Can cycles be used to time the market? Financial Sense recently caught up with Eric Hadik, editor and publisher of INSIIDE Track Trading, to get his outlook on stocks, oil, gold, and more.
In 2014, Eric accurately predicted the US dollar would see a strong and sustained rally, and also warned listeners of a “massive convergence of cycles” hitting the market. As he told listeners then, his cyclical work suggested that stocks would likely form a major peak and then experience a series of crashes starting in 2015, which would then accelerate in 2016.
Given the accuracy and timing of his calls, which are partly based on a 40-year cycle he follows, when asked about the stock market currently, he thinks we are experiencing the first of many “downwaves” that will happen over the course of this year.
“My view is that we are going to see at least 2 or 3 convincing downwaves in 2016,” Eric told Financial Sense, “and right now we are just in the midst of the first one.”
“If you look back at 2000-2002 you saw this very volatile, almost sideways looking market for the first year and then it wasn't until about a year and a half after the peak (in the Dow) that the declines began to take on more legs,” he said. “That's what I'm expecting in 2016.”
Based on his cyclical and technical work, Eric also believes 2016 will be a “golden year,” meaning the year gold finally makes a sustainable long-term bottom. “I am looking at 2016 to be the time when we'll look back in a few years and say that's where gold really turned,” said Eric.
Eric Hadik on cycles: "I look at them as a kind of clock or calendar with the market and with natural events or social events that even if I don't know the exact cause behind them or what's governing them when you can observe a certain sequence of events going on at a very strict cycle or periodicity it begins to add credence to that cycle analysis. So I look at it as something that times market movement, market extremes...and looking for when you are going to see transitions and major shifts take place."
On fundamental vs. technical analysis: "The argument in favor of technical analysis is that some of those factors aren't known to the general public yet; that the movers and shakers or those that happen to be in the know about a particular stock or commodity or event unfolding that's still beneath the radar, they might already be making their move in the market and starting to build a position and that's much more clearly reflected on the chart and in technical analysis than it is by just trying to get a feel for all the fundamentals. Even though that ultimately is a fundamental factor driving price, really when you speak of fundamentals what people are arguing in favor of is 'known fundamentals'. That's a much different situation than just fundamentals because once the fundamentals are known the market usually has already made a third or a half of its move and often when the fundamentals become common knowledge is when you see the end of the move because everyone that hasn't known up to that point piles in at that time and in the case of a market going up that means all the buyers have now been exhausted..."
Financial Sense: When we spoke to you in late 2014 you said that you were seeing a massive convergence of cycles taking place into the 2015-2016 timeframe setting up for a top and crash in the stock market. Given the accuracy of your calls with an ultimate peak in the S&P 500 and Dow Jones in May of 2015 with two major corrections afterwards, where do you think we stand today?
"Based on a lot of technical, cyclical, and even fundamental analysis, (I've been expecting) that the initial 2-3 year decline (we're entering) would look a lot more like how the Dow looked in 2000-2002 than it would in 2007-2009. And if you look back at 2000-2002 you saw this very volatile, almost sideways looking market for the first year and then it wasn't until about a year and a half after the peak that the declines began to take on more legs—there was more conviction to them—and the intervening bounces were less in their intensity and their conviction. That's what I'm expecting in 2016...and, as opposed to the idea that the sharp sell-off in January is a time to be buying...my view is that we are going to see at least 2 or 3 convincing downwaves in 2016 and right now we are just in the midst of the first one."
Financial Sense: What do you make of the strong 90%+ correlation between oil and the stock market? Do you expect this to continue?
"I would start with what I call an...axiom of correlation. Very simply, that just states that markets only follow other markets when the lead market is going parabolic or is in an extreme phase. And then there's a secondary part to that axiom and that is correlations are only effective when you can be certain of the current focus of traders....those phases do not last very long so...I would wager that the correlation will not be there that strong for very much longer and I do think that oil is nearing a bottom."
Eric on 2016 being a “golden year”: "I am looking at 2016 to be the time when we'll look back in a few years and say that's where gold really turned—that's where gold began to really reclaim its status but it doesn't mean either that I expect an entire bull market all being compressed into 2016. I think it's going to be the year where it has its first sustained advance and I've defined that in comparison to the last 3-4 years where each of the significant rebounds in gold lasted almost the identical amount of time—11-12 weeks. So the very first thing I expected for 2016 is to see an advance that lasted longer than that from the ultimate bottom. I also expected and do expect some key resistance levels to be taken out that give early confirmation that the tide is turning but as for the overall bull market that I expect in gold, I think it will be a multi-year thing into at least 2018...but that 2016 would be the turning point."
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