Warning! Counter-Trend Moves Spark False Hopes
As the counter-trend moves continue, the optimism grows. William Peter Hamilton, the great Dow theorist who followed in the footsteps on Charles H. Dow, warned against allowing "the wish to father the thought." Based on the technical and statistical work that I do, the data is telling me that pretty much all of the moves we have been seeing over the last 2 to 6 months, depending on which market you are looking at, are counter-trend moves. As a result of these counter-trend affairs, the powers that be continue to think that they have the problem under control. The average person on the street sees that the markets are rising and they too begin to think that the worst is behind us and that maybe the bail-outs and various stimulus packages are working.
Gold bottomed in October and has moved up some 42% since that bottom. Gasoline was next to bottom in December and has to date moved up some 140%. Crude oil followed with its bottom in February and has since advanced approximately 89% from its lows. The CRB index also bottomed in February and is lagging the advances seen in crude oil and gasoline, but is still up 23% from its low. The housing index bottomed in March and advanced 83% into its recent highs. The equity markets also made a bottom in March and in the case of the Dow Jones Industrials Average it was up 32% at its most recent highs.
But, the technical data I'm looking at tells me that the bottoms seen in these markets were not THE BOTTOM, but were rather temporary bottoms. The advance out of these bottoms are counter-trend moves and should ultimately be followed by still lower prices. Now, that being said, I must also say that my cycles work anticipated and allowed me to identify each of these bottoms as they occurred and this is all documented in my newsletters. At present, I must also say that my intermediate-term Cycle Turn Indicator remains positive, which means that as of this writing these counter-trend moves are still intact. In my work, the key to identifying the top of these counter-trend moves is my statistical data and the intermediate-term Cycle Turn Indicator. Once this indicator turns the counter-trend moves should be done. The danger that I see with these counter-trend moves is that they have fostered false hopes. These rallies have offered people the opportunity to recoup some of their losses. But, the longer a particular market rallies the more the false hopes set in. This in turn allows the wish to begin to father the thought. It is the greed to recover the losses that will ultimately cost the average investor even more in losses. As the advance continues the greed sets in and people wish for more and more of an advance as they hope to further recoup their losses. In the end, the bear market will take the gift that is has given by these counter-trend rallies back. Yes, in the end most investors will find themselves with even larger losses than they had at the previous bottom. The greedy public does not recognize these moves as counter-trend and they will sit on their wishes as the market turns back down and their recovered losses turn into yet bigger losses. One does not have to be blindsided by the coming downturns. It is indeed possible to identify the pending downturn out of these counter-trend moves with the proper technical tools, such as the time proven intermediate-term Cycle Turn Indicator. Sound unbiased technical methods are the only way I know to navigate the ongoing financial disaster that we are dealing with. The politicians, Republican or Democrat, nor the mainstream media warned you of the previous declines because they did not know they were coming and even if they did they would not have told you. Do you really think they would tell you anything any different this time around?
Guys, we are in the midst of Kondratieff Winter, not the beginning of a new bull market. These counter-trend moves are more like "Indian Summer" and the deep freeze of winter will return. In David Knox Barker's book The K- Wave, is a brief list of the events that have historically marked the Winter season:
• "Global Stock Markets Enter Extended Bear Markets"
This should be obvious to all.
• "Trends During Winter: Stocks Down, Bonds Up, Commodities Down"
These longer-term trends remain intact and the recent moves to the contrary are counter-trend.
• "Interest Rates Spike In Early Winter Then Decline Throughout"
In June 2004 the Discount rate was at 2.00%. By June 2006 it was at 6.25% and since August 2007 the Fed has been forced to cut the Discount rate back to .50%. So, this too, fits.
• "Economic Growth Slow or Negative During Much of Winter"
I doubt that many will argue that growth is now slow and in many cases negative.
• "Commercial and Residential Real Estate Prices Fall"
This obviously began back in 2006 and there is still much more to come.
• "Bankruptcies Accelerate and High Debt Eliminated by Bankruptcy"
This has obviously begun and is no doubt related to the housing and credit bubbles.
• "Social Upheaval and Society Becomes Negative"
We are only just beginning to see this.
• "Banking System Shaken and New One Introduced"
The banking system is now only beginning to be shaken. There should be much more to come.
• "Free Market System Blamed and Socialist Solutions Offered"
This has not yet happened, but just wait.
• "National Fascist Political Tendencies"
Just wait, there is much more to come.
"Debt Level Very Low After Defaults and Bankruptcy"
This has not happened.
• "Trade Conflict Worsen"
This basically has not happened.
• "View of the Future at a Low Ebb"
This has not happened as everyone seems to be looking for the bottom.
• "New Work Ethics Develop Since Jobs are Scarce"
If I can assure you of one thing it is that this has not happened.
"Greed is Purged from the System"
I can absolutely assure you that this has not happened yet.
• "Real Estate Prices Find Bottom"
This has not happened.
"There is a Clean Economic Slate to Build On"
Not happened yet.
• "Investors are Very Conservative and Risk Averse"
Again, this has absolutely not occurred.
• "Interest Rates and Prices Bottom"
• "A New Economy Begins to Emerge"
Has not happened
• "Stock Markets Reach Bottom and Begin New Bull Markets"
Again, we aren't there yet.
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