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09122011 Interim September 12, 2011

Posted by easterntiger in economic history, economy, financial, markets, stocks.
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Current Positions  (No Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) exit;  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 9/12

-14.63, -3.45, +9.57, -8.04

(3wks ago/2wks ago/1 wk ago/this week

Aside from all of the news and media hype surrounding the very volatile market action over the past month, it can largely be classified under the technical category of  ‘consolidation’.  This is a term that describes the market moving back and forth in a sideways channel, with highs and lows in a range.  Unfortunately, the range, with an upward slope, also falls into a technical category known as a ‘bear flag’, in the sense that the upward slope is deception, as the tendency of the market after these patterns is to continue the downward move.  I expect this move downward to continue within days.

Over the weekend, fear of a pending, major European default, specifically in Greek sovereign debt tending to a possible bankruptcy, combined with newer fears of a downgrade of French banks might contribute too much resistance for the world markets to overcome.  Even a slight rebound rally this upcoming week, which is typical ahead of the next Fed meeting and a light news week, would only delay what appears to be an inevitable next round of declines likely to begin by the end of the week and continuing further possibly into October.  The market is still in search of an ultimate short-term bottom level.

Markets world-wide are down YTD by anywhere from 10% to 30%.  This includes U.S.and Asian markets being down around 13%, while European markets are down around 16%.

In the 0822 report, I said that this current downtrend has every appearance to the downtrend in 2007 from the all-time highs in the S&P500, the Dow Industrials, and several other indexes. That initial drop began with a 6 week decline, (down 14% at that point), a 2-week pause,  (we’re about here right now), then another 3-week resumption of the decline for an additional 3-4% loss, totaling about 11 weeks before a more significant pause and subsequent, 9-week counter-trend rally occurred, retracing about half of the overall decline. Coincidence?  In both cases, the S&P100 has broken the now-declining, 40-week moving average in each of these declines.  Mutual fund managers look for similarities and repeating patterns in making their buy/hold/sell decisions.

In the 0906 post, I mentioned some findings on the general state of the world markets along with the possibility for projections for the next few years.  It is not encouraging.  Keep in mind that these long term averages don’t turn on a dime under any circumstances.  These trends take years to develop and will take years to turn positively.

The French market is already approaching the levels near the March 2009 low.

Since these markets are just now leaving 3-4 year highs, the next ‘trip down’ is likely to test the lows of 2009, hopefully successfully, and will need another 3 or more years to regain these recent levels, and even more time to recover above the moving averages listed here.   We should look for significantly healthier markets no sooner than 2016-20.

100 Week Avg 200 Week Avg 400 Week Avg
S&P500 below at below
UK FTSE below below below
Japan NIKK below below below
Hong Kong Hang Seng below below above
French CAC below below below
German DAX below below below
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