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Thursday, June 2, 2011

AT A CRITICAL JUNCTURE

Yesterday's massacre was a serious shot over the bow for the stock market. The market is now in extreme jeopardy of having formed a left translated intermediate cycle. Whenever that happens late in a bull market it almost always signals the beginning of a new bear.

There's no way the market should have sold off like that yesterday if this market was still healthy. I'll explain in a minute.

Fundamentally I think it's starting to become painfully obvious that QE2 didn't work (just like I said it wouldn't). I said over a year ago during QE1 that this wouldn't create jobs or fix any of our problems. It would just make the problems bigger. Ultimately all QE1 & 2 was good for was to allow the bankers to rake in another year of large bonuses and to spike inflation (mostly commodity inflation). I've said all along that commodity inflation would eventually poison the fragile global economy.

I think it's becoming more and more obvious that the global economy is now headed back down. Surprisingly, or maybe not surprisingly an economy with over 10% unemployment couldn't withstand $112 oil, $4.00 gasoline, and surging food costs.

Now the markets are at a critical juncture. The current daily cycle is in jeopardy of topping in only three days. If the S&P breaks below 1311 we will have confirmation that the current daily cycle has topped in an extreme left translated manner. Left translated cycles tend to do serious damage because they have a long time to decline. In this case another 35 to 40 trading days. Left translated cycles are the hallmark of bear markets.




A left translated daily cycle is a problem in and of itself but if the current daily cycle becomes left translated it will also force the next larger degree intermediate cycle into a left translated pattern. Left translated intermediate cycles, this late in a cyclical bull, only happen if a bear market has begun.

I've marked the the last two intermediate cycle lows with the blue arrows in the chart below. You can see that the current intermediate cycle has now potentially topped in 7 weeks. Any cycle that tops in less than 11 weeks would be classified as a left translated cycle.




Generally speaking most left translated cycles move below the prior cycle low. That is also a big problem as a move below the March intermediate bottom would almost certainly trigger a Dow Theory sell signal. A move below the March intermediate cycle low would confirm that the next leg down in the secular bear has begun.



It's now critical that 1311 not get violated if this bull is to continue. If it does it will trigger not only a left translated daily cycle, but also a higher degree left translated intermediate cycle, and this will almost certainly lead to a violation of the March low and a Dow Theory sell signal. At that point the next leg of the secular bear market will have begun.

On May 15th I posted that we were seeing warning signs and that individuals should exit stock funds in their 401K's if they hadn't done so already. Now we are at a critical juncture. If 1311 gets violated we can kiss the cyclical bull goodbye.

37 comments:

  1. I don't know why people do that thing with the '.' but I felt opportunity at hand.

    Gary, I'd like to be aggressive with the intermediate decline in the stock market but even yesterday there was chatter about QE3. Whether that's just some shill analyst starting rumors or credible talk about the Fed's intentions, I don't trust Ben to keep his hands out of the market. You've said that a QE3 is not politically tenable at this time - could you explain why it's not? Amid yesterday's panicked, hushed whispers all I heard was more of the Crameresque "they have to do SOMETHING" talk that's gotten us here in the first place.

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  2. Without a full blown crisis how can the Fed possibly justify another round of QE? Oil is already over $100. Commodity inflation has destroyed the economy. QE clearly has not worked.

    What are they going to willingly destroy the economy even more?

    I think we have to see a significant sell off in the stock market and have people screaming for something to be done before the Fed can even remotely begin thinking about another round of damaging money printing.

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  3. G-
    Looks like the last spx intermediaye cycle was 37 weeks long, that is on the longer side, correct? What implicatoions does that have for this intermediate cycle?

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  4. The last intermediate cycle was 17 weeks.

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  5. BEARX and DRCVX will both reverse their downtrends when the next bear market in US stocks arrives. They both look like they may be trying to bottom.

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  6. July-March low-to-low is a 37 week count.

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  7. The last intermediate cycle low occurred in Nov.

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  8. oops sorry. 20 weeks not 17.

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  9. 20 weeks to the Nov bottom and then 17 weeks to the March bottom.

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  10. Understood, Thanks. I was just going off your SPX intermediate cycle low arrows. I'm guessing you are just missing one at the Nov bottom.

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  11. I did miss one. It's correct in the cycle count section of the website though.

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  12. Gary,
    Are you gone now? For your trip? Hey, thanks for that report last night;Well Done.

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  13. Tim Knight is gonna love that Gary is now on his team.

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  14. I can't tell if the dollar is down from yesterday or if it's just flat

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  15. Well we were green for a few minutes there at the opening...

    What scares me here is how much the dollar is down this morning, what's going to happen to stocks/commodities if the dollar heads up?

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  16. We officially have a failed cycle.

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  17. Are we going with a new portfolio add now?

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  18. beep beeep beep FAILED CYCLE beep beep beep

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  19. So when does the market take notice gary?

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  20. Gary,
    I thought the S&P had to close below the stop to count.

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  21. This comment has been removed by the author.

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  22. Gary, in terms of a failed cycle, are you referring to breaking the low of the 25th? If so, I assume then you are using the US market low and not the futures low of 1303, which actually occured the previous night at 1 AM GMT (8 EST I think).

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  23. ooooooops....silver just fell off the cliff

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  24. silver will cut through 50 like a hot knife through butter

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  25. Ah if only the dollar's three year cycle had made new lows silver would have easily penetrated $50. Not that we would have been holding it as we would have sold on that Monday.

    The dollar coming up short of expectations kind of threw a bit of a monkey wrench in everything.

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  26. Hi Gary. You said: "If the S&P breaks below 1311 we will have confirmation that the current daily cycle has topped". Just curious where the 1311 comes from. Are you looking at the HL formed on April 18 on SnP cash to see if that is taken out as confirmation? Because I had a look at it and the April 18 low does not appear to have been taken out. April 18 SPX: Open and High 1313.35, Low 1294.70 and Close 1305.14. If that is not what you are looking at, can you please let me know where 1311 comes into play? Thanks for your blog, btw.

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  27. Okay i started reading your blog sometime jan-feb this year and thought it worthy to add to my list. but frankly i'm tired of your big, huge calls. this is THE TOP, THE BOTTOM, before the next HUGE move happens. historically important tops and bottoms in various markets don't happen every week, week after week, they are limited to 1-2 a year or at times 1 every 2 years. so stop making calls for that big HUGE move, they don't happen so often. you are hurting your credibility

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  28. I think your problem is that you have obviously jumped the gun and gotten burned by the bull. The model porfolio has never been short until just yesterday and that is because we've never gotten a signal to be short until yesterday.

    In all my articles I very clearly stated that non traders with 401k's should exit the market because it was too late in the bull to continue pressing the long side. That's all.

    I never said to short stocks.

    You need to read a little closer and/or control your bearish bias.

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  29. Okay. Well that't not my problem. cause I don't trade or invest in stocks. I don't live in the states. I am from India, and I trade fx & commodities for a living, purely intraday no directional bias trading.

    so I dont have a bias, I am not bearish & i definately have not lost money recently. still you should humbly consider that tops and bottoms don't happen 52 times a year, but just 1-2 times.

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  30. Again I will point out that I have never advised anyone to short in the premium newsletter until yesterday.

    All previous articles were just warnings to exit stock funds in 401k's so people don't get caught by the next bear. Which has almost certainly begun now.

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  31. you are not getting the point and playing defensive.. I am not blaming you for advising anything as I don't even subscribe to your newsletter. I am just making a point that you can improve your writing as well as your trading(not investing) if you realise and accept the fact that meaningful tops/bottoms are made just 1-2 a year and calling for one every other week weakens your other analysis.

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