Sunday, April 1, 2012

04-01-2012 April and beyond - observations

We know Nenner is calling for a top in the 1440s by mid April.  How does that mesh with our analysis?  Recently we have focused primary on the Kitchin cycle and its component cycles.

The Kitchin is 42-54 months in length.  For convenience we have used 42 months in our discussion (measured bottom to bottom).  The up leg of the Kitchin tends to be longer than the down phase.  Of the 42 months the up phase will normally take 2 1/2 years (30 months) and the down phase 12 months (or more).  So the cycle is not perfectly symmetrical as depicted on my charts.

The Kitchen cycle is actually a business cycle (sometimes called the inventory cycle) that we apply to stock analysis.   The Kitchin cycle is often mistakenly called the 4 year cycle.  The Kitchin cycle is composed of shorter cycles.  One  third of it as a sub-division (14 months  or around 300 trading days).  Each third of a Kitchin cycle is made up of 3 Wall cycles (about 4.5 months or 100 trading days).  Each third Wall cycle tends to be the weakest in a group of 3 - that is the Wall that is within the downside of the 1/3 of a wall cycle so we see the impact of the 1/3 sub Kitchin cycle.  So within the Kitchin cycle the 3rd, 6th and 9th Wall cycles will be the weakest.

The reason to emphasize the Kitchin cycle is we are now 3 years plus into it and should be entering the are of maximum downside pressure (the last 1/8  or 6 months of the cycle).  Earliest bottom date could be 2nd week of September.  If the cycle runs long it could be later in 2012 or early in 2013 before it bottoms.  Given the expiration of Bush tax cuts, the payroll tax deduction, and the sequestering of funds starting in Jan 2013 it may run long.

Here is an ideal representation of the Kitchin cycle from the bottom in Mar 2009:

As you can see from the chart we should be in the "hard down" phase of the Kitchin cycle starting by mud-April.  This aligns with Nenner's prediction of a top by then.....  So I expect we could see a significant top in April.
Focusing in and looking at the 1/3 Kitchin cycle we see that we are in the 8th (of 9) Wall cycles within the Kitchin cycle.  Each Wall cycle is about 4 1/2 months so the current (8th) wall cycle should bottom in late April.  Then we go into the 9th Wall cycle (3rd in a group of 3) which tends to be weak.  This is rational as the Kitchin cycle should be moving hard down.  4 1/2 months from late April puts you into the mid September time frame where we will start looking for a bottom.  As mentioned above - there are tax ramifications Jan 2013 which could extend the down leg of the Kitchin cycle (42-54 months and we are using 42).  Note: Many refer to this as the 4 year or presidential election cycle.

Take a close up look at the Kitchin third and Wall cycles:

In summary  - we have the Kitchin ready to enter a hard down phase.  We have the 3rd of 3 (9th) Wall cycle on deck and normally this would be a weak cycle.  So April (as Nenner predicts) could be a pivotal month for a change in trend.

Gl traders


  1. Inlet,

    Thanks for your work.

    Did you get the impression for reading Nenner that he believes 1440'ish is going to be the top for the year, and thus possibly the top for several years?

    I know you try to avoid being influenced by news items, but it just seems to me that the PTB need to pump the markets more and suck in more retail. They need more time to do this than just a couple weeks.
    Do you see anything in your cycles that the markets could rise higher than 1440'ish in the next couple years? I have read that some feel that the markets won't truly "blow up" until 2015.


    1. Doctrader - I never under estimate the ability of idiots (like the Fed or the ECB) to influence the markets. But it seems QE1, QE2 had no long lasting impact. I suspect that operation Twist won't either and may already be running low on ammo as the FED has few short term bonds left to sell and buy long term bonds with.

      I look at the Kitchin cycle here in 2012 because it is the one cycle of length that should have a sizable impact in 2012. As you are aware the much longer cycles are due in 2014/2015...

      As to sucking in the retail investor - not sure it will happen after two crashes in a decade (2000-2002 and 2008-2009). Granted they have short memories, but not that short. Cycles are natural occuring and can be somewhat impacted by central bank and/or government activity, but in the long run the cycles will happen. So can the PTBs postpone the downside - possibly, but their ability to do so is limited.