We believe the third major top of the past decade is imminent, and likely occurred Thursday. Even if the Central Planners goose markets and another new high is reached in the Industrials, a top should still arrive soon, maybe it comes in two weeks, maybe at our next phi mate turn date in February. The key here is not to pick the exact top. This top will lead to a stock market decline that could be far worse than the past two of the 2000 millennium. The first major decline started on January 14th, 2000, and bottomed October 9th, 2002, a 38 percent plunge. The second major top started on October 9th, 2007 at 14,164.53 (closing basis) and plunged to the March 9th, 2009 bottom at 6,547.05, a 54 percent plunge. The next plunge should start soon, probably kicked off Friday, January 15th, 2010, leading to a decline that lasts 2 to 4 years, and takes prices possibly all the way to zero (
), not all at once, but in stair-step fashion. The massive Bearish Head & Shoulders tops forming all over the world suggest this downside target, and relentless decline, will accompany world-wide calamity. We are doing some long-term phi mate research right now that suggests a major crash leg could take place late in 2010. Any decline now may not have the magnitude initially that several other legs of this coming decline will. But keep in mind, this next leg could see the Industrials drop 10,000 points. The late 2010 plunge should be one for the ages. There could be several plunges throughout the imminent wave (C ) down leg of grand Supercycle wave {IV} in addition to the massive one we expect toward the end of 2010. There could be mini-crashes between now and then. The larger declines will come as 2011 approaches, continuing into at least late 2012. The totality of these down-legs should wipe out most of the value of stock market indices world-wide.
Major tops usually are slow, rounded affairs. Prices move slowly into tops, and roll slowly out of them initially. Then prices start to accelerate lower, bounce back a significant portion of the initial loss, then fall hard. Let's examine how the 2000 and 2007 tops developed:
In 2000, the Industrials limped higher, in slow motion, the three weeks leading up to the January 14th, 2000 top. On December 23rd, 1999, just before Y2K, the Industrials were at 11,405.Over the next 3 weeks the Industrials rose only another 300 points, or an average of about 15 points a day. One month after the top, the Industrials had lost 1,000 points, closing at 10,718 February 15th.
In 2007, the Industrials closed at 13,739 on September 18th. Three weeks later, they topped at 14,164 on October 9th. They rose only 425 points, or an average of about 25 points a day the three weeks leading to this top. One month later, on November 9th, 2007, the Industrials were down 1,100 points, to 13,042.
The 2010 top has developed similarly. On December 23rd, 2009, the Industrials closed at 10,466. On Thursday, January 14th, 2010, they closed at 10,711, a rise of 243 points, or an average of about 18 points a day. We expect that if this top has hit, we could see the Industrials fall 1,000 points over the next month.
Because of the high probability that a top arrived Thursday, January 14th, 2010, we put on a trade in our conservative investment portfolio that plays the Industrials to decline. The details of that trade are noted on page 47, and also at the Trader's Corner button at our home page at www.technicalindicatorindex.com
Earnings season started last week, and so far it is going as we suspected. Bottom line earnings are up, but revenues are disappointing. So even the most fundamental approach to stock valuation is not going well. Technical analysis knows this, which is why we study it so carefully. It considers everything known by everyone and presents that knowledge inside stock price patterns and indicators, the language of the markets, telling us where prices are headed next.
What are some of the technical analysis Bearish forces suggesting the start of a major decline is imminent, maybe started Thursday? Of course, there is the new sell signal in the VIX from Tuesday, January 12th, which is a rare signal. It has produced three 1,000 point (or greater) drops in the Industrials over the past three years. This suggested that over the next two weeks, a significant top should arrive in stocks and a large decline should start. Thursday looks like that top.
