We noted in our original 2008 entry the importance of some
of the early sign degrees in the chart of the Dow. Indeed it was what was used
to predict that the impact of the cardinal cross in 2010 would not be as great
as some were fearing. But times move on – and a mitigating influence under one
scenario can be quite the opposite under another one. We are at a key moment for the long term
outlook for the market.
Over the coming 4 years we are moving towards a very serious
situation for the market, but those developments will take time.
We note that as February has started the Dow has topped a
bit. Many of the positive forces from January are reducing now. There is
still some ongoing support from the
whole investment industry as, of course, the cumulative liquidity of the last
few years has plumped up all assets.
It looks as if we’ll stay around the current level, maybe even
with some pullback for a while. But there is no major threat at present, merely
some insecurity.
There is a little more activity around April and May. The
index might receive a boost in terms of
trading levels and valuation. The signs are that trading levels will be high
too.
However we are also beginning to see the start of another
trend in May and June. One where the market diverges from reality and where
there is both a risk of weakness and lack of direction and of unrealistic
valuations. On balance the signs are of speculative buying. But care is needed as
there is some instability around by this time so it is not possible to rely too
much on the trend. However, even if the picture looks uncertain, investors do
not have to worry about significant falls on a 2008 scale.
The mood continues into July and August, and although there
is a little more restraint, there is also a tendency to trade a bit recklessly.
The overall broad market valuation should remain intact though.
There appears to be less excitability in the market in
September and a very significant turning point is reached by October.
The result of this is likely to be the high for some time
has passed by November. It looks like we’ve reached a limit then. I would
expect some selling – although volumes may also be lower. The year ends in a
mood of consolidation and caution. I don’t see significant recovery of values
after this.
2014
As January 2014 begins, trading continues to be restrained
in a wait and see mode. The trend that initially started in May 2013 is stronger
again but this time it is much more likely to be showing weakness.
February to May sees only more consolidation and some
pullback in values coupled (particularly in the latter part of the period) with
some volatility and a lot of sector switching. There is a return to the conditions that
typified October/November 2013 – with pulling back from any highs again. But
there is also a feeling that there is the beginning of a build up to something
more significant.
While June through August is the summer and does not bring
much new, the feeling of agitation gets bigger as the period continues.
A number of critical points are about to be reached.
With September comes two themes. Investors become more
decisive. But the market starts to show more weakness and lack of conviction which
continues for a few weeks until towards the end of October.
While not overwhelmingly negative, this is generally a
subdued and lacklustre time
By November while the background uncertainties remain there
is a shift from inertia to action with, apparently, further negative
consequences for the value of the index. The driver appears to be the wider
economic climate- with fears for debt and growth potential holding things back.
December carries the theme on, However it should still be
noted that despite the more subdued mood of 2014 compared to 2013, we are not
in a crisis situation … yet.
2015
Although there are shifting sands in the background, January
2015 does not bring much change to the index. There is a holding pattern as the
work started on sector shifting continues. There might be an increase in trade
but not in prices.
By February, we should find that a change has subtly
occurred as a 30 year phase comes to an end. Investors are worried and reducing
exposure, rebalancing their portfolio of assets. But there is still hope and
the situation is stable. There are very
powerful forces brewing though.
And in April, dramatic changes and events herald a new
approach and a major shift in the nature of the index.
As May and June pass there is much excitement and volatility
and overall things seem relatively ok. But by late June there is just too much
pressure building up and the worries return together with more subdued trading.
This picture stays in place throughout the summer months ( although there may
be a short boost in late July). The whole market is undergoing a revolutionary
change and values are likely to suffer as this will create uncertainty. The Dow
is likely to undergo a significant change at this point – perhaps in
composition, number of components or sector emphasis.
Such changes do not bring investor confidence. So September
is therefore accompanied by a feeling of deep seated fear. But, although there
are some minor fluctuations, and certainly no significant rises in the market at
this time, there is no severe drop from then until November either.
The issues raised by the changes in the summer return in
December. This is likely to be a very difficult time for many components of the
Dow
leading investors to make dramatic changes to their
portfolios and to reorganisation at a fundamental level
Following the events of 2015 the background theme of 2016 is
a depressed index value.
2016
We have a double
whammy of the fear index in January 2016, and I would expect this to cause
quite severe decrease in the index valuation and much media coverage.
The situation is a little better in the next couple of
months. There is still weakness and investor uncertainty but there is more
resilience in some sectors so negative sentiment is not felt across the board.
The period from April through to June 2016 is another key
time. There is a lot of volatility and movement of funds on the one hand. On
the other hand we have a critical point. There seem to be so many changes at
this point – so many events and broader economic issues at play, that it is
rather difficult to forecast how it will all play out. Overall though, I don’t
like the look of this at all. It suggests that the US economic situation
impinges far too much on the long term market – something that you will recall
didn’t happen in 2008-9 when falls were sharp but subsequently moderated
There is return to the difficult conditions by October.
There seems to be an overall negative feel and challenges to even the more
recent technology components of the index.
The end of 2016 is therefore not good. Although there are
one or two positive perspectives that might suggest a turning point in the
sentiment, the balance seems to be negative. There seems to be evidence of
actions to pump up the market valuations in some way but there is by now
scepticism from the investors and a refusal to believe in the potential for
valuation recovery.
Though if you think this is bad, wait until 2018
and the period from 2022
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