Stock Market Trends – Weekly Update 08/03/11 © ™


If you haven’t read the section on “Money Management” in the category “HUH ???”, “Odds ‘N Ends”, please do so.  It’s a very interesting piece by Walter Bressert and is an excellent method of how to manage your money short term plus remain invested in the market for the long term.  Good technique.

  • Very Long Term
  • Jan 2000 – Present
  •  Step 2 Down Completed

VERY LONG TERM 08-06-11

  • Long Term
  • Mar 2009 – Present
  • Step 2 Up Completed – Verified
  • Step 3 Up Completed Unverified

    LONG TERM 08-06-11

  • Intermediate Term
  • February 2011 – Present
  • Step 3 Down Underway Unverified Count

INTERMEDIATE TERM 08-06-11

  • Short Term
  • July 7, 2011 – Present
  • Step 2 Down Underway 
  • Action Status – Sold On August 1, 2011

SHORT TERM 08-06-11

COMMENTS

When you look at the recent decline,  this market has gone straight down with very little indication of the steps.  When counting the steps is useless, we resort to looking at the channel formed by the decline.  When the channel is violated, you have terminated the step.  If I were to “guess” at the count, I would say that we had one more step down to go.  But that’s of no use because I know we have to form a bottom before we can buy again and that hasn’t happened.  So be patient and thankful you’re in cash.

Beginning last Thursday the market has been trading under a Dow Theory Sell Signal.  These signals don’t happen very often and some signals are quite good (November 2007 sell), while others have occurred close to the eventual bottom.  History will eventually tell us how good this one is.

Friday night Standard & Poors took away the AAA status of the USA.  The market has been waiting for that and perhaps we will get a climactic move down on Monday morning.  Perhaps now that the rating game is over, the pros will begin buying.  Whatever the case may be, we are on the sidelines watching and waiting until the right moment to get back into the fray.  Monday should be another interesting day.

Below is a chart that shows the length (chart width) and severity (chart depth) of all the recessions since 1948.  The three longest (widest) recessions are the most recent recessions, 1990, 2001 and the present.  The second deepest recession was 1948 and that was caused by the unwinding of the war jobs after WW II.  Those job losses didn’t last long because the factories retooled, began hiring and America boomed again.  Stores were selling things that the American people needed (pent-up demand) but couldn’t buy since the depression.

The severity of the three most recent recessions might be saying that things have structurally changed in this country since 1990.  I would say that could be a result of “outsourcing”.  Jobs are not bouncing back as rapidly as in the past because they no longer exist in this country.  Factories are moving off-shore and I continue to marvel at the factories that still exist in America.  The same is true for service type jobs.  Who hasn’t spoke with someone from India about their bank account, computer, etc.  This could be an incorrect assumption but an alternative doesn’t jump out at me.  Let me know what you think by writing a comment at the bottom of this post..

Employment Losses Since 1948 – 08/06/11

This is an interesting chart that shows the uptrend is still intact from the March 2009 bottom.  Next week may show whether this continues to be the situation.

08-06-11 SP 500 DAILY BARS UPTREND

This next chart is interesting in a kinda scary way, it shows the market stopping on a trend line that has its origins in the 2000 peak, 2003 bottom and the 2007 peak.  This could also be interpreted as simply a good place to stop and correct before moving upward again.  We have come a long way since March 2009 and everyone knew we had to have a correction.  The question is now how deep does it go???

08-06-11 SP 500 WEEKLY BARS DOWNTREND

SHORT TERM

We are operating under a sell signal.

The best short term scenario

  • We are near the end of this waterfall and a rally will take place soon.

The worst short term scenario

  • The market may collapse again next week.

INTERMEDIATE TERM

We are operating under a sell signal.

The rally that began in July 2010 is over.  The peak of that rally was May 2011 although some indexes peaked in February 2011.  We are either in step 2 or step 3 down.  I am assuming that we are in step 3.  The waterfall decline reinforces the thought that we are in step 3.  Waterfalls are common in step 3.

There is also the possibility that we may be in a 5 step correction, which would mean there are several more large steps still in our future.  That would not be good news.

The best intermediate term scenario

  • Same as short term

The worse intermediate term scenario

  • Same as short term

LONG TERM

From the bottom in  March 2009

  • Large step one up ended in May 2010
  • Large step two up ended in May 2011.
  • There is an outside possibility that we have had 3 steps up instead of 2.
The best long term scenario
  • This correction could last many months.  A similar point in the 2003 to 2007 rally had a correction that lasted about one year.  Currently we are in the sixth month of the correction (beginning in February).

The worst long term scenario

  • We may have begun a bear market

VERY LONG TERM

We have 3 possibilities for the future.

  • We have entered a very wide swinging market (megaphone formation) similar to that of 1966 to 1974. During that era we had three bear markets with two intervening bull market rallies.  Each bear market had a lower low than the previous bear.  The intervening bull market rallies saw new all time highs before the next bear market began.
  • We have formed a huge head and shoulders formation since 1998.  If this formation is valid, the downside measurement calls for a bottom around Dow Jones Industrials 1,000.
  • Neither of the above are valid and the future of America is bright.  This is a version of “Never sell America short”.  I firmly believe that we will work our way through our problems but that doesn’t mean there isn’t going to be some rough patches.

Since 2000 we have had two bear markets, 2000 to 2003 and 2007 to 2009. Like 1966 to 1974, the recovery from the first  bear market saw a new all time high (2007 peak). It’s possible that we may experience another all time high during the present recovery period.  This would support the megaphone formation.  A failure to make new highs would support the head and shoulders argument.  In both formations the conclusion of the present recovery would call for the third and final bear market. An estimated time for the conclusion of the final bear market is approximately 2018.

The lesser of both formations is the megaphone formation as it calls for a bottom 1,000 to 2,000 points below the 2009 low, which would be around Dow 5,000.

In the head and shoulders formation the measurement calls for a bottom around Dow Jones Industrials 1,000.  This is almost an unimaginable event and I have a hard time grasping it as I try to visualize the fundamentals involved.  If this did happen, everything that could go wrong would have to go wrong.  Reasons range from the absurd to the absurd: bankruptcy of the federal government, worthless dollar, worthless US debt (Treasury bonds), etc.  All of these examples would call for extremely high interest rates to entice investors to buy US bonds or hold dollars.  In the event of very high interest rates, the government would have no spendable income.  The reason for this is simply that the US government’s debt is so high that high interest rates would gobble all available money to pay for debt service.  After debt servicing the rest of the federal income would go towards programs that have already been authorized into law, such as social security, medicare, token defense, etc.  Depending on how high the interest rates went would determine if we could even meet our current obligations.  This scenario is so dark that it doesn’t seem possible but nevertheless, the head and shoulders formation is there and will be waiting until we pierce the all-time highs of October 2007.

Remember these are simply possible scenarios and are not embedded in fact or forecast.  Whatever the outcome, it never hurts to be a little cautious with some of your money.  But in the worst case scenario, everything that we take for granted as being safe . . . .  would not be safe.

Hopefully we will never have to think about worst case scenarios other than to have a good laugh at them presently.

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  • Glossary is in the sidebar category, Huh???.  This is important reading for understanding this blog.

See my charts (updated constantly)

  • The link above has charts that are updated constantly during market trading.  They do not lag market trading and are current.
  • My lines and counts may not be correct as I also look at other things.  When possible I try to keep them up to date.  An email to me would prod me to update.
  • I think you will find these charts very useful as they cover time frames from minutes to decades.  The final section of these charts consists of some of the premier growth stocks that have good structure to their charts.  My favorite chart formation is one that declines and stops at the top of a previous congestion area.  This reflects good accumulation and a controlled correction.
  • The growth stocks show daily market action for the last 3 years and also weekly moves since 1990.  This gives a great perspective to what has happened in the past and how this stock behaved during good or bad times.
  • Page 1 – Indicators (shorter time frames)
  • Page 2 – Indexes With 1 Minute Bars
  • Page 3 – Indexes With 5 Minute Bars
  • Page 4 – Indexes With 15  Minute Bars
  • Page 5 – Indexes With 30 Minute Bars
  • Page 6 – Indexes With 60 Minute Bars
  • Page 7 – Indexes With Daily Bars (shorter)
  • Page 8 – Indexes With Daily Bars (longer)
  • Page 9 – Indexes With Weekly Bars
  • Page 10 – Indexes With Monthly Bars
  • Page 11 to Page 12 – Indicators (longer time frames)
  • Page 13 to End – Growth Stocks (daily and weekly time frames)

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