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Stock Market Update – 01/18/12 © ™

WHAT’S HAPPENING?

For the moment I’m kinda in a “quiet” period and remain in an “overall” uptrend theme.  When I get excited about an important change in market direction, a lot of blog updates usually take place.  Presently, there are some divergences showing in the 60 minute and daily charts.  Also the wave count appears to be maturing.  All of this could be early warning signs of a correction into late January (see cycles update in the next section).  The expectation is the correction will be a point to add to holdings or resume speculative positions.

The following is the 60 minute indexes found on page 10 of my charts.  Notice some of the indicators have divergences where prices are trending higher and the indicators are making lower highs.

01/18/12 – INDEXES – 60 MINUTES

CYCLES

I have always found the Hurst Cycle concept to be interesting and I’ll try to make this an integral part of my blog updates.

You’ll notice how the dates of the anticipated cycle lows don’t change much from one month to the next (compare my last blog’s cycle charts with today’s).  Only a sharp move up or down changes the cycle expectations.

The first chart is the SP 500 cycles from 1950 to 2042.  The semi-circle contact points at the bottom are cycle low dates.  When we have numerous cycles bottoming at the same time or large cycles bottoming, these are usually important dates in stock market history.  Due to the size of this chart, only the large cycles are visible.  Obviously cycle lows shown beyond the present are predictions and not yet reality.

Some cycle lows don’t produce bottoms.  In a strongly upward trending market, a cycle low can be a sideways pattern followed by a breakout to the upside.  Looking at the chart below you can see how several large cycle are approaching a crest and beginning a move to their cycle low.  This is not a strongly upward trending market as portrayed by this chart.  At best it shows the last stage of a bull market, which coincides with a large 3rd step in the wave count.

Click On Charts To Enlarge

01/18/12 – 1950 Data – 1950 To 2042

According to Hurst’s Principle of Proportionality – Waves in price movement have an amplitude that is proportional to their wavelength.  This simply means that longer cycles produce bigger moves up or down.  Smaller cycles produce smaller fluctuations.

The next chart is a close up of the above chart and it shows a confluence of cycle lows occurring from May to September 2013.  This appears to be anticipating the most important cycle bottom since March 2009.

Further out the cycle low occurring in early 2018 is much larger and there are also several other cycles lows anticipated about the same time.  This calls into play the Principle of Synchronicity – Waves in price movement are phased so as to cause simultaneous troughs.  This means all of these cycles will bottom at the same time.  This will likely be a time for a very important market low.  2018 could mark the end of a long period of bad markets that began with the bursting of the 2000 internet bubble.

Please don’t get too caught up in the large cycles and forget that we have bull markets that occur in between these large cycle lows.  March 2009 to the present is a good example.  There’s a time to be bearish and a time to be bullish.  You don’t want to be like some famous wave analysts and become so bearish that you miss the good stuff between cycle lows.

01/18/12 – 1950 Data – Large Cycles – 2010 To 2019

The third chart is also based on data from 1950 to the present and shows late February to early March 2012 as the date for the next important bottom (15/16 month cycle low).  After that bottom the chart shows a lesser bottom occurring during May 2012.  This chart is based on 62 years of data and it tries to fit the cycles to this large data-set.  In the next chart we’re going to see a difference of opinion on the upcoming bottom based on  a shorter data-set.

01/18-12 – 1950 Data – Cycle Detail – Oct 2011 To Nov 2012

The following cycle chart is based on data since late 2007 and is obviously geared towards events that have affected us over the last 5 years.  Looking at this chart you can see how the next cycle low is anticipated in late January (instead of late February).  For the moment I am inclined to believe the 2007 cycle data-set.  If the late January cycle low is correct a decline should begin soon.  Since this cycle low is less significant than the October low, it could be a quick correction with a rapid reversal similar to November 2011.

01/18/12 – 2007 Data – Cycles – April 2011 To March 2013

This next cycle chart is based on data since 2007 and shows the important cycle lows over the last 5 years.  Notice how it differs slightly from the chart based on the 1950 data-set.  It’s simply squeezing the cycles to fit into the time frame selected.  I think long data-sets are suitable for long cycles and smaller data-sets are more accurate for smaller cycles.  We’ll see how that works out in the near future.

01/18/12 – 2007 Data – 2007 To Present

I find these cycle charts to be of significant interest as it can give you an idea of when to expect bottoms to occur.  Wave counting gives you an idea of where you are in the rally or decline.  Altogether, these cycle lows coupled with wave counts can be of great help for narrowing down valid buy points.

If you find these cycle charts interesting, the service “Hurst Signals” provides cycle charts and trading advice based on the work of J.M. Hurst, “More info at HURST SIGNALS”   It’s an excellent service.

PRINCIPLES OF HURST’S CYCLIC THEORY

The Principle of Commonality – All equity (or forex or commodity) price movements have many elements in common (in other words similar classes of tradable instruments have price movements with much in common)

The Principle of Cyclicality – Price movements consist of a combination of specific waves and therefore exhibit cyclic characteristics.

The Principle of Summation – Price waves which combine to produce the price movement do so by a process of simple addition.

The Principle of Harmonicity – The wavelengths of neighboring waves in the collection of cycles contributing to price movement are related by a small integer value.

The Principle of Synchronicity – Waves in price movement are phased so as to cause simultaneous troughs wherever possible

The Principle of Proportionality – Waves in price movement have an amplitude that is proportional to their wavelength.

The Principle of Nominality – A specific, nominal collection of harmonically related waves is common to all price movements.

The Principle of Variation – The previous four principles represent strong tendencies, from which variation is to be expected.

Further information about Hurst’s Cyclic Principles can be found here.  Lotsa good Hurst info here.

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CHARTS

  • These are my personal charts and my playground for doodling trend lines, wave counts and other ideas.
  • I draw the trend lines and wave counts on a daily basis (sometimes more often).  You can find these doodles from 1 minute to monthly charts.
  • You will find the best trend lines and wave counts on charts with longer time frames.  This gives perspective to the lines and counts.  Perspective was a favorite of Edson Gould.
  • I usually restrict my trend lines and wave counts to the first three charts on each page, TSX, DJI & COMPQ.  The other charts on the page are usually for confirmation of the trend and wave structure.
  • Page 1 – Buy/Sell Signals
  • Page 2 – Indexes With 1 Minute Bars
  • Page 3 – Indexes With 5 Minute Bars
  • Page 4 – Indexes With 15  Minute Bars
  • Page 5 – Indexes With 30 Minute Bars
  • Page 6 – Indexes With 60 Minute Bars
  • Page 7 – Indexes With Daily Bars
  • Page 8 – Indexes With Weekly Bars (since 1981)
  • Page 9 – Indexes With Monthly Bars (since 1981)
  • Page 10 – Indexes With 60 Minute Bars, Candlestick
  • Page 11 – Indexes With Daily Bars, Candlesticks
  • Page 12 – Indexes With Weekly Bars, Candlestick
  • Pages 13 through 14 are shorter term indicators.  The indicators are used to simply look for some type of leading action before a turn or confirming action of the wave count.  Page 13 is a look-everyday indicator page.  The other indicator pages are less frequently visited.
  • Page 15 – Hurst FLD Projections
  • Page 16 – Indicators, Long Term
  • Page 17 – International Indexes
  • Page 18 through 30 are sector ETFs.  They represent most of the active sector ETFs and are always a good hunting ground when looking for something that is breaking in a new direction.
  • Page 31 through 45 are growth stocks with indicators.  These are stocks that have been in a lengthy uptrend.  One qualification is that they must not be severely damaged in a bear market so they can’t rise to significant new highs in the following bull market.
  • The growth stocks show daily market action for the last 3 years and weekly prices since 1992.  This gives a good perspective of how they have behaved in the immediate past (daily charts) and how they behaved during good and bad times (weekly charts).
  • Page 46 – Misc older charts

WAVE COUNTS SIMPLIFIED

  • My wave counts are not Elliott Wave!  It’s different, simple and functions without a maze of exclusions.
  • There are 3 peaks (or valleys) to a completed wave count. A reversal of trend takes place after a completed wave count.   Often times it’s as simple as counting 3 bumps (or dips) on a chart . . . Other times, not so easy.
  • In a downtrend the same rules apply except you are counting 3 dips instead of 3 bumps.
  • Each group of 3 steps must stay confined to a channel.  Laying a pen or pencil on the chart will help you visualize the channel.
  • As the trend progresses, all of the steps that make up a larger trend will also be confined to a larger channel.  Sometimes the channel is not revealed until the surge phase has ended.
  • When the market breaks a channel (regardless of the perceived wave count), the current step has been terminated.  (Make sure your channel was correctly drawn before calling a termination).
  • The correction following the second step is larger than the correction that followed the first step.  Obviously the correction following the third step is a reversal.
  • A single wave may sub-divide into another 3 waves.  I will call this an extension.  When this happens (1) the trend is still intact, (2) the channel will widened and (3) instead of a total of 3 steps, there will be 5 steps.
  • Sometimes I will use the terms “step” and “wave” interchangeably.
  • Reading the glossary helps in the understanding of this blog.  There are many other important facts in the glossary.
  • Glossary Link

ABBREVIATIONS

  • DJI = Dow Jones Industrials
  • DJT = Dow Jones Transportations
  • SPX = SP 500
  • ES = SP 500 Futures
  • COMPQ = Nasdaq Composite Index
  • TSX = Toronto Stock Exchange (Canadian blue chips)
  • SOX = Semiconductors
  • TXX = Technology

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  • Long Term – UP
  • Uptrend
  • Mar 2009 To Present
  • Step 2 Up (of 3) Completed
  • Has Step 3 Up Begun ???
  • From the bottom in  March 2009
  • Large step one up ended in May 2010
  • Large step two up ended in May 2011.
  • Significant break above the May 2011 highs should signal that Step 3 up is official

12-28-11 LONG TERM

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  • Very Long Term – DOWN
  • Downtrend
  • Jan 2000 To Present
  •  Step 2 Down (of 3) Completed
  • Currently In Rally Phase From Step 2 Down

12-28-11 VERY LONG TERM

VERY LONG TERM COMMENTS

We have 3 possibilities for the future.

  • We have entered a very wide swinging market (megaphone formation) similar to that of 1966 to 1974. During that era we had three bear markets with two intervening bull market rallies.  Each bear market had a lower low than the previous bear.  The intervening bull market rallies saw new all time highs before the next bear market began.
  • We also have formed a huge head and shoulders formation since 1998.  If this formation is valid, the downside measurement calls for a bottom around Dow Jones Industrials 1,000.
  • We began a long term bull market in March 2009.  Each subsequent min-bear market will result in higher lows than the prior major low.
  • I favor the megaphone formation as the most likely scenario.

Since 2000 we have had two bear markets, 2000 to 2003 and 2007 to 2009. Like 1966 to 1974, the recovery from the first  bear market saw a new all time high (2007 peak). It’s possible that we may experience another all time high during the present recovery period.  This would support the megaphone formation.  A failure to make new highs would support the head and shoulders argument.  In both formations the conclusion of the present recovery would call for a third and final bear market. An estimated time for the conclusion of the final bear market is approximately 2018.

The lesser downside target of both formations is the megaphone formation as it likely calls for a bottom 1,000 to 2,000 points below the 2009 low, which would be around Dow 5,000.

In the head and shoulders formation the measurement calls for a bottom around Dow Jones Industrials 1,000.  This is almost an unimaginable event regarding the possible fundamentals to create this scenario.  If this did happen, everything that could go wrong would have to go wrong.  The reasons range from the absurd to the absurdly absurd.  This scenario is so dark that it doesn’t seem possible but nevertheless, the head and shoulders formation is there and will be waiting until we pierce the all-time highs of October 2007.

Remember these are simply possible scenarios and are not embedded in fact.  Whatever the outcome, it never hurts to be a little cautious with some of your money.  But in the worst case scenario, everything that we take for granted as being safe . . . .  would not be safe.  This is something to never forget in the event things go very badly.

Hopefully we will never have to think about worst case scenarios other than to have a good laugh at them presently.

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EDSON GOULD

  • Edson Gould, Premier Stock Market Strategist – Edson Gould had a profound influence on the development of my techniques and  indicators.  Prior to me subscribing to his advisory service, I was just one of the crowd.
  • After 40 years I still have many of the publications from his advisory service, “Findings & Forecasts”.  Fearing the loss of these hard copy reports I have recently scanned and created pdf files of these reports.  Now I have hard copies and computerized versions of the reports.
  • I have used a technique of his that I found in an obscure reference in one of his reports.  It was only mentioned once and never again.  I believe that he used this tool extensively and never told the world it’s importance.  Prior to my finding this tool, I had been trying unsuccessfully to find a different way to chart the market.  When I read about his technique I knew instantly that this was exactly what I had been seeking.  I have charted this method back to 1939 and found it to be very useful.  There is no mention of it in the reports that I posted below as I have deleted any reference to it.  It’s a super secret indicator and I’d have to kill you if I told you about it.
  • Edson Gould was truly a legend in his own time.  It’s too bad that today most people have forgotten or never heard of him or his discoveries.  Below you will find only the first page of these reports.  A teaser is what you might call it.  The rest of the reports are available upon request.  This is a man that deserves to be remembered throughout technical analysis market history.
  • The following are links to Edson Gould reports.
  • My Most Important Discovery by Edson Gould
  • It was also my most important discovery, for it explained the irrational volatility of markets that had mystified me in my early years.  During those early years I found nothing worked in predicting these irrational market swings.  But the fog lifted after reading this report and I began to understand how to begin predicting the market.
  • Edson Gould’s 1974 Forecast
  • Gould’s 1974 forecast kept me bearish and short throughout 1974 until the week before Christmas 1974, during which I began making long term purchases.  After that it was ride the bull phases that transpired from 1975 to 1982.  1982 to 2000 was the greatest bull market of all time.
  • Edson Gould’s 1975 Forecast
  • Edson Gould’s 1976 Forecast
  • Edson Gould’s 1977 Forecast
  • Edson Gould’s Five Year Forecast 1977 to 1982
  • This was a remarkable forecast in 1977, where the Dow Industrials had never been higher than 1,000. NO ONE predicted a rise of this magnitude in 1977.  Most were waiting for a resumption of the bear market.
  • As part of the 1977 to 1982 forecast: On Wednesday August 4, 1982 I went long the market for the first time in months.  By Friday, August 6 I was worried that I had made a mistake as I was deep in the red (I was long the Kansas City Stock Market Contracts).  The Kansas City Stock Market Contract was the first of the stock index contracts (February 1982).  It was based on the Value Line Arithmetic Index, margin requirement were quite low, and it had a multiplier of 100 times the Value Line Arithmetic Index, which meant the leverage was very high.  On Friday (Aug 6), my wife and I went to dinner and I told her my tale of woe and whether I should sell my long positions.  I explained that my key indicator had reversed and continued higher on Thursday and Friday but the market had continued lower.  Since the key indicator was usually correct, we decided to stick it out for a few days more (I was crazy in those days).  My key indicator was mentioned by Gould only once in his market letters.  If you didn’t catch its importance, too bad, because he only gave you a peek.  Prior to Gould writing about this indicator I had been looking for one that had similar characteristics without success.  Thus when Gould wrote about it, I recognized instantly that I had struck gold.  I have modified this indicator slightly and researched it back to 1939.  This was a lot of work as it was before computers and online data (remember when Barrons was available only on paper, still is for the distant past).  Meanwhile on Monday August 9, 1982 the market took off like a rocket and never looked back.  I skyrocketed out of the red and had a big profit.   In August 1982 the only people that were bullish were Edson Gould, Robert Prechter and myself (probably a couple of others but I didn’t know them).  Everyone else was extremely bearish.  It was a perfect example of crowd behavior.

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TRANSACTION SIGNALS

  • All actionable signals are only for short term time frames.  These signals are not designed for intermediate or long term time frames BUT . . . . .
  • After a short term buy signal, long term tax status  can be achieved by a continuation of the upward trend, which causes short term actions to morph into long term holdings. 
  • See more details in the glossary under “Taxes, Futures Contracts” and “Money Management”.

TRANSACTION RECORD

  • In this blog a warning of an impending bottom (or top) is often issued well in advance of the formal buy or sell date.  This allows thoughtful consideration prior to a formal action signal.  To get a sense of how this works, you should read a few days prior to a formal buy/sell signal.  I often buy/sell in my personal account based on the early warnings.
  • The transaction record near stock market bottoms will show that I am very skittish and usually remain so until the new direction is well underway.

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MISCELANEOUS

  • There are useful items throughout this blog.  For instance, the “Wall Street Quotes” can be very instructive.  So make sure and look all through the blog.

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