I thought to start off the new year I would take a look at a few very long term monthly charts. First off let me say that I think this bear market is different than any other bear market we’ve experienced in the last 60-70 years. I think what we are seeing unfold is a complete deflationary collapse. This was brought on of course by the Greenspan Fed’s totally irresponsible inflationary monetary policy. True to form Bernanke is following right in his footsteps.It does seem strange that inflationary monetary policy ultimately leads to a deflationary collapse doesn’t it? Unfortunately the incredible expansion of credit over the last 5 years has ultimately led to the same outcome as it did in the 30’s. The credit bubble now is imploding just like it did back then and it’s taking down not only the financial system and stock markets but also the global economy, just like it did in the great depression.
Amazingly enough the only way that Bernanke knows to put out the fire is to throw more gas on it. The bigger the fire gets the more gas they throw. Talk about a vicious circle.
Anyway on to our charts.
I’ve included the 200 month moving average on each chart. As you can see the S&P and Nasdaq have already sliced through these very long term support levels. The Dow, Russell and transports are in the process of testing the 200. Every index except the transports has already penetrated this support so I really doubt they will ultimately be able to hold above it. I also doubt that the S&P or the Nasdaq will be able to recover these levels at this point.
I think this bear is destined to correct the entire move out of the 1980 bottom. I don’t think we will move below that level per se but I also don’t think we’ve seen the lows for this bear at 740 either.
I have a feeling before this bear is over it will change our world and I suspect that by the time the bottom is reached the average investor will never want to see another stock as long as they live.
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41 comments:
Gary,
Thanks for the post. Do you think we will see spx>1000 first or below 751 first?
Most of the sentiment indicators are leaning towards 750 but who knows.
Gary,
What are the one or two things that could happen between now and SPX $400 that would completely change your outlook for the future of the stock market. (ie. what could happen between now and then to change the ultimate severity of this bear market???)
Thanks for your thoughts,
Mr. T.
Well of course no one knows for sure where the market is going but it might help if the the Fed would quit making things worse.
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if everyone is expecting s&p 500-750 doesnt the market do the opposite of what most are expecting so 1500-2000 is more likely
s&p will be 1500 in 6 months
Actually most of the sentiment readings and put call levels are suggesting that everyone is looking for a rally.
Gary: Whats your ultimate bear market low target/guess for the Dow?
danke
I expect we will see a Dow:gold ratio of 1:1 or at least very close to that. Usually at a secular bear market low trailing P/E's will be roughly on par with dividends. The dividend on the Dow right now is 3% and trailing P?E's are about 12%. Still have a ways to go but I don't expect to get there quickly.
If the market did actually get down to the 450-500 level on the S&P 500, this most definitely would get most once fully invested folks to swear the market off for a lifetime and then some. Could it happen? Well, if you asked me a year ago today; I would have scoffed at the notion. Then again, if a year ago you would have asked me of the likelihood of Dow 8,500 or 8,000 in 2008, I would have scoffed at that too. So, anything is possible though I hope that we don't see such lows. However, it is not what I would prefer, it is being prepared if that eventuality should occur and watching the markets to attempt to take advantage of it.
I can tell you this,, after the last bust, one of the trading signals was 3- 300 million days (shares) was a bull signal..
very low involvment...........
Mac
Gary,
When you say "I think this bear is destined to correct the entire move out of the 1980 bottom", do you mean that S&P will drop to $100?
While anything is possible, I think it is highly unlikely for the following reasons:
1. At SPX = 100, the entire market cap will be about one trillion dollars, don't you think the Fed will just simply print up one trillion dollars and buy the whole damn thing.
2. The foreign sovereign funds such as China, Japan or Saudi will probably have enough money to buy the whole thing, too.
3. Most likely the majority of S&P 500 companies will use their cash to buy stocks to take themselves private.
Instead, I think the most likely scenario is if and when we get a depression, SPX will get cut in half to roughly 400 and that should be the bottom.
"I have a feeling before this bear is over it will change our world and I suspect that by the time the bottom is reached the average investor will never want to see another stock as long as they live."
c'mon gary, stop sugar coating things and tell us what you really think :)
unfortunately i have to agree with that. add the geopolitical tensions (mumbai attacks, neverending conflicts surrounding israel) and we've got the ingredients for the perfect storm. will be one for the books, for sure.
Gary,
While most would consider this counter-intuitive, I would agree with your assessment on the dollar...most think because our govt is printing money(8T in bailouts so far) that the dollar will collapse and we will have severe inflation this yr(hence oil, gold, commodities will rise sharply) but I dont think so...gold is hitting the upper TL, the dollar has decreased 0.62 and touched the 200DMA and has bounced back and the euro has clearly traced out 5 waves down and now the ABC counter-trend rally appears over.
Europe will/should blow up within the next few months..the euro and pound will tank soon and the dollar will be the beneficiary...this will put more pressure on the commodities and gold , as well as the equity mkts here in the US...retail is extremely bulled up right now whereas the commercials are bearish according to the ISEE and COT data...to me, everything points to a selloff soon...at 920 or 950 on SP nobody knows for sure but there is alot of risk out there.
You and I must think similarly because we like the same stocks...I like DZZ, SRS, UUP right now...SMN, DTO, SKF look appealing too...I will start accumulating when SP sees 920 and above.
Dennis,
No I don't think the S&P is going to 100. I just think this bear will correct a significant portion of the bull market from 80 to 2000. If I had to guess maybe 400-500 will be the ultimate bottom.
gary
all the charts you posted pointing to way oversold situation, i mentioned here last week dow is forming upside down head and shoulder on daily, credit is flowing slowly, even sentiment is bullish and call buying is high (which many bloggers dont like, and make them think we going lower)with all this in mind i think we going up fast $spx to 1200. by the way i got burn on buying uso at $56 bac $22.50, and c $12.00 back in oct.
TBT looks good here
Maybe exiting longs and taking an SRS position were premature. The market seems to want to steamroll right over any overbought levels.
If I got stopped out every time I didn't time a trade perfectly I'd be broke by now :)
I think the market will eventually have to test the bottom. The trade should be profitable at that point.
Gary,
I think you bailed out too soon (obviously). Your theory is still holding for an explosive rally for the next few weeks at least.
One confirmation of your theory is that Bloomberg was all doom and gloom until recently and today I read nothing but how the market has bottomed and 09 will be a great year for stocks (even that the housing market will bottom in 09).
Hopefully this euphoria will continue and we can all go short when the time comes.
Cheers,
Marc
It's possible Gary did indeed bail out on his own theory too early (which incidentally coincided with my belief that we'd see a Wave IV up to $SPX 1000+).
At a minimum, however, I'm expecting a significant pullback next week. The market is very overbought at least short-term and I'm looking for a move under $SPX 900 at a minimum before considering an entry to the long side.
I will abandon my bullishness if we somehow manage to get above $SPX 1000 without first coming under $SPX 900, however.
Well the stops were hit but then maybe I should have put the stops a little lower.
Anyway I suspect Aly is right and I doubt the market will be able to hold above 920 for very long at least not in the short term.
Gary,
Is there some rationale to suggest the $SPX and $USD will now trend higher in tandem.
In other words, has something fundamentally changed that has reversed their inverse relationship or is it likely one will continue upwards and the other will fall??
Thanks,
Mr. T.
Nothing that I can think of. We are just working our way through the most positive seasonality of the year and into what I suspect will be the final push into the daily cycle top. I'm not sure whether the next cycle will continue higher before rolling over into a test of the bottom or not but I do think we will get that test either as this daily cycle rolls over or at the weekly bottom later this spring.
And may I presume the 'test of the bottom' you are referring to would be the $740 November low?
Yep.
I can just as easily see the market cruising higher to SPX 1000+ over the next couple of weeks. The commentary on the news was so freaking bullish that I fear it will become a self-fulfilling prophecy...until the top comes and then watch out below.
I'm going to play the long side (with careful stops) until we really do roll over. I think that the move we've had is seasonal but still hasn't had time to get overdone.
IMHO, I predict we peak just before Jan. expiration.
Cheers,
Marc
Gary - the last 2 days, treasuries have moved 12-15%, yet TBT has moved not even 9% off its low of 35.50, instead of doubling the move in treasuries = 24-30% or 9-11 points.
TBT should be in the mid 40's, not 39.
What am I missing here or have we been #$%^ed by another wall st Maddoff ponzi scheme?
Price on the 30 year bond has fallen 3.5% in the last two days while TBT has risen 6.9%. Not perfect but pretty close. I'm not sure where the discrepancy is?
http://www.marketwatch.com/quotes/tyx
this says the 30 year moved 4.61% yesterday ... is this not the same thing?
I'm just quoting the price on stockcharts. It's possible they have the wrong quote.
Adding to what Gary said: The TBT, actually, is designed to mimmic double the inverse performance of a Lehman index. So perhaps a better comparison might be with that of TLT which is a regular rather than ultra etf on the long side. Keep in mind that these are traded instruments; and the theoretical performance isn't always going to be achieved at all times.
Gary - on stockcharts $TNX moved 7.66% yesterday
so TBT should have moved 15% yesterday ... something is screwy or I am missing something
Bruce,
You are looking at yield instead of price.
Sorry for the stupid questions Gary. How about TLT? Does that correspond to price?
yes
Gary,
What do you suppose will cause the bear market in the dollar to end? How can the dollar strengthen given the fiscal policies of the Fed and our government?
Thanks!
It certainly looks like the dollar bear has already ended. Deflation is what is causing the dollar to rise in my opinion. Once debt destruction has run its course then we should see inflation come back.
You may have mentioned this before, but what is your rough estimate for how long it might take for debt destruction to run it's course?
I don't really know how long this will take but I would think we have at least another year.
The current 4 year cycle shouldn't bottom until probably late 2010. Of course that doesn't mean that we won't see inflation starting to pick up before then. I expect we will. Actually I expect gold will make a long term bottom sometime next year and will then start the climb to that Dow:Gold ratio of 1:1.
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