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Difference from 2003


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#1 greenie

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Posted 13 January 2007 - 11:15 PM

In a separate thread, I noticed that the current period could be technically similar to 2003. So, I got a few charts, which appear different. Other experts can comment on whether those differences are worth looking into, or whether they are irrelevant for the bullish case.


1. I think, the sector that leads on the upswing is expected to lead on the downswing. ( For example, Florida, Arizona, San Diego and Las Vegas were leaders in the housing boom. They were also leaders in the downswing, way before other places caught the housing flu. )


In that light, how does this chart be explained?

$HGX:$SPX ratio:

2003:

http://stockcharts.com/c-sc/sc?s=$HGX:$SPX&p=D&st=2002-01-13&en=2004-04-30&i=t55827142733&r=6319&.png

Now:

http://stockcharts.com/c-sc/sc?s=$HGX:$SPX&p=D&yr=2&mn=0&dy=0&i=t63992182620&r=513&.png


2. One of IYB's four faithful friends is monetary conditions.

Money was abundant then, rare now.

$TNX:$IRX ratio (When above 1, there is more money. When below 1, there is less money).

2003:
http://stockcharts.com/c-sc/sc?s=$TNX:$IRX&p=D&st=2002-01-13&en=2004-04-30&i=t63499589354&r=2622&.png

Now:

http://stockcharts.com/c-sc/sc?s=$TNX:$IRX&p=D&yr=2&mn=0&dy=0&i=t00530346784&r=8881&.png


3. $NDX:$SPX (growth versus defensive sectors of large caps)

2003:

http://stockcharts.com/c-sc/sc?s=$NDX:$SPX&p=D&st=2002-01-13&en=2004-04-30&i=t46354032725&r=6306&.png

Now (on downtrend since money started to be rare):

http://stockcharts.com/c-sc/sc?s=$NDX:$SPX&p=D&yr=2&mn=0&dy=0&i=t58215550115&r=540&.png


4. Internal momentum (notice the horizontal line and the absolute values of NASI peaks):

2003:

NASI made three higher lows.

http://stockcharts.com/c-sc/sc?s=$NASI&p=D&st=2002-01-13&en=2004-04-30&i=t25849913624&r=2693&.png

Now:

Made lower lows last two time.

http://stockcharts.com/c-sc/sc?s=$NASI&p=D&yr=2&mn=0&dy=0&i=t19709766227&r=452&.png

5. Oil price (increasing amount of money=higher oil price, decreasing money=lower oil price):

http://stockcharts.c...078&r=6725&.png


http://stockcharts.c...080&r=8731&.png

6. $RUO:$RLV (russel growth/russell value, another growth versus defensive sectors of small caps)

http://stockcharts.com/c-sc/sc?s=$RUO:$RLV&p=D&st=2002-01-13&en=2004-04-30&i=t00304674253&r=4524&.png

http://stockcharts.com/c-sc/sc?s=$RUO:$RLV&p=D&yr=2&mn=0&dy=0&i=t43631514989&r=2505&.png


7. VXN (maybe a smart money sentiment gauge, although I would like explanation of the above 6 than this one):

2003: Clear downtrend
http://stockcharts.com/c-sc/sc?s=$VXN&p=D&st=2002-01-13&en=2004-04-30&i=t99401884495&r=7390&.png

Now: uptrend from January 2006 (same time, when money started to disappear)

http://stockcharts.com/c-sc/sc?s=$VXN&p=D&yr=2&mn=0&dy=0&i=t70243862505&r=887&.png


In technical analysis, we are trying to figure out how much money is coming to the market (institutions and big players), based on where the money is flowing. My explanation of the above curves is the following. In 2003, the money flow started to increase in Wall street, and they allocated the extra cash into the growth sectors, some of which became leaders of this upswing. From late last year, money flow to the Wall street started to slow down (but not disappear). Therefore, the institutions became more defensive, and allocated less and less to growth sector. If the trend continues, eventually money will start to disappear from the institutions, and then we have a bear market.


It is interesting to note that the buzzword on the street in 2003 was deflation (shortage of money). In 2003, Bernanke gave his helicopter speech. Now the buzzword is 'global liquidity'. Data from the markets show exactly the opposite.

Edited by greenie, 13 January 2007 - 11:22 PM.

It is not the doing that is difficult, but the knowing


It's the illiquidity, stupid !

#2 dcengr

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Posted 13 January 2007 - 11:31 PM

One thing is, however, that our resident EW expert says we're in epicenter of primary wave 3. And PTJ, my idol, pays him $8k a year to listen to him.
Qui custodiet ipsos custodes?

#3 greenie

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Posted 14 January 2007 - 12:14 AM

PTJ pays 80K to Prechter. 8K is just pocket change for him - like throwing coins in a wish pond - wishing that he would go away.
It is not the doing that is difficult, but the knowing


It's the illiquidity, stupid !

#4 arbman

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Posted 14 January 2007 - 01:58 AM

Not to bull you up too much but, I would like to basically point out the volume, price and breath expansion on the upside, this rally initiation is like the last summer's rally with everything that sucks with it...

I would not try to short this market at the moment. I think it is truly blowing off --I hope this is exactly what I predicted, but it should go further than any bear can stand and even so, the topping will take time unless we see an immediate and equally violent reversal within a week or two time frame, I am not happy with the implied volatilities or the configuration of the option straddles...

A huge volume expansion to the upside...

Posted Image

Serious breath confirmation...

Posted Image

NOT confirmed price break out...

Posted Image

This rally will be one of the most interesting to watch since it is happening with the negative liquidity and somewhat internal (RUT/SPX ratio) and cyclical outlook so far by my measures, but it is certainly blowing off from a month long consolidation with no significant price damage...

Fundamentally, although the slower credit expansion so far that is pointing out to some sort of cooling, the tremendous volume on the energy and drilling issues last week point out that the liquidity is still out there. Since the major commodity speculation has ended, the resulting liquidity that is not quite showing up in the liquidity (growth) measures might take longer to be absorbed by the system and may be channeled more into the growth (sector) areas and the continued strength in the labor market at the moment. The long term rates rallied. Some speculated that the Fed will have to raise the rates from here, I am not sure since the USD appears to turning around and the inflation pressures must be moderate for US...

Good luck,
- kisa

Edited by kisacik, 14 January 2007 - 02:00 AM.