Friday, November 18, 2011


The recent market action has me wondering if the next leg down in the cyclical bear market has begun.

I always expected that we would see a very convincing rally out of the October yearly cycle low. I thought it even possible that we would test the 200 day moving average. Most bear markets do rally out of the initial leg down and test the 200 day moving average.

Recently the S&P made two attempts to close and hold above the 200 day moving average. They both failed. That was a loudly ringing warning bell.

As a matter fact every index, except the utilities, is now trading below its declining 200 day moving average, and that includes all the major European and Asian markets.

At the moment my concern is that the market is now moving into the timing band for a major daily cycle low (due in the next 5 to 10 days). The current daily cycle is left translated (topped in less than 20 days). That is relevant because most of the time left translated cycles move below their prior cycle bottom. The last cycle low occurred in October at 1075. 

Now I'm not suggesting that the stock market is going to crash below 1075 in the next 5 to 7 days. However the S&P has broken below the 1220 support zone. When support was broken in July it led to a seven-day 17% crash.

I don't know if breaking of support this time will lead to another climax selling event or not. I do know that the market is now in the timing band for some serious selling. And, this is beginning to look like a counter trend rally in a bear market that is in the process of topping. If that's true then we are in the period of time when the next leg down should begin.

Confirming this is the fact that the dollar index has rallied back above its 200 day moving average and completed an intermediate cycle bottom. The dollar index is currently on only the third week of this new intermediate cycle. Those cycles tend to run about 20 weeks, so there is potentially many more weeks of upside left before the dollar moves down into another significant correction, which presumably would drive the next bear market rally in stocks.

The safest position at this time is to be in cash, and that's exactly what I did with the model portfolio yesterday morning.


  1. Your original prognostication a few weeks back was correct. The failed attempt at the 200sdma was inevitable. Which was exactly what I was anticipating.

  2. so is the dollar no longer teetering on the abyss ?

  3. So far it's holding up. A new intermediate cycle has begun. We'll have to see whether the dollar can make new highs or whether it breaks back below the Oct. 27th low. Which ever happens first will determine whether the rally out of the three year cycle low is still intact or whether Ben has irreparably trashed the dollar.

  4. Gary

    thanks for your clarification and much appreciated.

    i have absolutely no problem with analysts laying out alternative scenarios. The issue is though that with in a short space of time you have set out two pretty contradictory outcomes. I can pretty much guarantee that one of the scenarios that you set out will broadly happen. This puts you in the position of being able to subsequently claim prescience whatever happens......not for one minute saying that you would do that but there are plenty of unscrupulous analysts who would.



  5. Market peaked 3 weeks ago. it will be heading south at its own pace as per its time table. Weekly momentum faltered this week. The back of the rally is broken. Gold/oil, etc. likely to be dragged down along with the major indices.


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