Market Outlook

[trefoil]

Quote from N54_Fan:

I see this as well and you could even make out a long term multi year down trend. But we just have to watch for when this MIGHT come to be true. As we know there are many uptrends within bigger downtrends. You just have to choose which trends you are going to make money on. I choose to follow weekly and daily trends and NOT monthly trends.

That's fine. I just thought it was pretty.
BTW, it is on a weekly chart. I cropped out the years, but the megaphone goes back to around 1999, and the chart itself, or the part I cropped out, goes back to the mid 80s or so. My point was simply to show what a megaphone would actually look like that fit the definition, as opposed to the cyclemeister's delusional stuff.

 

[Nine_Ender]

Quote from bhardy307:

I know, but cycle is giving us a multiyear chart. I'm just extending it a little further.

Truth is the crash of 2008/2009 was an unusual event that only occurs a few times in ones lifetime. I would argue that any multi-year analysis starts and ends around that event. I think until something tells us otherwise we have been in a clear multi-year bull market since. I posted numerous times in 2010 that bull markets usually last at least 3-4 years, sometimes much much longer.

One might ask why we are in a bull market. I offer up two reasons to start. One, the original crash was way overdone. Two, corporate earnings of large mutinational corporations are extremely strong and have been since fall 2010. Now the hard part, deciphering why this is true. The bullish argument is emerging markets have increased worldwide demand. The bearish argument is that government money printing has artificially propped up earnings. Even if the second case is chosen, the negatives of this will not be fully clear until maybe 2013 and probably more likely 2014 ( rough guess ).

Many EliteTraders seem to believe that because communications are faster and trading more intense that normal historical patterns will speed up. This is the only rational I can see why people call for crashes mere 2-3 years after the last big one. But perhaps its more that any tom, dick or mary can offer up a crash prediction regardless of their experience with markets. Those of us who have been observing markets since the 1980s have a different perspective. If we were to crash in 2012, this would be without precedent in history.

 

[GrandSupercycle]

I see i've generated discussion on broadening formations (aka megaphones) which is good.
trefoil - thanks for posting the big picture megaphone which for some time has warned what lies ahead.



SP500 weekly chart megaphone pattern shows overextended price action hanging in mid air.
Chart also shows possible smaller megaphone and rising wedge scenario.
Megaphone patterns reflect an unstable market prone to large swings in sentiment.

 

[GrandSupercycle]

SP500 daily remains very overextended and prone to sell off.

 

[newwurldmn]

Trefoil, bhardy, and N54_fan:

Thanks for the charts and explanations.

Does this type of megaphone pattern imply very high volatility in the future as the price action is expected to keep hitting higher highs and lower lows. This seems counter intuitive as volatility is a mean reverting process (or eventually the market will go to infinity or zero). So then by definition the megaphone pattern will eventually be proven false.

If there is a head and shoulders pattern and a megaphone pattern, don't one of them have to be wrong? So it becomes and art to determine which pattern is "right."

The discussion is going the way a real thread should go. Perhaps you three should take over the thread from Grand?

 

[N54_Fan]

Quote from newwurldmn:

Trefoil, bhardy, and N54_fan:

Thanks for the charts and explanations.

Does this type of megaphone pattern imply very high volatility in the future as the price action is expected to keep hitting higher highs and lower lows. This seems counter intuitive as volatility is a mean reverting process (or eventually the market will go to infinity or zero). So then by definition the megaphone pattern will eventually be proven false.

If there is a head and shoulders pattern and a megaphone pattern, don't one of them have to be wrong? So it becomes and art to determine which pattern is "right."

The discussion is going the way a real thread should go. Perhaps you three should take over the thread from Grand?

Realize that patterns are just that PATTERNS. They only give you an indication of what COULD and OFTEN TIMES DOES occur. It is not a definitive predictor. Just like dark clouds tell you there COULD be a storm coming. You never know until you start to see/feel the wind blowing and animals running for cover that there really is a storm. Same with megaphones and H&S tops. True megaphones have higher high and lower lows suggesting volatility and H&S have higher high and a neckline. Also realize that a continuation pattern that is less often discussed is the diamond pattern. Look at one of those and they look like a megaphone until the last 1/2 of the pattern...so obvioulsy they are failed megaphones and could be a bullish signal. You just need to be vigilant and recognize what COULD happen and manage risk accordingly for any of these patterns. I hope that helps.

 

[trefoil]

Quote from newwurldmn:

Trefoil, bhardy, and N54_fan:

Thanks for the charts and explanations.

Does this type of megaphone pattern imply very high volatility in the future as the price action is expected to keep hitting higher highs and lower lows. This seems counter intuitive as volatility is a mean reverting process (or eventually the market will go to infinity or zero). So then by definition the megaphone pattern will eventually be proven false.

If there is a head and shoulders pattern and a megaphone pattern, don't one of them have to be wrong? So it becomes and art to determine which pattern is "right."

The discussion is going the way a real thread should go. Perhaps you three should take over the thread from Grand?

N54 gave a good answer, but re volatility: the very first thing I noticed, many years ago, when I still had hair, was that low volatility frequently seemed to precede big upmoves and high volatility frequently seemed to precede big downmoves.
Last year was flat, when all was said and done. This year I expect to be a big up year, and of course so far that's how it's turned out. So from not a lot happening we go to a big move up.
Best example, btw, is gold during the nineties. Barely moved for long periods of time, and of course when the big tech boom happened in the last couple of years of the nineties no one was thinking about gold. The 2000's was a very good decade for it, by contrast.
Over the very long term (years) I'm expecting the market to top, go down a bunch, and then flatline for a long time. But I just keep that in the back of my head. In the long term we're all dead, and for me the long term is a lot shorter than it used to be, just because I'm now at that point where a full head of hair is a distant memory.

 

[SimpleTrades]

Since the early 80s, each of the recession in the USA have all been preceeded by higher point in the FED rate. The major bubbles that we have seen recently in 2000 and 2007 were each followed by a sell off cause by a threshold being reached in a rising interest rate. The rate was lowered and a new bubble began: Tech, Housing, Debt???

Look at the FED rate chart:

Although there may be some smaller selloffs, I don't see another major crash until well into 2014/2015. This tends to match up with recent comments made by the FED who plan to keep the rate "low" until 2014. Chances are it will begin slow creep up before 2014, and will peak in that 2014/2015 period at about 3%.

I see a high of 1600 to 1650 on the SPX500. I then see it crashing to about 600 unless some major changes occur. I see it falling that far because the scale of the bubbles and their subsequent crash are increasing.

 

[SimpleTrades]

What's also interesting is how these big movements in the S&P have occcurred following that peak FED rate of 18%. That seems to be a point at which all hell broke loose, and we have have had these major bubbles ever since.

The price we have paid for bringing high inflation under control?

 

[GrandSupercycle]

DOW daily chart shows diamond formation.