What's Next From A Cycles Perspective
There is no doubt the market momentum has diminished since October. Breadth is getting a little thinner and many strong companies are weakening underneath the averages. Yet, we still are seeing the indices hold up very well. Even the Transports, which haven't made a new high, really aren't lagging that far behind.
One of my major risk gauges is off the charts yet the rewards for that risk are the lowest since 2000. Maybe even further back than 2000 but I didn't bother to check. Remember, investing is about putting yourself in a position where risk is in your favor not putting yourself in a situation where the "house" or mean mister market has the edge.
So, what's next? If possible, everyone long here does not want to sell. Waiting another few weeks to sell means taxes are pushed out another sixteen months. What's that mean? More chop and more volatility most likely. Maybe even a correction re my comments a few weeks ago that my intermediate term model gave a soft sell signal.
So, let's guesstimate what will happen in the intermediate term with a little cycles work. Obviously, this is not investment advice for those who seem to be able to read my posts but not my disclaimer. Cycles are quite esoteric, therefore it garners more of my interest than the obvious. There are seven major cycles that come to mind here: bi, tri, motor, uni, training, tandem, and exer. That's a joke. The most obvious is the Presidential Cycle or the Four Year Cycle which nearly everyone is familiar with. While there is actually a plausible fundamental rationale behind it, I find it's value somewhat less compelling. While most people were calling a low in October, I was not per my prior posts. Now, to be fair, I also wasn't expecting nearly every average to make a new high. I would have given reasonable odds to large caps but not small caps, some commodity driven stocks or broker/dealers. That said, they are barely above the May highs so unless we get a move significantly higher in these indices, I'll consider their moves to be within some range of error. In other words, a fakeout. The important indices of gold, copper, oil and other mania driven commodities have not and will not break the May highs unless we really see some very unnerving macro developments in my estimation. While that is a possibility, it is not the highest of probabilities.
What I expected to happen was some type of rally into November where we would see the first signs of weakness. While the broad market internals haven't strengthened since November, they surely haven't weakened much. This makes me question if my cycles estimates are complete. There are five negative cycles which converge in 2007. Three are long term and one is very long term. So, that leaves two convergence points. One at the end of the first quarter and one at the beginning of the fourth quarter. Most recently, I've started to rethink my expectations. Given we did not experience the weakness I expected to develop in November, I'm wondering if the top might be set at the end of the first quarter.
Should this be the case, I expect we will have seen the top in utilities by the end of December or worst case January. Yet, I would anticipate we could see marginal new highs in the S&P with deteriorating breadth over the next few months.
Now, obviously I don't invest based on guessing games. But, it's interesting to see how unexplainable phenomenon plays a role in our lives. So, let's sit back and watch.
One of my major risk gauges is off the charts yet the rewards for that risk are the lowest since 2000. Maybe even further back than 2000 but I didn't bother to check. Remember, investing is about putting yourself in a position where risk is in your favor not putting yourself in a situation where the "house" or mean mister market has the edge.
So, what's next? If possible, everyone long here does not want to sell. Waiting another few weeks to sell means taxes are pushed out another sixteen months. What's that mean? More chop and more volatility most likely. Maybe even a correction re my comments a few weeks ago that my intermediate term model gave a soft sell signal.
So, let's guesstimate what will happen in the intermediate term with a little cycles work. Obviously, this is not investment advice for those who seem to be able to read my posts but not my disclaimer. Cycles are quite esoteric, therefore it garners more of my interest than the obvious. There are seven major cycles that come to mind here: bi, tri, motor, uni, training, tandem, and exer. That's a joke. The most obvious is the Presidential Cycle or the Four Year Cycle which nearly everyone is familiar with. While there is actually a plausible fundamental rationale behind it, I find it's value somewhat less compelling. While most people were calling a low in October, I was not per my prior posts. Now, to be fair, I also wasn't expecting nearly every average to make a new high. I would have given reasonable odds to large caps but not small caps, some commodity driven stocks or broker/dealers. That said, they are barely above the May highs so unless we get a move significantly higher in these indices, I'll consider their moves to be within some range of error. In other words, a fakeout. The important indices of gold, copper, oil and other mania driven commodities have not and will not break the May highs unless we really see some very unnerving macro developments in my estimation. While that is a possibility, it is not the highest of probabilities.
What I expected to happen was some type of rally into November where we would see the first signs of weakness. While the broad market internals haven't strengthened since November, they surely haven't weakened much. This makes me question if my cycles estimates are complete. There are five negative cycles which converge in 2007. Three are long term and one is very long term. So, that leaves two convergence points. One at the end of the first quarter and one at the beginning of the fourth quarter. Most recently, I've started to rethink my expectations. Given we did not experience the weakness I expected to develop in November, I'm wondering if the top might be set at the end of the first quarter.
Should this be the case, I expect we will have seen the top in utilities by the end of December or worst case January. Yet, I would anticipate we could see marginal new highs in the S&P with deteriorating breadth over the next few months.
Now, obviously I don't invest based on guessing games. But, it's interesting to see how unexplainable phenomenon plays a role in our lives. So, let's sit back and watch.
<< Home