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The Really Big Picture


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#1 IYB

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Posted 11 July 2010 - 02:44 PM

As we are approaching what I believe will stand out for years as a pivotal point in stock market annals, and since this is, after all, Fearless Forecasters, I thought it might be a good time to take a look at the really big picture as this fearless forecaster see it. I don't ask others to see it the same. You may well have a different view and that fine by me. :)

First, the secular trend, what I have always called the 20-year cycle, because each secular bull or bear trend lasts approximately 20 years, not coincidently what is commonly thought of as a "generation". There is an maxim of trading that says that "every generation speculates once" and I believe that to be true. Following each 20-year secular bull market we see a (approx) 20-year secular bear market, as those burned in the last cycle lick there wounds and a new generation is being raised up that will eventually become the next flock in this never ending cycle. Laundry and some others call this the 40-year cycle because that is approximate peak to peak/trough to trough length of time. Still others call it the secular trend or the generational trend.

Here is a chart of the DJ going back to around 1900:

[attachment=17361:djia1900sb.png]

Secular BULL markets are typically 18 (+ or - 3) year periods characterized by expanding valuations (P/E ratios, etc.), expanding public participation in equity markets, expanding speculation, and sharply rising prices. During a secular bull market, the entire Dow Jones Industrial Average or S&P500 will expand by as much as 10-15 fold or more. 1982 to 2000 was an excellent example of a secular bull market in all regards, as the Dow Jones Industrial Average expanded from the 700's to well over 10,000 in those 18 years. 2000, by the way, marked the valuation peak of the last few decades, though the nominal peak in prices occurred a bit later. This is normal.

Secular BEAR markets, by contrast, are periods of roughly the same length of time which are characterized by shrinking valuations, shrinking public participation, declining speculation, and range bound prices. The 1965 to 1982 secular bear market, for example, kept the Dow Jones Industrial Average range bound between roughly 500 and 1000 for that entire period as valuations, participation and speculation shrank markedly. The current secular bear market which began from the 2000 valuation peak clearly shares these characteristics, as even casual study will demonstrate.

Notice in the chart below 6 distinct secular cycles: 1909-1929 secular bull market (expanding), 1929-1945 secular bear (rangebound), 1945-1965 secular bull (expanding), 1965-1982 secular bear (rangebound). 1982-2000 secular bull (expanding), 2000-present secular bear (rangebound). We can expect that the current secular bear market, bound in the range of roughly DJ 6000-14000 to run until late in the next decade (2017+or-) at which time we can reasonably expect the onset of the next secular bull market which could take us another 15X+ higher to the area of 100,000 Dow Jones Industrial Average. {One more side note: Laundry observes that every other secular bear cycle goes to much deeper levels than the intervening secular bear low -his 80-year cycle - and if true, perhaps the current cycle takes us much lower than DJ 6000, SPX 600.}

Next, the cyclical trend - what I refer to as the cyclical bull market and cyclical bear market cycle:

http://stockcharts.com/c-sc/sc?s=$SPX&p=M&st=1996-01-28&i=p73030814314&a=181755078&r=21.png

Notice that the 13 month ema is still rising, but at a slowing rate, and that price recently penetrated that MA. While flashing a distinct warning, It is, nonetheless, still in primary Bull Market mode. This is one of the reasons I had been looking for the market to base out and rally towards or perhaps beyond the April highs.

Weekly charts are showing this weakness even more vividly, as price penetrated the 8 week EMA which in turn penetrated the 34 week EMA on the downside. In 2007 this happened in July just before the "last rally" of that cyclical bull market. And the MACD patterns here are similar to the Summer of 2007:

http://stockcharts.com/c-sc/sc?s=$SPX&p=W&yr=3&mn=6&dy=0&i=p68068785643&a=186901514&r=701.png

Looking at the daily, from a post below, Seven Sentinels are on buy mode, and using Terry laundry's "T" the top looks like August 6, though Terry talks about "August 26 or perhaps a bit earlier.": I believe the rally will be much stronger than most expect, and could well log a new SPX high, above the April levels. This would be the "external high" or the final high for the entire cycle which began on March 9, 2009, and would likely be unconfirmed by cumulative advance/declines as well as other internal measures. There is nothing cast in cement about the "new SPX" high however, and I'll be much more concerned with the message on the sentinels in August.

http://stockcharts.com/c-sc/sc?s=$NYMO&p=D&yr=0&mn=4&dy=15&i=p05860298919&a=199263752&r=955.png

Now beyond this top, it becomes really interesting, as I believe the new cyclical bear market will be ushered in with a vengence. :o But one step at a time. At the moment, I strongly believe that the line of least resistance is UP, and the correct position is LONG.

All of the above is my view, and I am not looking for agreement. If it conflicts with your view, that's as it should be. We each have our methods and our lens through which we view markets. Mine is all about "context". And it works for me. Very best trading to all, Don
----
PS Special thanks to Terry Laundry for some new tricks he taught me and to Rogerdodger for introducing his fine work here at FF.
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#2 Rogerdodger

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Posted 11 July 2010 - 03:01 PM

In the Really Big Picture, I'm not even here. :o :lol:

Posted Image

Don, your Really Big Picture chart is incomplete IF we figure in inflation.
It looks like the market was flat from 1966 to 1980.
But with inflation figured in, it's a whole different story!!!

Many of us are baby boomers so this chart below will have some import.
It's the S&P 500's value figuring in inflation since 1950.
It looks like it takes about $55 now to buy a 1950 dollar!
But look at what really happened from the 60's to the 80's.
Posted Image
LINK

It looks like the dollar value of the S&P went from $4 in the 60's to about $0.75 in the 80's. :o
If we get into "Really Big" inflation at some point, as we did in the 1980's, the actual value of stocks could once again be more than cut in half a regardless of their "price."

In fact, the chart almost looks like we are entering a larger 3 top fractal image of the 70's ...40 years ago wasn't it?

I remember my father-in-law bought a brand new travel trailer in the early 70's and sold it a few years for MORE THAN HE PAID WHEN IT WAS NEW a few years later!

PS: Forget gold.
I'm buying bottles of vodka and burying them in the back yard.
Vodka will be the thing! B)

Edited by Rogerdodger, 11 July 2010 - 04:18 PM.


#3 johngeorge

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Posted 11 July 2010 - 03:31 PM

Thanks Don for sharing. :flowers: ) Always great work on your part!!! Best to you.
Peace
johngeorge

#4 IYB

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Posted 11 July 2010 - 03:48 PM

Don, your Really Big Picture chart is incomplete IF we figure in inflation. It looks like the market was flat from 1966 to 1980.
But with inflation figured in, it's a whole different story!!!

Dead on! -- and that's the main reason that it was a secular BEAR market, even though SPX prices were "flat" in nominal terms...In fact, to put that in understandable terms, if a "share of SPX" {we had no such critter then of course} would buy a men's suit in 1965, you'd be lucky to get just the pants alone with that same "SPX share" 17 years later, even though SPX "hadn't declined"}

Edited by IYB, 11 July 2010 - 03:55 PM.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#5 Rogerdodger

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Posted 11 July 2010 - 03:58 PM

I couldn't find the symbol for Vodka, but look at what started already in 2002:

http://stockcharts.com/c-sc/sc?s=$INDU:$GOLD&p=M&st=1950-01-01&en=(today)&i=p55338475980&a=203952725&r=6525.png

#6 Rogerdodger

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Posted 11 July 2010 - 04:01 PM

In fact, to put that in understandable terms, if a "share of SPX" {we had no such critter then of course} would buy a men's suit in 1965, you'd be lucky to get just the pants alone.


So you would have lost your shirt! :lol:

Edited by Rogerdodger, 11 July 2010 - 04:08 PM.


#7 borland

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Posted 11 July 2010 - 05:04 PM

IYB, In your chart.... What does 'SSNS' mean? Sell and go flat?

#8 IYB

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Posted 11 July 2010 - 05:19 PM

IYB,

In your chart.... What does 'SSNS' mean? Sell and go flat?

Exactly. "N" is for neutral. Means go to cash and wait....Regards, D
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#9 andr99

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Posted 11 July 2010 - 05:29 PM

IYB,

In your chart.... What does 'SSNS' mean? Sell and go flat?



what could it mean ? He has a site and a trading system called seven sentinels..............it can only mean ''seven sentinels neutral signal''.........the system is out

Edited by andr99, 11 July 2010 - 05:29 PM.

forever and only a V-E-N-E-T-K-E-N - langbard


#10 inamosa

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Posted 11 July 2010 - 07:10 PM

Thank you for the excellent post, Don. Very informative. May I ask what previously caused you to go neutral from SSBS mode? Thank you.
"Our job is not to predict where the market will go, but to interpret daily price and volume action to ascertain the facts of the current environment and make decisions based on that interpretation."
-Scott O'Neil (son of William O'Neil), Portfolio Manager at O’Neil Data Systems, when asked where the Dow would go in the coming months