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LOOK REPORT #24 Quick Look Reports will look at the dominant trend in an Index, Equity or Commodity. This report looks at some possible long-term S&P 500 weekly trends which could emerge from the dominant cycle(s) (the dataset for the S&P 500 Index is the weekly closing prices from 1950). I have not discussed the long-term predictions for this Index in over a year so it is time for an update. The current dominant (weekly) cycle in the S&P 500 Index is the 331-week cycle (also see comments about this cycle in other Quick Look Reports for the DJIA and NYSE as well as major foreign indices). This cycle formed a broad top in Oct/Nov 2005 and is now starting to accelerate downwards. It was also significant in forming a top in Sept 1999 in conjunction with other major cycles. This phasing of this cycle confirms we are heading headlong into a rough period for equities in late 2006 thru 2007. Chart 1 presents the prediction of the S&P 500 Index for the remainder of 2006. It suggests the S&P 500 Weekly Index has made a high for the year and after mid-August will start trending downwards. Since this is a major election year the Fed will probably try and keep supporting the markets until after the November elections but that will require injecting a significant amount of liquidity and does not appear to fly in the face of a number of large weekly cycles going down into FY2007. In fact, it appears the Central Banks has been supporting the NYSE Index by trying to support the USD in face of increasing deficits and not raising interest rates any further until next year and are trying for a “soft landing”. Chart 2 suggests an attempted rally in early 2007 (off October lows) but this could be in the context of a major downtrend. The actual graph shown assumes a modest upward trend line for the S&P 500 Index (the same upward channel that has been in existence for the past three years). It is possible the S&P 500 Weekly Index may break through the downside of this channel (S&P 500 Index falls below 1221) in Oct 2006. If this happens it will signal a major downside move for the S&P 500 Index into FY2007. Chart 3 shows the down trending and/or sideways action of the S&P 500 Index will continue into mid-2008 before the next major (bear) rally can begin. The graph suggests there is a relatively long period of sideways action coming in late 2007/realy 2008 in which the “brainwave” pattern of the S&P 500 Index is “flat lined”. This flat lined condition suggests some type of earlier and traumatic event may take place in FY2007 which could shake up the financial markets. A candidate timeframe is May/June/July 2007 followed by a declining market with no real rally in the S&P 500 Index until/after March 2008!? Chart 4 shows the predicted 331-week cycle in the S&P 500 Index with a top in Oct 2005. I am expecting another drop during/after October 2006 in the S&P 500 Index as well as 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 S&P 500 Index and equity markets as the big cycles may start to take the world markets down. Bottom Line:
Remarks: The sales of existing homes in Florida has dropped significantly in Broward County and in all Florida counties the sales are down in July except for Jacksonville area (up about 1%). I have watched realtors in Broward County hold open houses in the past few weeks and nobody shows up. Three years ago in Broward County, there would have been ten to fifteen real buyers at an “open house” and the house was often sold by Sunday night or Monday morning. I talked with a “wholesale mortgage lender” this weekend and he said the game is currently rolling over all the ARMS into fixed rate mortgages. Nobody is applying any longer for an ARM. Also, I was told “prospective condo and new home buyers” in Florida are walking away from deposits ranging from $15,000 to $40,000 rather than go thru with the purchase. At night, you can see there are not many lights on in some of the newer condo developments in South Florida. So many jobs depend on the US housing market and so little time is left before a major recession in housing is felt in the economy. Housing prices have created a fundamental shift in the job markets in America. How can teachers make a living in some parts of the US (i.e., South Florida faces major future problems in hiring teachers/service workers as the middle class is taxed-out)? They started to crack-down on illegal immigration in South Beach (Miami) a few months ago and rumor tells me they picked-up some 1200 illegals (the illegals would call each other on cellphones to watch out for the Big Bus and the restaurant help would suddenly dissappear). They almost put the restaurants in South Beach out of business (before quietly backing-off). Wake up America and smell the soup & salad and which way your bread is buttered!? Israel probably ran headlong into well-armed Iranian “Hezbolla” division(s) which had planted a number of large anti-tank mines and has sophisticated (i.e., Soviet-type) anti-tank missiles and advanced “Stinger” missiles against attack helicopters and aircraft. As a consequence, Israel has been forced to call up tens of thousands of troops to prosecute any attack into Southern Lebanon. There has been a significant build-up of Iranian and Syrian troops (rumor has it) for the past three years in Iraq, Afghanistan and in Southern Lebanon (porous Pakistan borders). The game for Israel and US has changed dramatically as a result of large “foreign” troop movements into Iraq/Afghanistan and we are being out-gunned in some hit and run attacks. The (122 mm) missile ranges have increased dramatically in the past three years that are being used by foreign forces. We are not winning these conflicts and the costs to US taxpayers are out of control and no longer discussed in mainstream media. It is going to become a major issue in November elections and perhaps for years to come. In the end, the ongoing “religious” conflict between East/West is fundamentally going to have profound changes in our culture. Unfortunately, the US Government has become divorced from the reality that we (US/Israel) are involved in fighting a “major religious conflict” and we cannot afford to fight these conflicts having the majority support of both the US people (as happened in Vietnam) as well as the “mullahs or religious Muslim clerics”. At this point, few in the Arab world probably believe we are an “honest broker”. When we sent Ms Rice as our representative to start a dialogue to resolve this conflict, we flat sent the wrong message to the Muslim world. The Muslim men started wearing T-Shirts showing an X thru a “monkey”. Washington DC is either brain-dead or is running with some other agenda as far as political broken-field running. Unfortunately, we have become arrogant and too politically correct for our own good. How is it in the interest of the American People to be in a continual conflict with those who will hold 75% + of the world’s oil in the next five years? There is no political/military solution to this ongoing conflict without including the “Muslim religious clerics/Jewish Rabbi” and this has not happened because the useless foam rubber elephants keep getting in the way of a real dialogue between millions people who are fed-up with the blood-shed on both sides. If the various Muslim sects decide to come together against a common foe under Hezbollah’s umbrella, these regional conflicts could potentially go on for years across twenty million square miles. We can no longer afford to fight these conflicts with conventional forces/outdated Pentagon planning of religious conflicts and the need to rapidly address/change tactics (i.e., recognize the “third religious pillar is key to resolving the conflict”). We needed to start a real dialogue with the religious clerics. Look at the track record of progress in Iraq and Afghanistan in terms of building new schools/hospitals (this is a top priority of Hezbollah and Taliban and a key to understanding how to play the game) by US contractors – it is zilch for progress with a US Administration (who are overrun by millions in Baghdad on building a hospital), and we have major cost overruns in gaming multi-billion construction contracts to the US taxpayers wallet. This latest conflict (that began with Kosovo and the Democrats) is rapidly developing into mega civil war and it may all go against the USForces who are caught in the middle. The Iraqi Homeland Defense could easily disintegrate along secular lines if we leave (see Vietnam results for prior business model) so we are between a lion (Israel) and a tiger (Muslim) (holding both by the tail) – lots of luck because we are going to need it. Hezbollah built hospitals in poor areas and started supplying aid (food and medicine and cash) to build up popular support with the poor, young Muslim men who are very willing candidates to enlist in Jihad – we did not build the schools and hospitals. The Hezbollah strategy is very successful and can be implemented at a fraction of the cost of training and equipping military US/Israeli Forces who are based in conclaves (not with the people). As long as Washington cannot spell and comprehend the meaning of a “5000 year old religious conflict”, the longer the “religious or Jihad” conflict will go unresolved by elderly white statesmen in DC. As long as you do not want to die for a religious cause, you better rethink getting involved in the first place or consider getting out. The price maybe too high to stay and try not to die for the great religious cause in fighting those who do wish to die and think they know why………………….. It is something to reflect on because it is our young men we are putting at risk – not the elder statesmen in DC. Our young men are being repeatedly recycled back into this conflict because we lack the military manpower to any longer control the outcome of this extended conflict. The silence out of Washington DC is deafening……………………
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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. |
