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LOOK REPORT #23 Background: Quick Look Reports will look at the dominant trend in an Index, Equity or Commodity and for this report at some possible short-term NYSE daily trends which could emerge from the dominant cycle(s) (the dataset for the NYSE is the daily closing prices from 1966). Quick Look Report # 22 predicted the daily closing prices of the daily NYSE Index from March thru June 2006 (Reference also Quick Look Report #19). In this report (Quick Look Report #23), the NYSE Daily Index is predicted for July 2006 thru Sept 2006. In addition, we look at some of the key long term cycles which are still present in the NYSE which may have significant coming implications for 2007/2008. In Quick Look Report #22, the predicted top for the NYSE was predicted to be 8652 but it was predicted for June timeframe. The actual peak (closing daily price) for the NYSE on May 09 was 8647. It appears the NYSE peaked about a month earlier than expected due to a much higher monthly/quarterly trading cycle amplitudes. It was predicted the NYSE on May 15th price would be 8363 and the actual closing price was 8378. A sharp upward rally predicted for the NYSE off a minor bottom in early April occurred leading into the peak on May 09th. The NYSE may yet form a double top going into early July 2006, but the major cycles will be heading downward in the NYSE by mid-summer. The largest cycle in the NYSE Daily is no longer the proverbial four–year business cycle as we have been conditioned to expect (although this was true up until the late 1980s). The largest cycle in the NYSE is a 6.4 year (approximately 1600-day cycle) and has been for a decade or longer. In the past, the 6.4 year cycle was often in phase with the 4-year cycle at large tops and bottoms in the NYSE which somewhat masked the existence of this large cycle. This cycle is shown in Chart 1 from 1966 thru 2010 assuming its phase does not change (due to M3 variations). In the past, there have been continuing significant markets drops within 4 months to11 months after this cycle reaches a top. This cycle is forming a major top with a peak predicted in early July 2006. Therefore, the late part of 2006 as well as 2007/2008 is probably going to be a rough time for equities and still leaves open the possibility of major worldwide stagflation in key economies or a possible recession 2007/2009 as I have noted in earlier Quick Look Reports. Chart 2 shows a comparison between the four year cycle and the 6.4 year cycle going forward into 2011. The current amplitude of the 6.4 year cycle (1600 days) is nearly 3X higher than the 4 year cycle but the phasing of the two cycles suggest they will both be going down after mid-summer and reaching a maximum downward acceleration in April/May 2008 (watch out for interest rate jumps in 2008). The 6.4 year cycle owns the playing field and this could become the “Secular Bear Cycle” which is going to give Fund Managers heartburn in 2007/2009. It is a Central Bank cycle so I am not expecting declining “interest rates” to appear to save the world economies in the period 2007/2008. In fact, we may see increasing interest rates start up again (after a pause in late 2006) by March/April 2007 due to continuing inflation. Such inflation could be the consequence of the continuing large weather cycles impacting grain prices worldwide due to excessive floods and droughts. Thirty years ago the economic limit cycle stability appeared to be around an interest rate of 6.75% to 7.38% after the rate hikes started. There was no stable limit cycle at any 5.5%. Chart 3 shows the 180-day cycle in this NYSE and this often (80% + of the time) shows the short term (over the next three months) direction of the NYSE (as well as some other major indices). This cycle is also currently peaking (as of June 26th) and is starting to turn downward. I expect (based on past history) that this cycle will make itself evident about mid-August when it reaches its maximum downward acceleration. In fact, it is probably this cycle (which has been around since 1913) which has given rise to the old adage (leave the markets in May and come back after October lows). It appears this cycle again has the proper phasing to help drive the markets into a possible October low in 2006 (currently centering on/about October 23rd). Chart 4 shows the predicted NYSE Daily closing prices for July thru Sept 2006. After the NYSE forms another minor top in early July, the NYSE could begin a downtrend into mid-August followed by a sideways trading pattern (say in a range from 7400 to 7900) thru Sept. I am expecting another drop in October 2006 in the NYSE possibly followed by a minor top in Dec 2006 (but lower than July 2006). The first six months of 2007 is going to be rough for the NYSE and equity markets as the big cycles may start to take the world markets down. Bottom Line:
Remarks: We have retired and moved to Miami to watch the grandkids grow-up. We arrived just in time to watch the Heat bury the Mavs in an incredible four game run. We currently have a mud-hole in the back yard where a pool may go someday. On the other hand maybe we can fill it with fiat currencies by 2013. Condo sales in Miami are off 25% and the number of people looking to buy houses has dropped dramatically from last year according to our realtor. Gold has taken its predicted sharp drop for 2006 but may yet form a “W-shaped” bottom in the next six weeks. The HUI Index has a large 266-day cycle which it follows and this cycle has formed a bottom so one can start easing into a buy mode with coins and bullion. I will see if we can update a prior HUI study from Jan 2006 (unpublished) in the next few weeks now that I have finally got an Internet service working (usually on alternate Tuesdays and Thursdays) after four tries with an unnamed provider – “they” must make an incredible amount of money to be this inefficient. Of course, “predicting markets” may be extremely hazardous to your credibility at some point and this is a good reason to buy silver and gold so that you can have something to count on when the graphs “turn South and nothing makes sense”. In the meantime, I hope the Central Banks (et al) keep selling their gold bullion and maybe we will all keep buying. Don’t you just love Central Bankers – just watch their lips? I am just waiting on the seventh cycle of a seventh cycle (about 12 years out) when it comes homing in on fiat currencies. I once heard that Mayan Bears eat printers ink but that is probably just a myth because there is no real printers ink left in the cupboard. The CAD may reach parity with USD in next 18 months (as a linear extrapolation) which says energy prices may not really be going down in your city. If you think gas prices are high – how much is bottled water going to cost from the French in ten years? Stick around for 2007/2008 as the fun has not yet started. I said I would show you a Secular Bear. Was that a paw print you saw in May? Are your hands starting to sweat investing in all those hyped Wall Street’s mutual funds and ETFs? I heard on TV that 35000 GM employees are taking an early out (by end of 2006). I suppose in the hedonic employment numbers that means we will add another 100,000 jobs per month because productivity is going up.
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INFORMATION DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. |
