Financial Sense Univ. ~ "Quick Look Report #32" by Stephen Rinehart 10/26/2006

QUICK LOOK REPORT #32: NYSE
by Dr. Stephen Rinehart
October 26, 2006

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 # 32 updates the daily closing prices of the daily NYSE Index from 1966 through Oct 2006 (Reference earlier Quick Look Report #19, #22) and estimates the possible behavior pattern for the next two months in the NYSE Composite Index as well as possible coming waveform in NYSE Composite for 2007/2008. In February 2006, we were looking for an initial May peak of around 8652 and the market hit 8654.

The actual major cycles in the NYSE Composite as given in Chart 1. The NYSE continues on its linear upward M3-dominated trend but the game did not reaching a tipping point in July 2006 as originally expected – the liquidity appears to keep coming into the major market indices (not just the DJIA any longer) as the war zone gets hotter and military budgets keep rising (and we are holding military options open regarding expanding the war zone into Iran/Syria in 2007). The key element of Chart 1 is the magnitude of the 6.4 year cycle in the NYSE Composite versus the 4 year cycle. The 6.4 year cycle is over 4X as large as the 4 year cycle and the 6.4 year cycle is the key driver of coming events (tops in NYSE and long term behavior – wait until 2008). The old 4 year cycle is not currently a player at its current smaller amplitudes!? It is believed the 6.4 year cycle is making a broad top so much of the action in the NYSE Composite over the next year will be dominated by shorter cycles (such as the 1.5 year cycle). Also, the period of the 4 year cycle has become irregular (a phenomenon not seen in decades!?) and seems to imply a whole new 4 year cycle maybe forming (does this have anything to do with Bond Market?).

Chart 2 shows a possible waveform in the NYSE Composite Index for Nov/Dec 2006. It strongly shows there are significant cycles continuing upward in Dec 2006 although the trend line in this chart is based on a relatively flat slope. Thus, it is possible for the NYSE Composite Index to push into a range between 9170 – 9380 by the end of 2006.

Chart 3 shows a projection of the current waveform in the NYSE Composite Index into 2007. It shows a “double top” forming in the NYSE Composite from 27 January 2007 thru 13 April 2007 followed by a downtrend (or sharp drop) into August 2007. It suggests a possible period of (naval?) chaos in mid-2007 (military action thru early summer) which could impact the NYSE Composite Index.

Chart 4 shows a projection of the current waveform in the NYSE Composite Index into 2008. The downside portion of the 6.4 year cycle makes its appearance in mid-2008 and the NYSE Composite Index could suffer a major downtrend from mid to late 2008 – we shall see if this holds up. The high for 2008 is currently predicted to occur in Jan/Feb 2008. This may coincide with a sharp move upwards in NG, Oil and PM stocks off the acceleration of the 925+ day cycle in early 2008. All kinds of volatility is coming for early to mid-2007 and early-2008.

Remarks:

The longer term trend line in the NYSE currently remains intact and the rally has been rather impressive since early Sept. I was not expecting this solid trend to continue into late 2006 if the interest rates continued to rise (but it’s an election year) but easily possible if M3 is 10%+. The NYSE (and other major indices) has been riding a strong 18-week and 40-week cycle upwards over the past six weeks. It is not just the DJIA that is making a strong move but virtually many of the major market indices (and a solid majority worldwide).
Unclear to what extent this is a “sucker rally” like many are thinking and waiting for the other shoe to drop (possibly off Jan or April 2007 tops). Yes, we are predicting a possible sharp drop in 2007 (which we would like to avoid with a mechanical trend following scheme) but it looks possible for the NYSE Composite Index to recover/rally in late 2007 into a Feb/March 2008 top (major peak) and it may be possible to get two nice moves out of this pattern for 2006/2007. For the first time since 2000, I do not like the possible outcomes for the NYSE Composite Index after March 2008. It looks like the Secular Bear is still hanging around for 2008 – we shall see as the housing market moves into a major recession posture. If you remain in the markets after Nov elections, it is suggested to use some type of mechanical trend following system and/or follow the articles on FSU for exit points based on RSI, MACD, 200-day, channel breaks, etc.
My “ten-day” mechanical trading system still shows the NYSE Composite Index in a solid “Buy Mode”. Be ready to exit your long term positions anytime in the next few months if they pull the plug on M3 behind the scenes (my possible trigger point (as of late Oct 2006) centers on the period from 14 Jan 2007 to 10 Feb 2007 but subject to change).
The next peak in the 18-week cycle will come in late December 2006. This cycle often shapes the incoming wave front and it can be a lead indicator of a major coming downside move. However, the trouble can start just before/ after the top of the 180-day cycle (around Feb 6^th, 2007 as it will add to the downside movement of the 18-week cycle in Feb 2007.
The elections are just thirteen days away and they are going to have a profound impact on our future. The independents may be turning to the Democratic Party (see Ohio). Beyond 2015, both political parties may have to drastically change and/or be replaced by third party candidates – the younger generations do not seem to relate to the current political process and that may result in massive future “generational cost-cutting changes”. Say good-bye to Medicare/Regional military conflicts in their present form as they are too expensive for the younger generation to prosecute much longer (less than ten years). Nobody will want to pay for all this after 2015 (if it takes that long). When as a nation, do we ever get to vote on the life-changing issues except to elect a Red or Blue spokesperson to vote in our place? What’s wrong with this picture anymore?

CONTACT INFORMATION
Dr. Stephen Rinehart
Lynn Haven, FL USA
Email

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.