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Examination of the Large Technical Landscape / Possible Paths

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March 06, 2010 – Comments (20)

Okay, we are at point in the rally where Technical and Fundamental Analysts need to do some soul searching. Obviously nobody can see the future. Even those that called this rally up to date correctly could not see the future. All you have is risk/reward and probable outcomes. And those that have been bullish have been handsomely rewarded.

But is this a new secular bull market? Is it a bear market rally?

So let's discuss the options. Obviously these are my opinion. No way around that. In fact any analysis is an opinion: Regarding Economic Debates and Opinions: The Fallacy of "Purely Objective" Analysis. Bulls can tell the bears that they have not been objective during this rally, or vice versa, but that is quite plainly untrue. We all have to call things like we see them. And some people will see things correctly and some won't. Just part of the game. Pure "objectivity" has nothing to do with it.

The options are:

1) We are in the midst of a secular bull market
2) We are at the top of a counter-trend bear market rally and will begin crashing soon
3) We are still in the middle of a rally - cyclical bull market in an overall larger bear market

** Option 1 - We are in the midst of a secular bull market

I have to be honest, I find no evidence of this. Besides a lot of bullish rhetoric, the positive economic developments either result from government stimulus or from an inventory rebuild cycle. Neither one is sustainable or fundamentally healthy, or even begets fundamentally healthy behavior. All the great bull markets throughout history have started from the savings of the the citizens of a country making large capital investments. Practically the exact opposite is happening today.

20 Comments – Post Your Own

#1) On March 06, 2010 at 3:51 PM, binve (< 20) wrote:

First, here is my argument fundamentally for why the economy is not in a recovery and why we are not in a secular bull market - The Long View

Second, here is my technical argument for why this is not a new bull market



The move off the bottom is not an impulse wave. Just because the market goes up, and goes up a lot, does not mean the move is impulsive. Corrective rallies can be steep and bring tremendous returns.

The next great bull market will begin with an impulse wave. But to be an impulse, the internal wave structure has to conform to one. And this one does not.

** Option 2 - We are at the top of a counter-trend bear market rally and will begin crashing soon

This is my preferred count and the one that I lay out here: The Long View. It is fair to say that I am very bearish on the economy.

I will not discuss it in-depth here, because I have done so comprehensively many other times. Here is my current count:





** Option 3 - We are still in the middle of a rally - cyclical bull market in an overall larger bear market

However, what if we don't crash soon? What if we wind higher? Wouldn't we be in a secular bull market then?

Not necessarily. We could easily be in a Cycle Degree X wave. It is an option that I have discussed briefly in the past. Here is what it might look like:



Here is how the "fast" Cycle Degree X Wave might pan out:


 
I do have a basis for this wave count. If you want to see a stock market that has been in a painful correction for decades, witness Japan's NIKKEI:





Notice that there are times of sideways activity and even rallies that last for a couple of years. But the long term direction is clearly down.

Japan had a huge bull market run, and after the peak has been correcting for the past 20 years. Mired in government debt, high real estate prices (artificially propped), and an aging population increasingly going into retirement in a higher proportion.

So for the bulls who think this is an honest to goodness new secular bull market: after a 67 year rally we are done in 9 years? And despite the myriad of problems we face (similar and in many ways worse than Japan) The Fed and the Treasury wave their magic wands and we are ready to start the next major bull run? Just a question.

I am not saying we have to crash next. I am showing a possible continuation of the rally in the charts above. It is important to realize that it is a bear market correction (which are volatile and subject to abrupt endings) and not a bull market.

As always, just my $0.02.

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#2) On March 06, 2010 at 5:40 PM, checklist34 (99.71) wrote:

4.  the market is sputtering sideways now for quite some time and will continue to sputter sideways for quite some time (~1100 is a mark we've sputtered about since what?  October? 

that, btw, is the historically probable outcome.  In the 30's, and the 70's, and the 2003ish crash the market moved up dramatically and swiftly and then stalled and sputtered sideways for a good long while.

5.  the counter-trend bear market rally is peaking or has peaked and now we AREN'T GOING TO CRASH.

For petes sake, if a rally is over its not cast in stone that things HAVE TO CRASH.  markets can calm down, sputter sideways, trade in a range.  Its not rally or crash.

 

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#3) On March 06, 2010 at 5:44 PM, checklist34 (99.71) wrote:

6.  aliens come with a new form of fermented beverage that, once drank, forever changes the perception of the drinker so that everything looks like swirly halo kaliedescope stuff, causing alot of car accidents and confusion and the collapse of the entire fashion industry as its known today. 

Stocks go up forever because the sight of red is painful to these mutants, but green is soothing.  

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#4) On March 06, 2010 at 6:17 PM, Harold71 (22.09) wrote:

+1

Many stocks are now entering an absolute fantasy land IMHO.  But, with free "money" flying around, not much makes sense anymore.

 

Its not rally or crash.

Actually, that is exactly what it has been, for some time.  Check out binve's SPX chart since 1995.  Very little of that time is steady money.

Rally, crash, rally, crash, rally...????

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#5) On March 06, 2010 at 6:34 PM, binve (< 20) wrote:

checklist34,

For petes sake, if a rally is over its not cast in stone that things HAVE TO CRASH.  markets can calm down, sputter sideways, trade in a range.  Its not rally or crash.

That is *exactly* what I show above in this chart: http://4.bp.blogspot.com/_OpWmYZm7O8I/S5K7WxbsqPI/AAAAAAAACOA/OSQAQqZma10/s1600-h/0binve-001-201.png .

This is now the SECOND time you have come onto my blog and proceeded to mouth off about things. Implying that I only show things one way because you did not bother to read my full post, where I do show a wider range of options.

Harold71 , Thanks Harold!.

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#6) On March 06, 2010 at 6:37 PM, binve (< 20) wrote:

checklist34,

The green count in the chart (the "slow" cycle degree X) has a sideways wave (x of X) that generally trends down. Sideways = trading range..

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#7) On March 06, 2010 at 11:46 PM, awallejr (79.62) wrote:

I've been pretty clear where my position lies.  I am a permabull that accepts bear markets as mere corrections (at varying degrees).  You have been arguing another crash since May of last year yet the market has continued to rise with 2 "major" corrections so far (July of last year and now Jan-Feb of this year).

Economic news keeps coming out more positvive.  ISM manufacuturing index keeps improving,  Even unemployment data (Alstry to the contrary nothwithstanding) is improving.  Some pundits were predicting a potential 200k drop in jobs this last reading (using the snowstorms as a reason) yet it was only 36k, leading to the conclusion that we might have seen a positive growth if you accepted the snowstorm thesis of making numbers worse than they would have been.

You have made many posts where you generate future extrapolations on charts and in the end they have pretty much been proven wrong.  Your 6th chart above, however, is one I suspect will play out and that is a continuation of a bull run over the next few months.  Time, of course, will tell but for almost a year now we have seen an upward cycle.

As for "The Long View"  I understand your argument I just think it is comparing apples to oranges.  Mankind in the end is biological not mathematical. What happened in 1929, for example, is irrelevent to today. The world is vastly different.  While it is true that we should learn from past mistakes, it does not follow that mathematical wave patterns must continue on a set path irrespective of current circumstances.  That's just using "blinders."  In the end, the times are always "a'changing."

+1 rec for an interesting blog tho ;p

 

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#8) On March 07, 2010 at 12:52 AM, Option1307 (30.03) wrote:

Whether you are ultimately proven "right" or "wrong" is irrelevant to me Bvine. I truly appreciate your ideas and willnigness to share them. They are usually thought provoking at the very least.

Keep up the good work!

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#9) On March 07, 2010 at 3:00 AM, ralphmachio (27.56) wrote:

Awallejr- biology, at it's most basic level and most complex, is mathematical. The term Fibonacci comes from a monk who saw mathematical patterns in nature. From there, we get the golden mean, PHI or 1:1.618, which is the golden relationship of all life on this planet, and molecular structure. It can be found all over the human body, which is why Davinci was so interested in the golden mean. It helps to have knowledge of the average mathematical relationships of the proportions of the skeleton if you are painting portraits. 

Virus also contain the golden ratio because they take the form of Platonic solids, as do the basic elements that make up all molecules. 

The very fact that people in ancient Greece were studying arithmetic more closely related to atomic structure than do the students of todays high schools and most universities should make one think...

thanks binve. Appreciate the work.  

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#10) On March 07, 2010 at 9:42 AM, binv271828 (< 20) wrote:

awallejr,

You have made many posts where you generate future extrapolations on charts and in the end they have pretty much been proven wrong.

I have never stated or implied otherwise. I have made some horrendously bad calls trying to find turning points that have not been. I admit that and have proactively owned up to my bad calls. Thank you again for pointing out what I have already admitted

+1 rec ... thanks

Option1307,

Thanks man! Exactly, that is my point for these excercises. I have an opinion. I am not claiming I to be right, but I at least have a basis for my opinion. And I proceed with analysis based on that basis. And hopefully the sharing of that process is useful. If it is not, then I suppose I would never get any recs or comments and that would be my answer.

Thanks!

ralphmachio,

Hey man, thanks. I wouldn't bother discussing this will awallejr. We have had practically the same coversation, over and over, for about 9 months now. I have let it go.

But I agree with you completely, biology and mathematics are inextricably linked. I love looking at the universe and finding more connections everytime I look, not less. And phi is one of the most beautfiul natural and mathematical relationships in existence.

Thanks man!!..

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#11) On March 07, 2010 at 9:46 AM, binve (< 20) wrote:

sorry, wrong account :)

ralphmachio ,

speaking of vital mathematical relationships that describe physical and biological phenomena, did you ever read my post on 'e'?: http://marketthoughtsandanalysis.blogspot.com/2009/09/why-e-is-coolest-number.html. I think you would enjoy it. Thanks!.

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#12) On March 07, 2010 at 12:32 PM, ralphmachio (27.56) wrote:

Just got through the first two lessons of Elliot Theory. I know, I should have started long ago... I was inspired by this post. Very cool so far, and wouldn't you know- Largest Waves- 1+1=2

Largest subdivisions- 5+3=8

Next Sub-21+13=34

next sub-89+55=144!  

Lemme guess, next sub is-377+233=600?!

I love learning this type of math! Gonna finish Elliot Class asap.

144 just keeps coming up. It is an amazing #, and seems to connect a lot of zany stuff. For fun, (or an obsession, like myself), you guys should check out "The secret of the universe, Ed leedskalnin and coral castle" on youtube. The math involving prime#'s and prime quadruplets is fascinating, and just trying to understand it gives me the feeling of scratching the surface of something amazing. It seems to have a connection to solfeggio frequencies, which are supposedly encoded in the Bible, but strangely, I found a connection to the numbers in-between prime quadruplets, and solfeggio frequencies. Could be just a coincidence, I suppose.

Waves seem to be the explanation for everything. Thoughts, emotions, colors, sounds, heartbeats, brainwaves, Radio, AM, FM, etc. It seems that knowledge of how to manipulate waves would constitute knowledge of manipulation of energy, and therefore matter.

Question: If outside influences add impulses at just the right time (through dumping fresh printed currency into the market), could a wave pattern be dampened, or even negated? I wonder if an understanding of resonance is what is really needed, and if a wave physicist would have the best luck understanding, and or manipulating the market...or exacerbate the issue. Can you convince people to be confident because 'someone seems to be'. That would be true alchemy. It would require global synchronicity. It could almost be reason enough to globalise, in order to address the major problems set into motion by actions long ago, that are set to erupt at about the same time.

Sorry for the rant.

I'll check that 'e' post out. 

 

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#13) On March 07, 2010 at 12:34 PM, uclayoda87 (29.32) wrote:

  binve

When talking about the market I take it that you mean the S&P 500 and not all markets or commodities, otherwise you would be all in cash.  Without any charts or objective data to support my argument, I suspect that the market will be driven upward by all means necessary by the US government during this election year and the market will be driven downward by the fundamentals of massive debt and unemployment.  The ultimate winner is this clash of titans is uncertain, but the ultimate loser is certain, it is us or US.  Another recent blog referenced a George Soros interview where he gave a good argument for the United States' eventual decline, which I thought was somewhat ironic, since I think that his political contributions helped put the people in power that would facilitate his predictions.  A recent WSJ article that I glanced at also addressed the issue of fundamental versus political influences on the market, which I guess I always knew but could never really quantify.

The summary of this stream of consciousness is that the US market will eventually crash in a spectacular way once the rocket fuel of massive government spending can no longer be continued because of a lack of buyers of US government debt, then the gravity of stagflation and the loss of the US dollar as the world reserve currency will result in a melodramatic US Greek tragedy, pun intended.

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#14) On March 07, 2010 at 12:44 PM, awallejr (79.62) wrote:

Had a feeling someone would throw Fibonacci at me.

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#15) On March 07, 2010 at 1:33 PM, binve (< 20) wrote:

ralphmachio,

Right on man! I too have a deep love of numbers and physical phenomena. I suppose that is a good thing if one is an engineer. :) But I love being an engineer not just as a job, but because the more analysis I do the more I see these beautiful relationships pop up in not only natural system but man-made ones as well.

Waves seem to be the explanation for everything. Thoughts, emotions, colors, sounds, heartbeats, brainwaves, Radio, AM, FM, etc. It seems that knowledge of how to manipulate waves would constitute knowledge of manipulation of energy, and therefore matter.

You are on to something near and dear to my heart!

Waves are the key to everything! Are you familiar with Fourier Series? The basic idea is that any signal can be thought of and in fact described as the combination of signals and from an infinite number of frequenies. A triangle wave can be described as a infinite combination of sine waves each at a different frequency. The *amount* of each sine wave that needs to be added to describe the triangle wave is called the "spectrum". What this does is allows you to describe a transient signal (something in the time domain) completely by its spectrum (something in the frequency domain).

This technique has all kinds of useful applications: signal processing and noise removal, finding mode shapes and responses in a structure from a random vibration input, etc.

But here is an idea I have been noodling around with for awhile.

The stock market movement is comprised of waves. It is the basis behind Elliott Wave analysis. You have small waves (subminuette) all the way up to large waves (cycle degree and beyond) all acting at the same time. Many degrees of trend acting simultaneously. What if you could apply the same principle? What if you take a time sample of the stock market movement (wave structure) and apply a Fourier transform to get its frequency content? I wonder if bear market corrections or bull markets or turing points in those markets display a similar spectrum?

Just another one of binv's crazy ideas :)

Question: If outside influences add impulses at just the right time (through dumping fresh printed currency into the market), could a wave pattern be dampened, or even negated? I wonder if an understanding of resonance is what is really needed, and if a wave physicist would have the best luck understanding, and or manipulating the market...or exacerbate the issue. Can you convince people to be confident because 'someone seems to be'. That would be true alchemy. It would require global synchronicity. It could almost be reason enough to globalise, in order to address the major problems set into motion by actions long ago, that are set to erupt at about the same time.

LOL! I have thought *exactly* along the same lines in the past! Great minds!! Here are two posts that I think you would be very interested in: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=344745. and http://caps.fool.com/Blogs/ViewPost.aspx?bpid=298547. There are a few links within those posts too that you would be interested in.

Sorry for the rant.

Not at all!! This has been a great conversation!!

Thanks man!

uclayoda87,

Hey uclayoda! Yes, in this case I am referring to just the equity markets in this post.

Without any charts or objective data to support my argument, I suspect that the market will be driven upward by all means necessary by the US government during this election year and the market will be driven downward by the fundamentals of massive debt and unemployment.  The ultimate winner is this clash of titans is uncertain, but the ultimate loser is certain, it is us or US.

Exactly, there are a lot of forces at work. But I have seen a lot of analysis that tries to assume that all these markets will move tougether in the future. Just because they did in 2008 and 2009 does not mean they will in the future. Positive correlation beween gold, oil and equities is not common historically. But everybody is assuming it is the new status quo. And I think people who rely on overly-simplistic analysis and recent correlations without looking further back are going to be rudely surprised this year and next.

The summary of this stream of consciousness is that the US market will eventually crash in a spectacular way once the rocket fuel of massive government spending can no longer be continued because of a lack of buyers of US government debt, then the gravity of stagflation and the loss of the US dollar as the world reserve currency will result in a melodramatic US Greek tragedy, pun intended.

I think this is the perfect synopsis. Thanks man!!..

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#16) On March 07, 2010 at 3:05 PM, ralphmachio (27.56) wrote:

Binve, I really think you would be interested in Ed Leedskalnin, and Coral Castle. I was on my way to becoming an engineer, and got a bit side tracked, and now I am an artist and musician with interests in math, science, and non-mainstream variations of these interests. School bored me because I can only learn something if I see how it relates to the whole. Geometry I loved, trig annoyed me until we started graphing it. Once I see the necessity for a type of knowledge it becomes relevent to me. School is too specialized and not paced right to keep my interest, which I only regret because I would like access to a machine shop every now and then, and it is going to take some money to put that together (again).  (I think machines (mills, etc.)will drop in price, any ideas?)Never the less, I always like to keep trying to learn, and try to be ready to see things from a different perspective. (just a little about me)

The Fourier series sounds related to three phase AC diagrams I was looking at, sounds interesting, and like something I should know about. I'm a wanna be engineer, and want to get to work on some ideas involving vertical wind turbines, and solar thermal.

Thanks Again.

One last thing, PHI oriented. The dimensions for the 'kings chamber' inside the Great Pyramid in Giza incorporate PHI, and it is theorized that sound was used in there as well.  Interestingly, both coral castle, in Florida, and Giza are at 30 deg. lat. 

Agree America will hurt the worst because we are used to 25% of the worlds resources and have the most adjustment after redistribution to the players who are up and comers like we were. We are the most spoiled, so we will require the harshest adjustment when things equalize globally.  

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#17) On March 07, 2010 at 6:49 PM, binve (< 20) wrote:

ralphmachio,

I really think you would be interested in Ed Leedskalnin, and Coral Castle.

I will definitely check him out!

I was on my way to becoming an engineer, and got a bit side tracked, and now I am an artist and musician with interests in math, science, and non-mainstream variations of these interests.

Nice!! I had aspirations of being a musician, but I have no talent :(

(I think machines (mills, etc.)will drop in price, any ideas?)Never the less, I always like to keep trying to learn, and try to be ready to see things from a different perspective. (just a little about me)

Man I love the shop. Getting your hands dirty, cutting metal, taking some raw stock and producing a finished part. If you have read my posts you know I work in the Aerospace industry. And there are actually a few parts up in orbit on a satellite right now that were machined by me :)

Yeah, I beat you can find some old Bridgeports for a very good deal (don't go to a retailer, but on old salvage yard or maybe an inventory sale from a shop that is upgrading). The nice thing is they are solid machines and then you can always to a CNC upgrade later if you want to get fancy :)

want to get to work on some ideas involving vertical wind turbines, and solar thermal.

Dude, you are speaking my language! The first posts I wrote on caps were about these very topics: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=57086. and http://caps.fool.com/Blogs/ViewPost.aspx?bpid=56378.

Thanks again for a great conversation from a kindred spirit!!.

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#18) On March 08, 2010 at 12:48 AM, checklist34 (99.71) wrote:

I don't think you need to view it as caustic "mouthing off", I just observe that bearish-slanting people tend to assume that if stocks stop going up that they must then crash.  Its not so, the rally off the bottom in the DOW in the early 30's peaked at ~100 and then staggered sideways for 2 full years.

Ditto the S&P just 5-6 years ago.  Big move off the lows and then a long period of generally stuttering sideways.

Ditto the 70s, depending on how one views the charts, one could say that the big surge off the 1974 bottom was followed by many years of basically sideways slogging action.  The NASDAQ didn't really slog, the dow and the S&P had some meaningful mobility from the peak just post-recovery, but they did ultimately slog sideways for a very long time.

And FWIW, I don't think any non-super-bear has even really approached the level of "mouthing off" or condescension that seems typical of the bearish crowd.  Indeed, being "right" seems to be the basic goal of bears, bulls seem more focused on how they can make money.  Just an observation & good luck Report this comment
#19) On March 08, 2010 at 1:01 AM, binve (< 20) wrote:

checklist34 ,

I just observe that bearish-slanting people tend to assume that if stocks stop going up that they must then crash.

That was *precisely* the point of my comment to you above in #5 and #6. You assumed that I didn't show a sideways option (because you didn't actually read my post) when in fact I did. You made an assumption and proceeded to be not-very-subtly condescending in your original comments (#2 and #3).

If you can't be bothered to read my posts in their entirety, then you are not welcome to comment on them..

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#20) On March 08, 2010 at 1:37 AM, ralphmachio (27.56) wrote:

The highest props for machining parts that orbit this planet! I will check those posts. How cool it must be to know your parts are in SPACE! (I tried sending a mouse into space when I was in high school, but that is a whole different ballpark)(yes the mouse lived!)

Very cool to meet someone with similar interests, and someone I can run some ideas past that has the expertise to be able to identify psuedo-science, yet an interest in ideas that are cutting edge. (a very fuzzy line) Funny, I've been reading your posts for as long as I've been reading the MF, and like your work a lot for helping me to understand investing, which I am new at.(Started about midway through the first leg down) 

I'd love a bridgeport with a nice indexing table. That is pretty much what I'm looking for, but I don't want to have to move it once I put it in it's new home. I'm waiting for the real estate correction everyone is talking about before I stop renting.

Nice talking with you. 

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