Birchtree wrote:....otherwise, an informative post.
I can lend you some of my G Funds if you need...
Birchtree
Well-known member
imported post
Wonder Woman,
Oh yes please, I'm borderline desparate. These prices are an opportunity whose time has come. I still have a profit in the C fund, but I sure would like to leverage down - the natural way not to over pay. You are most kind with your offer. Thanx.
Dennis -perma bull #2
Wonder Woman,
Oh yes please, I'm borderline desparate. These prices are an opportunity whose time has come. I still have a profit in the C fund, but I sure would like to leverage down - the natural way not to over pay. You are most kind with your offer. Thanx.
Dennis -perma bull #2
Birchtree
Well-known member
imported post
Not recently - just going to ride this move on out - let the dollar cost averaging do the timing. I have plenty of time to be patient - no sense being alarmed every time the market goes against my grain. But I do wish I had some G fund reserves to put to work - my choice. Don't cry for me Argentina.
Not recently - just going to ride this move on out - let the dollar cost averaging do the timing. I have plenty of time to be patient - no sense being alarmed every time the market goes against my grain. But I do wish I had some G fund reserves to put to work - my choice. Don't cry for me Argentina.
Birchtree
Well-known member
imported post
Today would be a good day to see sp500 rebound to 1230 - quiet them hairy bears.
Ralph Block says the bottom line in the world of technical analysis is that he doesn't see any significant signs of extreme technical weakness that would be a precursor to a major chop in the market. The market's oversold level has dropped to minus 4.2 vs Monday's minus 2.3, the -4.2 reading is the most oversold since the April reaction lows. The DJIA bottomed then at 10,012.
Today would be a good day to see sp500 rebound to 1230 - quiet them hairy bears.
Ralph Block says the bottom line in the world of technical analysis is that he doesn't see any significant signs of extreme technical weakness that would be a precursor to a major chop in the market. The market's oversold level has dropped to minus 4.2 vs Monday's minus 2.3, the -4.2 reading is the most oversold since the April reaction lows. The DJIA bottomed then at 10,012.
robo
Well-known member
imported post
Dated 8-19-2005
Until and unless the support around 1216 is violated, there is no reason to disturb our remaining positions -- we'll revisit the subject if 1216 is violated.
While it is true that the sell line (orange) of S&P 500 Boomerang Indicator is approaching the -10 level where sell signals are generated, until it does so the indicator is keeping open the possibility that a new buy leg will occur. August 18th
Also, the rapid decline in bullishness by members of the American Association of Independent Investors (AAII) is suggesting that the decline will be mild and short-lived. There has been no renewal of the buy signal, but that may happen quickly after the decline has ended.rsday, August 1
We could get a bounce next week...
Some comments from a Tech:
Dated 8-19-2005
Until and unless the support around 1216 is violated, there is no reason to disturb our remaining positions -- we'll revisit the subject if 1216 is violated.
While it is true that the sell line (orange) of S&P 500 Boomerang Indicator is approaching the -10 level where sell signals are generated, until it does so the indicator is keeping open the possibility that a new buy leg will occur. August 18th
Also, the rapid decline in bullishness by members of the American Association of Independent Investors (AAII) is suggesting that the decline will be mild and short-lived. There has been no renewal of the buy signal, but that may happen quickly after the decline has ended.rsday, August 1
We could get a bounce next week...
imported post
Birchtree wrote:
But seriously, are you thinking the market willhead up pretty quick here soon or do you think the pullback could last a while (weeks)? The indicators are looking better but you know how that goes for me... If I get back into stocks we'll have to wait a month or two for the rally. :*
Birchtree wrote:
Someone recentlyquoted, "Inertia can be an expensive missedopportunity." or something like that.
But seriously, are you thinking the market willhead up pretty quick here soon or do you think the pullback could last a while (weeks)? The indicators are looking better but you know how that goes for me... If I get back into stocks we'll have to wait a month or two for the rally. :*
Birchtree
Well-known member
imported post
tsptalk,
You ask a small question that requires a long answer - or I can be right up front and say who knows - only my banker knows for sure, and he is hiding under his deak.
What the near term futures holds may depend on where one sees the stock market's post-2002 cyclical bull trend. If you believe we are in an aging bull market that is inside a secular bear market that started in 2000, then we are most probably headed for trouble. When I say that the current bull market is a cyclical one. I mean that it is a sustained, sizable advance that is part of what is likely to be a broad, multi-year correction of the two-decade long secular upswing (bull market) that peaked early in 2000.
This is not my current opinion- I'm on record saying I believe we are starting another back to back secular bull market. But one has to be aware of what history may dictate. There has never been a back to back secular bull market, so I'm being cointrarian against history. I would like to see another repeat of the momentum from 1995 - 2000.
The market's present cyclical bull trend, which I would date from the averages' major lows in October 2002, appears to be in a mature stage. Cyclical bull markets have tended to last about three years; after that, a year or so of weakness (ie. a bear market) typically brings the averages to their next four-year cycle low. With the current upcycle now approaching its third anniversary, the risk is growing that it will reach a cyclical peak in the coming months. Such a peak later in 2005, or at least by early 2006, could be followed by a 20 to 25% decline in the DJIA and S&P500. That weakness could bring the indexes down to their next major four-year cycle lows in the spring or more likely, the fall of 2006. A secular move will not play this scenario.
Now we have to start pushing the time frames further out if possible - going against history is no easy task. One has to take into account the fact that several indexes (DJU and NYSE cumulative daily breath indes among them) which usually reach their bull market peaks several months or more before the major averages have hit new highs in the past few weeks. One has to allow for the chance that the major averages might not reach their final highs until early in 2006 after an intermediate - term decline of perhaps 5 to 10% during the fall of this year.
The market currently is experiencing another pullback to relieve the near term overbought condition that developed in mid-July. This condition may last another week or two to move the momentum level indicators to oversold levels before thet are in a constructive position to support a sustainable new wave of advance. What is interesting to note is that the current sporadic decline has not shown evidence of intense downside momentum. That suggests that it is a pullback within, rather than a reversal of, the post April intermediate-term phase of advance of the overall bull trend. And I'm so glad.
Sentiment indicators are mixed but improving. A key sentiment indicator in this area, the CBOE put/call ratio continues to run at a favorably high level. The 25 day average of this ratio is at a three month high of 92%, that figure has usually dipped to or below 75% in recent years before the market has fallen into serious decline. Last week it was at 84%. I'm watching your indicators too.
And of course it's not all days of wine and roses. Under the Dow Theory, the bull market is not confirmed until both the DJIA and DTA surpass their March 2005 highs at 10,997 and 3872. Now with Merck taking a hit it may be awhile longer - but it will be confirmed eventually.
This I find very interesting - there was a time when EWP was on the money, but we all swing with the temperature changes. We are currently sitting right on the lower EWP support line at 1219.71, their level is 1219.70. If we are fortunate enough to break upward from this support line which is part of a rising wedge pattern, the result is a very fast-sustained large move. If this pattern breaks upward, EWP will reassess it's long range goals to a more bullish outlook. The upward move if one developes might resemble the move the Nikkei 225 just completed. It went up 1200 points in 3 months -essentially straight up - propelling alot of gains in the I fund. And we also have to keep in mind the decennial pattern which calls for the sp500 to end the year at a higher price than where it started. My strategy at this point is to sit tight and let the market come to me - continue with dollar cost averaging my contributions to TSP and reinvest my dividend income in my outside account. Work on shifting my credit card debt around so AG doesn't hurt me and keep reading your informative thoughts. The future from my perspective is wide open - gotta stay with it. Take care
Dennis
tsptalk,
You ask a small question that requires a long answer - or I can be right up front and say who knows - only my banker knows for sure, and he is hiding under his deak.
What the near term futures holds may depend on where one sees the stock market's post-2002 cyclical bull trend. If you believe we are in an aging bull market that is inside a secular bear market that started in 2000, then we are most probably headed for trouble. When I say that the current bull market is a cyclical one. I mean that it is a sustained, sizable advance that is part of what is likely to be a broad, multi-year correction of the two-decade long secular upswing (bull market) that peaked early in 2000.
This is not my current opinion- I'm on record saying I believe we are starting another back to back secular bull market. But one has to be aware of what history may dictate. There has never been a back to back secular bull market, so I'm being cointrarian against history. I would like to see another repeat of the momentum from 1995 - 2000.
The market's present cyclical bull trend, which I would date from the averages' major lows in October 2002, appears to be in a mature stage. Cyclical bull markets have tended to last about three years; after that, a year or so of weakness (ie. a bear market) typically brings the averages to their next four-year cycle low. With the current upcycle now approaching its third anniversary, the risk is growing that it will reach a cyclical peak in the coming months. Such a peak later in 2005, or at least by early 2006, could be followed by a 20 to 25% decline in the DJIA and S&P500. That weakness could bring the indexes down to their next major four-year cycle lows in the spring or more likely, the fall of 2006. A secular move will not play this scenario.
Now we have to start pushing the time frames further out if possible - going against history is no easy task. One has to take into account the fact that several indexes (DJU and NYSE cumulative daily breath indes among them) which usually reach their bull market peaks several months or more before the major averages have hit new highs in the past few weeks. One has to allow for the chance that the major averages might not reach their final highs until early in 2006 after an intermediate - term decline of perhaps 5 to 10% during the fall of this year.
The market currently is experiencing another pullback to relieve the near term overbought condition that developed in mid-July. This condition may last another week or two to move the momentum level indicators to oversold levels before thet are in a constructive position to support a sustainable new wave of advance. What is interesting to note is that the current sporadic decline has not shown evidence of intense downside momentum. That suggests that it is a pullback within, rather than a reversal of, the post April intermediate-term phase of advance of the overall bull trend. And I'm so glad.
Sentiment indicators are mixed but improving. A key sentiment indicator in this area, the CBOE put/call ratio continues to run at a favorably high level. The 25 day average of this ratio is at a three month high of 92%, that figure has usually dipped to or below 75% in recent years before the market has fallen into serious decline. Last week it was at 84%. I'm watching your indicators too.
And of course it's not all days of wine and roses. Under the Dow Theory, the bull market is not confirmed until both the DJIA and DTA surpass their March 2005 highs at 10,997 and 3872. Now with Merck taking a hit it may be awhile longer - but it will be confirmed eventually.
This I find very interesting - there was a time when EWP was on the money, but we all swing with the temperature changes. We are currently sitting right on the lower EWP support line at 1219.71, their level is 1219.70. If we are fortunate enough to break upward from this support line which is part of a rising wedge pattern, the result is a very fast-sustained large move. If this pattern breaks upward, EWP will reassess it's long range goals to a more bullish outlook. The upward move if one developes might resemble the move the Nikkei 225 just completed. It went up 1200 points in 3 months -essentially straight up - propelling alot of gains in the I fund. And we also have to keep in mind the decennial pattern which calls for the sp500 to end the year at a higher price than where it started. My strategy at this point is to sit tight and let the market come to me - continue with dollar cost averaging my contributions to TSP and reinvest my dividend income in my outside account. Work on shifting my credit card debt around so AG doesn't hurt me and keep reading your informative thoughts. The future from my perspective is wide open - gotta stay with it. Take care
Dennis
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I agree with a lot of what you say. I think we will get a nice 1995 type rally, but first we have to repair some of the cracks we have in psychology and the monetary conditions.
Just like we saw in Japan, as you mentioned, we could see a huge move higher but first things first. The 1500 point gain in the Nikkei 225 came on the heels of a 1200 drop, then a test of the low. If we were to compare, I think the S&P is near point A now...
We'd get a low sometime this fall (B), with a retest (C)before we take off late this year, early next.
So I think we are on the same page. I just think we need to go through a little growing pains first.
Good luck,
Tom
I agree with a lot of what you say. I think we will get a nice 1995 type rally, but first we have to repair some of the cracks we have in psychology and the monetary conditions.
Just like we saw in Japan, as you mentioned, we could see a huge move higher but first things first. The 1500 point gain in the Nikkei 225 came on the heels of a 1200 drop, then a test of the low. If we were to compare, I think the S&P is near point A now...
We'd get a low sometime this fall (B), with a retest (C)before we take off late this year, early next.
So I think we are on the same page. I just think we need to go through a little growing pains first.
Good luck,
Tom
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