1/02/13 – Early January Surge

MARKET MESSAGES

1/02/13

In the 12/31/12 message, I showed what appeared to be a completed 3 step down.  I kinda think that count worked out OK (understatement).

The good news is that we may be in a 5 step up since 11/16/12.  The bad news is that if we turn back down, I would call this a failed breakout and the decline since 12/19/12 was step 1 down.

After declining in December, it isn’t unusual for the market to be up in the first few days of January.

01-02-13 SP FUTURES 150 MIN BARS

01-02-13 SP FUTURES 150 MIN BARS

Revisiting the fiscal cliff, the tax package  passed both houses after midnight.  By doing so, all tax rates had already gone up (pretty silly).

The future cuts in the budget are another question and there could be a real fight brewing over that (another stalemate).  The democrats apparently want to take new revenues from higher taxes on those families with incomes over $450,000 and spend it (dumb).  The republicans say NO.  It seems pretty obvious that the republicans have got this one correct.  But other budget cuts are the real question, do we cut a lot quickly or gradually???  This is a very important question for the economy and our future.  Cutting quickly is something that I don’t think our economy could absorb.  Moderate cuts seem more logical BUT if the economy surprised us and did absorb big cuts well, that would be a rocket for the stock market.

If we don’t get our national debt GROWTH problem under control, we will be one of those countries that someday is faced with a catastrophic tax increase.  This will be shoved down our throat to save the dollar.  Without confidence in the dollar, we can’t borrow at reasonable interest rates and that would be very, very bad.  The stakes are high and perhaps all of this is part of large step 3 down that I see laying in wait for us (it’s always in the distant future . . .  until it becomes today).

Remember, everything isn’t the end of the world with large step 3 down.  All you have to do is survive it financially and then invest in lots of quality things and have patience.  It will be akin to 1932 all over again.  Although there were rough years ahead after 1932, it was the turning point for an incredible fortune (ending in 2000).  The fortune that could have been made from December 1974 to January 2000 will be dwarfed by this future turn.

Edson Gould would divide the length of the previous bull market by 3 and that would be an estimate for the bear market.  Using 1932 as the bottom to the year 2000, we have 68 years, divided by 3 yields about 23 years for the bear market.  2000 plus 23 years gives us the year 2023.

If the bottom was 1942 (this was the end of the 3rd step down from 1929).  2000 minus 1942 is 58 years, dividing by 3 gives us 19 years.  2000 plus 19 years is 2019.  I had previously estimated 2018 due to the 18 year cycle.  So 2018-2019 or 2023 is years away and if any of this is true (???), we have a long time before a final answer.

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