Saturday, September 21, 2013

Sep 23, 2013 outlook

The market continues to rot at its core. The longer it is before we get a substantial correction the larger the rotten core becomes.  The larger the rotten core the more potent the stink when the market does correct.

1) The velocity of money continues to slow.

2) The real unemployment rate continues to be very high (even though the labor force shrinks as people drop out).

3) Debt levels continue to rise.

Note:  If personal and corporate debt were included it would be about 4X GDP.

4) There is no real underlying economic recovery (anemic growth).

5) The actions by the FED of loose money continues (zero interest and QE), which is representative of the poor and continuing deterioration of the underlying market and economic conditions.

6) The sheep continue to be sucked into the trap while trying to convince themselves it is different this time.

7) Technical analysis does not work and why the man behind the curtain has complete control.
  • “Pay no attention to the man behind the curtain,” so said the great and powerful Wizard of Oz to Dorothy, the Tin Man, Scarecrow, and the Lion. For if they had looked behind the curtain they would have seen the wizard using machines, levers and stuff to sound strong and powerful. The wizard was using his smoke and mirrors to convince the four to listen to him, and to not believe what they saw.
Fact is, hearing and seeing people thinking in this manner once again is, in reality, only part of the cycle.  Not yet, but the day of a trend change is near and the downside is substantial as the FED monetary bubble  bursts.

This past week I had projected a top for Tuesday, but with no "taper" the top was a day later than projected.  Also, the FED inaction provided enough "mo" to set new highs, but by Friday close it appeared the short term trend may have indeed turned.  So next week expect some pullback.


Longer term chart (to clarify comments regarding longer term):



  1. Hello. All your points are valid, yet you are ignoring the critically important underlying issue that QE full.

    The market has never seen a significant decline whilst QE has been ongoing.

    Far from a significant correction in the near term, it could be many months..if not a few years.
    I do very much like your cycle/wave chart at the end, its superb.

    Yet......QE does how is the market going to fall significantly (>12/15%) any time soon?

    I wish I could believe in a major drop this autumn, but based on the past few years, I can't.

  2. Major cycles should bottom over the next 2-3 years. In order to get major bottoms in 2014/2015 then these major cycles need to kick in to the downside soon. I am suggesting the trend reverses and a major trend change starts before year end, but the damage can continue for multiple years.

    Didn't we have tops in summer 1987, 1994, 2001, late 2007/2008 (or 7 years apart) followed by a 1-2 year down turn? Just suggesting even without much longer term cycles 2014/15 could be very difficult for the equities markets.

    What will be the trigger? Budget impasse? Debt ceiling? Some other unknown? The hundreds of trillions of debt and promises by governments, institutions, companies and individuals around the world? FED QE is a drop in the bucket compared to all this debt.... Besides with the slowdown in the velocity of money FED money creation is having very little stimulus impact except on equities.

    1. All valid points.

      Yet, as a self titled 'permabear', haven't we been here before? Autumn 2010, 11, 12?

      I'm not singling you out, but we seen so much bearish talk, and none of it sustained itself for more than a few months at a time. Sure July-October 2011 was interesting, but it only took a few months before we were back on a major ramp again.

      6 months ago, doomer bears were touting the sp'1500s as a top... and some even have the guile to call 1729 a top. This is sheer madness on the part of the doomer bears. Most of them it seems have learnt nothing.

      You note the top in 2007, but it took a good 9 months before a confirmed top occurred.

      Urghh, its all tiresome, isn't it ?

  3. I have tended to focus more on shorter term moves (swing trades of a few days to a few weeks) not the longer term big picture even though I have covered the longer term outlook from time to time as background information to aid swing traders in their decision making. I have neither been a "bear" or "bull" except for short periods of time (a baby "bull" or "bear" as applicable to the shorter term).

    I recently began warning that I expect a long period trend change. This does not imply there will be no trading opportunities on the long side, but it implies that the risk will increase and the holding periods will be shorter as cycle tops become left translated. BTW - this was predicted by my cycle analysis in late 2012 (early 2013) here on my blog and I am just reminding readers of what I laid out several months ago for 2013... I will post/add the chart from then with current data.

  4. A longer term pullback?

  5. Margin debt (credit balances) near peaks in 2000 and 2007, warning signal.