stock averages have retested their 2002 lows, oil hits the 40 dollar mark and
the dollar weakens. Does this now mean that it's over? Has the bear market
run its course? Is a new bull market on the horizon? Will oil go back to 140?
Will the new administration fix everything? Will 2009 bring in more of the
I want to
begin addressing these questions by stating that the primary bearish trend
change that occurred in accordance with Dow theory on November 21, 2007 still
remains very much intact. Now, this is not to say that there won't be rallies
because there will be. In fact, I want to remind everyone about the rally out
of the January lows into the May highs. I distinctly remember hearing the
talking heads telling everyone then that the bottom was in. In fact, I even
saw articles written around this time proclaiming that the Dow theory was
actually bullish. But, sure enough there was another shoe to drop as the
orthodox principles of Dow theory remained clearly bearish. Then, as the
averages moved up out of their July lows I again remember hearing all the
reasons that the bottom had finally been made. But, that then lead to the
brutal decline into the October bottom and it was at this point that the $700
billion bailout took place to "fix" the worst financial crisis
since the 1930's. However, there was still a November surprise in store for
the unsuspecting masses as the decline into the November cyclical lows
unfolded pretty much right on target. This now leaves us at the fourth
"bottom" since January and I'm again hearing all the reasons that
THE bottom is now in.
won't argue the fact that we have A bottom in place. In fact, my cycles work
allowed me to anticipate the timing of this bottom ahead of time, and anyone
receiving my analysis was well aware of what was occurring and why. However,
just as none the previous "bottoms" since January were THE bottom,
I see no evidence at this time to say that the November bottom has marked THE
bottom or that the bear market is now over. Rather, the now one-year old
primary bearish trend that was first established on November 21, 2007 still
remains intact and as a result, the Dow theory is still forecasting stormy
economic conditions. Here's why. According to Dow theory, once the primary
trend is established it is considered to still be in force until something
happens to invalidate that trend. To date, nothing of the kind has occurred
and I believe, based upon the data at hand today, that there will be
continued liquidation in the future as the deflationary forces of K-wave
winter continue to bear down.
chart below I have included the Industrials and the Transports. As measured
from the November 21, 2007 confirmation of the primary bearish trend the
Industrials fell by an additional 41% into their recent November 20, 2008 low
at 7,552.29. From the divergent October 2007 top, which is where the Dow
theory first began to warn of trouble, the Industrials fell by some 46.6%. As
for the Transports, they too fell by some 46% from their unconfirmed June
2008 top into their recent November low at 2,945.53. The key now is how long
this rally lasts and whether or not anything occurs to invalidate the primary
bearish trend. This obviously is an ongoing concern that will have to be evaluated
as we move forward, but again, my expectation is that this advance will turn
out to be a counter-trend move. The key in monitoring this rally will be the
behavior of the intermediate-term Cycle Turn Indicator. As for the new
administration being able to "fix" the market, .....please. Don't
fall for the propaganda and don't think that one party has more ability to
control the market than another. This just is not the case and I want to
remind everyone that it is the policy maker's constant interference with the
natural forces of the market that has made matters this bad in the first
place. What I mean is, had the market been allowed to take its natural course
in the wake of the 2000 top, then based upon the normal bull and bear market
relationships of the past, we would now be coming out of this mess. Please
refer to my last posting here for these details. Anyway, I don't think the
bear market is over or that a new bull market has begun and I can virtually
assure you that the new administration cannot "fix" the mess we are
in. 2009 will not be a return of the glory days and oil is not going back to
140 a barrel at this time. This is a massive/global bear market that has been
brought on by credit and excesses of the past. The bottom line is, we are now
dealing with K-wave winter and I want to again remind you of the signs that
occur in this season.
Stock Markets Enter Extended Bear Markets"
performance of the Chinese, US, and other stock averages around the world
there should be little doubt about this one.
During Winter: Stocks Down, Bonds Up, Commodities Down"
say that this is occurring.
Rates Spike In Early Winter Then Decline Throughout"
2004 the Discount rate was at 2.00%. By June 2006 it was at 6.25% and since
August 2007 the Fed has been forced to cut the Discount rate back to 2.25%. So,
this too, seems to fit.
Growth Slow or Negative During Much of Winter"
that many will argue that growth is now slow and in many cases negative.
and Residential Real Estate Prices Fall"
obviously began back in 2006 and is still in a major slump.
Accelerate and High Debt Eliminated by Bankruptcy"
obviously begun and is no doubt related to the housing and credit bubbles.
Upheaval and Society Becomes Negative"
only just beginning to see this.
System Shaken and New One Introduced"
banking system is now only beginning to be shaken. There should be much more
Market System Blamed and Socialist Solutions Offered"
not yet happened, but just wait.
Fascist Political Tendencies"
Level Very Low After Defaults and Bankruptcy"
basically has not happened.
of the Future at a Low Ebb"
not happened as everyone seems to be looking for the bottom.
Work Ethics Develop Since Jobs are Scarce"
If I can
assure you of one thing it is that this has not happened.
is Purged from the System"
absolutely assure you that this has not happened yet.
Estate Prices Find Bottom"
is a Clean Economic Slate to Build On"
are Very Conservative and Risk Averse"
this has absolutely not occurred.
Rates and Prices Bottom"
New Economy Begins to Emerge"
Markets Reach Bottom and Begin New Bull Markets"
aren't there yet and I view any relief rallies from these oversold levels
merely as intermission.
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