Comments in this blog refer to my charts collection found at
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Sunday, March 27, 2011

Weekend reading- revisiting 5-year bulls.

 What I find interesting this weekend is that few folks who actually manage some serious money piped up on CNBC with some bullish voices. In very brief, the themes are that the stock market is undervalued, this bull market has ways to go, and we should expect it to take us significantly higher. For details these are the links: Laszlo Birinyi.
Bill Miller
Larry Fink
 Obviously, each of them has some research and tons of experience to back-up his opinion. Here, I am just going to see how these extremely bullish calls fit with my assumptions about this ongoing bull run. My current assumption is that this cyclical bull will follow the pattern of bulls from late 1960s through 1970s, where bull runs took form of ABC zigzags lasting on average 2.5 years, followed by very vicious bears. Then, something fundamental must have changed in 1982, and new pattern emerged, with each bull lasting around 5 years.

Looking further in time, at the period from 1932 to 1966, longer duration of bulls is apparent again. The very first bull that started during the Great Depression run for 5 years (seems familiar), and the subsequent bulls, averaged about 4 years (if you try to split 1949-1966 into separate bulls), with the caveat that entire 1949 to 1966 may be easily considered one bull run lasting 17 years. Keeping that background in mind, it is conceivable that this bull may actually last much longer than most people expect (with exception of few quoted above). What may be helpful in this debate, is the following chart.

DAX seems to have the most revealing and clean TA pattern, appears to be drawing an ascending triangle. That pattern would suggest 2.5 year bull for this episode and I am sticking with this prediction until proven wrong (not a triangle but flat that ended in 2009).

Saturday, March 19, 2011

Spring Roll- Seasonal Forecast

Current picture.

The March correction had come on schedule and could had run its course already with the Ides of March mini-panic. Retesting of the March 16th low is likely, but  the worse near-term scenario I am expecting now is marginal new low around 1240, where the 62% retracement of the prior same-degree upward move is, with divergences showing up on the oscillators.
 Russel 2000 came right up to the resistance zone in the area of the prior bull market top and is correcting in order to gather a momentum to punch through that resistance into new all-time highs on the next wave up.

Gold has been remarkably steady running in 5-months spurts, interrupted only briefly for mild corrections. If this regularity continues, the current run should carry till the scheduled end of QE2 in June.

Dollar has just suffered a major breakdown and should not undertake any major rally until finds its support around 70-71 where it becomes a conundrum to watch. There are plenty of dollar charts in my list so I will save some server space here.
Oil has become a loose cannon thanks to the Middle-East turmoil, but the safe bet is that it will reach $147 sometime this year.
Natural gas is interesting and appears to be at the beginning of an uptrend (again, plenty charts in my charts list).

Spring vista.

There are some obvious headwinds but markets have been behaving remarkably well. The cyclical bull market that commenced 2 years ago remains in force and appears to have still few power bars left.
The pattern of ABC wave apparent in 1970s cyclical bulls is being followed quite faithfully. If that continues, the top should not arrive until September/October of this year.
The favorable seasonality  and monetary stimulus should continue to propel this market higher until the end of May, but a serious correction  may not  begin in earnest until July, with expectations for the small caps to underperform significantly after May.

Thursday, March 17, 2011

On Nuclear Spring, frozen brains, repressed memories and flashbacks.

Let's  take it backwards.
Almost 25 years ago to the date; I was a mostly cheerful fellow, taking my prescribed courses at a University and  a busy social life of a student with a stride. A spring was in full blossom, vacations not-to-far away, and grueling exams  not-tomorrow yet, along with the usual bag of things that tend to make young person happy. The news broke out, first through unofficial channels, but soon even the state-controlled media picked it up. There were elevated radiation levels detected somewhere in Sweden, with the source most likely being in Soviet Union. Within the next few days the news became clear. There was a major disaster at a nuclear power plant some 1000 kilometers to the east from my homestead with radioactive plumes spreading over the Europe and around the globe. I left my student's flat in a Big City and arrived at home for the weekend, bringing my usual load of dirty laundry to be washed and a craving for home-made food. My Mom was working the weekend as usual and soon after greeting my Grandmother, ravaging the food and setting up the the washer, I was on my way the the hospital to show myself to her before heading to visit my old friends to commence the other weekend routine.
Here the core of the flashback comes in: my Mom, the most cheerful person I know, with a deep concern or fear in her eyes and slightly shaking hands, handing me a medicinal cup filled with potassium  iodide solution she prepared herself insisting I drink that untasty treat before disappearing into the night.
Repressed Memories.
I am not believer in many thing, I guess it comes with skeptical nature. Among the myriad of things I do not believe is repressed memories. I believe that there is always some awareness of any important events that happened in the past. While not always on the surface (for good information-management reasons), memories are always there, imprinted in the neuronal network and they are accessible for recall, with more or less details when triggered or called for. What I find interesting, is that the collective memory appear to function exactly same way. There is always some awareness in the society of what happened in the past, sometimes elevated to a category of an Urban Legend (see previous post) if the underlying event was serious or curious enough.
Frozen Brains. 
One day, a some kind of quake happens and and the flashbacks are in full force, put in front of your eyes by the media, happy having the very important news of the day and folks glued to TVs gulping on others misfortune. There is a usual parade of experts bringing their three dimes (inflation) largely misinforming the public, not out of ill will but of ignorance. I have been taking my time out of my vacations participating part-time, watching Bill O'Reilly playing down the Fukushima or Sanjay Gupta (generally a lovely fellow) talking about clothing being protective against gamma radiation. In fact, it may help with beta radiation, but for gamma is about as effective as a sunscreen, and there is whole issue of radioactive isotopes getting build-in into living organisms. Radioactive cesium and strontium being the prime example, fitting nicely in the place of calcium in the hydroxyapatite crystals of the bones.
Simply, the news coverage of the events has been pathetic so far, the only stand-out being physicist Michio Kaku who bluntly recommended starting the entombing the faulty reactors now or rather yesterday.
Chernobyl disaster comparisons, frequently deployed now, mainly to tell us that this one is not as bad, seem to be misplaced and in perfect place at the same time. Misplaced mainly because the Fukushima reactors seem to be of different design then Chernobyl's, using water rather than graphite as a moderator.  Graphite was the main source of fuel for the fire and explosion in Chernobyl and the main fallout. The correctness of the comparison is in the fact that in both cases the controlled nuclear reaction in the reactors became uncontrolled and that results in the nuclear fuel meltdown. Believe me, even 4 or 6 inches of steel is a wimpy shield for the nuclear fireplace, and likely we will see open-pit nuclear campfires soon, thanks in part to the bureaucrats' ignorance, denial and negligence. What will be the aftermath? I do not know, but when you finally hear in the media the flood of dire predictions, like about the need to evacuate Tokyo or entire island of Honshu, or the mainland China being affected to the point of economic calamity, or Alaska expecting such a fallout that a human foot would not be able to make a stand there for another 5 thousand years, you could assume that actually the new season is setting in.
Nuclear Spring.
Seasons turn into another, both in nature and in economic activity. Major natural and man-made disasters (wars as prime example) tend  to result in increased economic activity and as likely in change in people's thinking and behaviors. Just keep your eyes open through the blizzard.