Ultra Long Term Market Outlook
"There is no more miserable human being than one in whom nothing is habitual but indecision, and for whom the lighting of every cigar, the drinking of every cup, the time of rising and going to bed every day, and the beginning of every bit of work, are subjects of express volitional deliberation." ~ William James 1842-1910, American Psychologist, Professor, Author
If we look at a 50 year chart of the Dow the information it reveals is rather interesting to say the least. We decided to run the Dow against some of our proprietary indicators to see what might come up. We do not perform this analysis often because it's very time consuming and mentally tiring.
We found some very interesting development which we will summarise here. After the tests were run one factor stuck out all over the place and it surprised us a bit to say the least. From a very long term perspective the Dow was far from overbought. We are going to list the readings from our top 3 indicators.
|Proprietary Indicator 1||When the Dow put in its then all time new high in 2000 this indictor had a reading of almost 2700. It was in the extremely overbought area. Today it is just touching the 1600 mark.|
|Proprietary Indicator 2||In 2000 it was at 75; today it's at 55|
|Proprietary Indicator 3||In 2000 it was at 93; today it's barely at 72.|
The above indicators did not take much time to run but pattern analysis always takes much longer and from the very long term charts it also revealed that the Dow was not really extremely overbought when compared to where it was trading back in 2000. In total 6 proprietary tools indicated that from a long term basis the Dow is still far from the extremely overbought zones.
Thus from the very long term perspective it appears that the markets are far from overbought and perhaps our indicators are actually pricing in the fact that the current highs are all illusory in nature as they do not take the weak dollar into consideration. For the Dow to break even with its 2000 high it would need to trade past the 14,500 mark. It appears then that any major correction will most likely provide nothing but a very lovely buying long term opportunity. Note though that there is a difference between the word Major correction and minor correction; for the most part traders today mistake minor corrections for major ones.
Indeed it can be argued that if one bough after every major correction of 11% or more over the last say roughly 30 years one would have amassed a pretty substantial fortune. It appears that negativity in general always produces a loss regardless of whether you are dealing with the markets, a private business or a personal relationship. Humans and for the matter even animals simply do not like to be around negative energy. It's for this reason that we continuously state that every disaster is nothing but a hidden opportunity in disguise; instead of saying hello most wave goodbye. A disaster is only a disaster for those that are unprepared; for the few that are prepared its nothing but a splendid time to pick up stocks or goods for pennies on the dollar.
It took the Dow 7 years to break through the first channel formation from 1958-1964; the resulting move added roughly another 500 points to the Dow for a 50% plus gain. The next stage took even longer; it took the Dow 17 years to break through the next channel formation and then just to frustrate traders another mini channel formation was formed that lasted from 1983 to 1985 and then the Dow bolted like a bandit being chased by a thousand rabid dogs. The Dow gained 100% in roughly 3 years to hit a level of 2400. Then in 1987 it experienced a huge crash or what appeared to be a crash but on this chart it just appears a blip. After dropping all the way down to the 1600 levels it took off again and tacked on 1400 points before pulling back. Note how rapidly the huge correction of 1987 was overcome and forgotten as the Dow raced on to put in a series of even higher highs.
The Dow traded in another channel formation from 89-91 and then broke out to tack on another 1000 points in roughly 3 years. Then it put in another channel formation which lasted only one year (1994-1995) and then it soared over 7500 points for a gain of over 180% in just 5 years. For the first in years it then went on to trade sideways for roughly 3 years (99-02) and the channel formation broke down and it appeared at least to the untrained eye that the world was going to end. The Dow then proceeded to mount a strong correction which took it all the way down to the 7500 mark; a 34% correction. If you had listened to the headlines at that point in time everyone was screaming that the markets were ready to crash all the way to hell. However all those penguins forgot to mention that the markets had rallied over 180% and that a mere 34% correction was nothing to worry about but actually something to look forward to as the markets were sorely in need of a cleansing. The Dow then recovered and traded back into the old channel formation zones and it did this for 2 years from 20004-2006. Note to that in doing so it put in what we have spoken in our seminars as a hop skip and jump formation (seminar attendees see if you can spot this formation). This type of formation in over 81% of the cases leads to a pretty huge move up. Thus based on the way the Dow has moved in the past and based on this new Hop skip jump formation (it's basically an unusual channel type formation) the Dow could soar significantly higher in the years to come. We are of course taking the ultra long term perspective and please do not confuse this with our views under the General market commentary section which focuses on shorter time frames.
So why have we spent so much time on this?
Well first of all we wanted to clearly illustrate that negativity is really bad in all aspects. In the long run shorting never pays neither does being negative or bad mouthing someone for no reason. Now if someone has done something wrong you can and should point it out as they need to be corrected but simply bad mouthing someone as result of jealousy or fear always leads to pain in the long run. Thus maintaining a positive attitude is what counts the most. One could have used every single pull back together with simple trend analysis and or mass psychology to buy top stocks for pennies on the dollar without shorting the markets at all and still made a huge fortune; if you had the courage to do perform both you locked in even larger gains. Remember that the majority never win and that negative people always lose; they have a bad attitude because they fail to learn from their mistakes and they are angry at the world for not giving them what they think they justly deserve. Sadly they are getting what they deserve which is absolutely nothing. It's for this reason we have always maintained that one should seek to keep ones stress levels as low as possible. If you feel your stress levels are rising due to trading or anything else then take some time out by going to a place where there are no computers and very few newspaper and just take a few good old classical books and read. Note you should cut anyone out of your life that increases you stress especially so called loved ones such as family and your significant or insignificant other. No one has the right to increase your stress as the long term consequences are simply horrendous. The markets will always be here but your health well once you lose it you can never ever truly get it back. Remember we at TI view every single disaster as nothing but opportunity knocking in the disguise of a lamb in wolves clothing; if you look closely the teeth are not really that sharp and the fur is rather soft.
The other factor is that due to the huge number of global players continuously entering these markets, corrections though severe in nature are not lasting as long as they used too. Every single major correction or crash as it has been labelled by the press has been nothing but a lovely long term buying opportunity and will continue to be so in the foreseeable future. The problem with most is that they forget that after a certain time one does not simply rush out and buy after the first big pull back. One waits for the fear to build and when it reaches a frenzied level then one starts to buy with the intention of buying more should prices drop further. Timing the exact bottom or top is an exercise in futility and is best left to mentally challenged individuals.
Based on the above moves we would not be surprised to see the Dow trading in the 27,000-30,000 ranges in a decade or so. After a major move it's all but a given that the markets will mount some sort of correction and on the level you bought in, it could either be a correction or a crash.
Please do not get confused by the above analysis. We are just trying to convey the message that for the most part so called experts and top analysts have always been wrong when it comes to corrections. Every correction is a potential crash for someone; the separating factor is where one opened up ones positions. If one bought right at the top then a pull back of 15%- 21% or more might appear to be a crash but if one bought towards the break out of a channel formation or when the market put in a double bottom formation etc and is sitting on gains for 60-90% then a pull back of even 30% is nothing but a simple correction.
What we are trying to state here is that even though the markets will correct rather severely at some point in the future, if one takes a long term perspective this will be nothing but a lovely buying opportunity. Pullbacks of 10-11% are good long term buying points but pull backs in the 21-33% ranges are simply mouth watering opportunities that do not present themselves very often.
If you do buy after the markets pulled back 10-11% and instead of rallying the markets continue to correct then simple stop loss orders will prevent you from getting killed. No system is a 100% full proof but if you follow simple rules you will live to fight again and lock in 200-400% if not more in gains that will more then make up for the one or two times the markets pulled back past the 11-15% mark.
The above charts quite clearly illustrate that negativity in all formats is bad for health and one's investments. It also quite clearly illustrates that those traders who have the ability to view disasters as hidden opportunities have and will continue to lock in ultra mega gains.
"You need an infinite stretch of time ahead of you to start to think, infinite energy to make the smallest decision. The world is getting denser. The immense number of useless projects is bewildering. Too many things have to be put in to balance up an uncertain scale. You can't disappear anymore. You die in a state of total indecision." ~ Jean Baudrillard, French Postmodern Philosopher, Writer