Monday, November 12, 2007
Keep in mind that what I'm going to show you doesn't mean that we are in for a similar event but then again we could be. I've pointed out before that extremely right translated bull markets tend to end in very quick nasty bear markets. Ones that are extremely long tend to produce even nastier endings or a waterfall decline if you will. The two longest 4 year cycles in history were the 32-37 bull and the 82-87 bull. Look at the charts to see what the outcome of each one of those was. A 42% decline in 37 and a 35% decline in 87. Take special note of how fast this devastating drop occurred. The current 4 year cycle is the third longest in history.
Now I see on CNBC that most everyone thinks we are searching for a bottom. Quite a few are expecting a 10% correction. I even heard one analyst say we were due for a 10% correction. ?????? Didn't we just have one a couple of months ago? Why on earth should we be due again already? I also see may traders on the blogs positioning to catch the "coming powerful bounce".
Let me just point out something. A watershed event if indeed that's what we're in for is the most powerful move in the stock market. Why oh why would you want to stand in front of something like that? Does the phrase "trying to catch a falling piano" mean anything to you? Now take a look at the waterfall decline in the 93 Nikkei. Again we see the 2 1/2 month move with most of the decline occurring over 23 days . There were only 3 days were a trader could have realistically made any money on the long side. How many losing trades would you have had to take to catch those three days and in the meantime you are missing out on the move of a lifetime. In this type of event you don't try and catch a counter trend move. If you get one then great use it to add to shorts but for heavens sake don't stand in front of a train that size.