It is not often I write publicly about my thoughts on the markets; however I feel compelled to share what I have noticed and read about in recent times, and the results of some good old research.
We have an interesting time regarding the equity markets, not only are they all moving in similar directions, many are or have been expecting most of them to rebound.
I believe we are at the moment where a bottom is about to be made that will offer a good opportunity for the next 6 months or so, however, what I also believe is that the signs or signals that create this bottom will not be what most expect.
First of all, I’d like you to shoot over to this web site and check out the chart, and once you have had a good look at it (and the two charts below it), return here.
http://social.stocktock.com/profiles/blogs/1937-vs-2008-updated-daily
Now, you have to admit, it’s a pretty compelling chart.
After watching this for a while and noticing its continual correlation, I decided to get down and look on a more microscopic level. And here is what I found regarding the last few months of the QQQQ and the period of the DOW being compared to on the blog above.
Before I go on, for those who don’t study Elliott Wave, don’t worry, this is not about Elliott Wave, and I’ll be making some important points to bolster my case, that have nothing to do with Elliott Wave, however for those who do, take a look at the waves. It’s just uncanny.
Now, what I also noticed (which has nothing to do with Elliott Wave), is that if you look at the last down move and the bottom, on the DOW in March of 1938 (picture below; importantly, the DJ30 went up 60% in 8 months from that low), tell me what you notice? I notice a clear lack of comparative volatility to the October low, and not only that, I see no reversal patterns or bars of any real significance; nothing that stands out like we saw in Oct. Now take a look at any recent chart such as the QQQQ, SP500, DJ30, and look at the Oct 2008 lows and see if notice a very similar theme. All technical traders would have seen this time as the bottom based on the patterns, bars and volatility. They were duped!
Now, let’s look at another piece of information I found during my reading travels. Marc Faber is a well respected voice, and he suggested that many traders will be expecting a capitulation, but will be disappointed, simply because there is no one left to capitulate. So what does this suggest? To me it suggests that at this point in time, there are more watchers of the market than there are participants, and this is easy to believe when you consider all the talk of how everyone is sitting on mounds of cash, not quite knowing where to put it.
With all this, I am putting forward the possibility that the market is going to turn around quite soon but it will not be a capitulation of market participants, but a capitulation of watchers. In other words, just as everyone gives up and turns off the TV, stops reading the Financial section, stops subscribing to newsletters, etc etc etc, then we’ll see a bottom. There will be no significant reversal bars or patterns, just a good old down day followed by an up day followed by another up day, and so on. Most will simply put this rally down to a bear market rally and that is great. This will enable the market to go in the path of least resistance, which will be up.
Just my thoughts, and for what it is worth, I will be going long stocks soon, and I am not in the camp of tight stops. They are for purely technical traders and as such I am only looking at what I am willing to lose should I be wrong and the next rally does turn out to be just a bear market rally.
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