On April 9, I suggested readers ride the bull market higher by buying stocks.
Did you? I hope so. If you did, you enjoyed a fast 60-70 point gain on the S&P
and nearly 1,000 points on the Dow.
In that article, I told you I was looking for about the 1520+ area on the S&P
and possibly as high as 13,500 on the Dow. While we didn't hit the goals yet,
the market did close over 1514 a few days ago on the S&P, just a stone's throw
from our goal. Likely the Dow will soon be approaching its goal, too.
I also said that once we got there, I wasn't sure just what the next move
might be, but when we got there I would take a long look and get back to you.
Well, I took that long look and it is potentially A REAL DOOZIE!!
But, before we get to the business of prognostication, let's turn to the
Federal Reserve and its actions last week. Simply stated they decided to sit on
the fence a bit longer. But, this time around the talk was serious about the
possibility of reducing rates.
Story Continues Below
That was a clear change from the talk last time around (the March 21
meeting). This time the wall of absolute resistance to a REDUCTION in rates was
melted down a bit, which I figured had to happen before a real reduction could
occur.
Next meeting (June 28), the atmosphere will be far riper for accepting a
reduction, both among the Fed presidents and the market in general.
Soooooooooo! Now we wait until the next Fed meeting to see if our Fed breaks
from the rest of the world's determined efforts to raise interest rates. As I
said, my guess currently is that the next meeting will likely be a rate cutting
one.
On a scale of 1-10, it's about a 7-8 rating the way I see it. I will keep you
up-to-date as things develop on this upcoming June 28 Fed meeting. But, more on
all this in a moment.
For now, let's get to the guts of today's column. Simply stated, for the next
4-5 years, I see the potential for a SUPER BOOM IN SPADES! I can best
illustrate what I mean by a "Super Boom" by directing your attention to my
Monthly Cash S&P Super Chart below.
[Editor's Note:
99 Stocks to
Dump . . . Plus the 10 to Buy for 2007!]
But, give me just a minute before we go there. I need to ask your kind
indulgence. There is something you need to know about me if you are a new
reader. I am what they call a Chartist.
I live, breath, and eat charts day in and day out. Typically, I can't tell you
anything about a stock's fundamentals, if you were to ask. Most often, I don't
know what they sell (except for well-known ones like IBM, Alcoa, and the like)
and I usually know practically nothing of the management of the company, or its
sales, or its profit history, or - well you get the picture.
You see, a chartist works from a very, very different premise than a
fundamentalist. The chartist makes the assumption (a quite valid one) that the
price data on a chart (usually shown as the daily close or some other longer or
shorter time period) reflects all that is really important to an investor. You
see, a chartist believes it is the actual event of buying and selling (data that
generates the chart) that holds the key to future price moves.
He believes that before the actual buy/sell event, the investor has usually
looked at just about every angle possible to see if the move is "right." Most
often, behind that sell/buy event may be hours, days, or even months of research
by the potential investor.
The chartist sees summed up in the actual buy/sell action, recorded on the
chart, everything that counts - research, discussion, comparison, computer
analysis, and finally the decision.
So long as the trading volume is high (low volume stocks are not nearly as
reliable), the many buy/sell actions of thousands of investors tend to form what
are called "chart patterns." The chartist looks for these patterns of buy/sell
behavior and is confident that 95 percent of the time they tell the real story
about the stock or bond - completely! Action never lies!
So, what is the market's current pattern? Well, let's get back to my Monthly
Cash S&P Super Chart below. This chart covers, month end by month end, the price
action of the S&P since 1984, over 23 years.
And here is what I see. First, note the yellow circle in the 1987 time
period. This was the then "incredible stock market crash of 1987." Looks pretty
insignificant as moves go today, I know. But, back then it profoundly changed
the way the brokerage industry operated.
Next, note the second and third yellow circles. The second is the 1990-91
sell-off decline (again looks quite insignificant) and the third was the 12
months of up and down action just before the truly incredible SUPER BOOM of
1995-2000 occurred, a 1,100 point S&P rally that broke all trading records ever
seen to that point.
Now, glance back to the 1984 period. In 1984, the S&P price was at about
100-125. In 2000, it was at 1525, a total upmove of about 1400 points on the
S&P. Finally, note that the 2000 "crash" ended in 2003 at about 800, a 700 point
decline - AHA!, says he chartist. A 50 percent decline of the original 1400
point rally!
This decline (what a chartist calls a "retracement") is a classic retracement
pattern to a chartist. If the decline stops at about this 50 percent mark
and can then gather itself together and resume its climb, the next event of
great importance that can be predicted with some certainty is making a new
high - in this case breaking the record high set in 2000. Yes, you are
right. We are at that crucial moment NOW!!!
But, this is not where the chartist stops. A chartist knows that if the old high
is broken (preferably by a 2 percent amount or better - or in our case say about
to the 1575-85 area on the S&P), there is usually another down retracement. But
this time it is vital that the retracement down stop at the old high that was
just broken (usually allowing a small leeway both above and below that critical
old high).
Now, if these actions occur, the next event the chartist looks for, with
increasing certainty, is to resume the rally and break the new high just
established. If that occurs, then the likelihood of continuing the rally
an amount equal to the original down retracement is quite high, a 75-80 percent
likelihood (again in our case, the 700 points down from year 2000 at S&P
1500 to about the 800 level in year 2003 was the retracement).
[Editor's Note:
Buffett,
Soros, Templeton, Rogers: Learn Their Money-Making Secrets.]
So, you see the chartist looks for first event A, then event B, then event C,
and so on. The interesting part here is that the longer the chain of events the
greater the likelihood that the next event anticipated will occur.
But, do note that even the best chartist must, like everyone, provide for that
small percentage of times when the sequence of events does not follow and the
whole series breaks down.
Thus, the 75-80 percent likelihood still says that maybe 20-25 percent of the
time the next event may fail to follow. In this instance, the chartist always
adds this final note - it is called the "failsafe." "If we were to break
(gives a number), then better just cover the trade (exit the trade) and watch
for the next pattern that will develop."
So, here is a summary of what our Monthly Cash S&P Super Chart below says today.
Event A - If we break the old high of the year 2000 (1525) and go at
least to 1570/80, watch for event B - a pullback back down to the old
high of 1525 (allowing about a 15 point cushion either side of this
approximately 1525 as the retracement low).
Then, event C - look for a resumption of the upmove that breaks the
1580-1600 level. If this occurs, then event D would be a 700 point
upmove to the 2150-2200 level.
(Time-wise, this may take as long as 4-6 years - the 1995-2000 rally took 5
years, as you can see by the chart. But, be advised, the time factor is the
fuzziest one for a chartist to call - just a mild caveat here) The Dow average
move might be as much as 5500-6000 points, if you wondered.
And finally, the fail safe. If we were to break below the 1525 retracement level
by over 2 percent, cover (exit) the trade. Additionally, you can set a 65-80
point "following stop" as a way to lock in some profits once we close above the
1600 area on the S&P.
So, I see the potential of a huge long term move here and if you are willing to
follow the rules I have set, I believe you will see huge gains from this move.
If you doubt this prediction, e-mail me and I will put you in touch with the
firm I told on June 22, 2003 - with the S&P at 963 - that the next long term
target was 1525, the old high.
I estimated that it would take 30-36 months to get there. I was wrong on the
time factor. It actually took 44 months. (To repeat, for a chartist, the darn
time factor is always the toughest one to call.)
Well, that's about all for today. Oh, wait a minute! I told you I had some
important info on the Fed before we leave.
Well, the most important story here is that the old Greenspan days truly are
rapidly fading. Of course, Mr. Greenspan himself hasn't. He is still out there
telling us we are about to go down into a recession and soon (or whatever is the
current revision of the original Far East meeting prediction he made several
weeks ago is).
But, forget him, because today we actually have a really incredible student of
the markets as Fed chief - Dr. Ben Bernanke - or Dr. Ben as I usually call him.
For some months, Dr. Ben has been preparing the markets for a decline in rates,
which is absolutely opposite to what Wall Street wants. Wall Street is used to
working in the old Greenspan style - use interest rates to kill or cure the
market. But, Dr. Ben says while interest rates are sometimes useful, it is the
money supply that is everything!
[Editor's Note:
Greenspan:
One-Third Probability of Recession This Year.]
If you are one of our regular readers, you know that I have said a number of
times that our money supply has been growing at a gigantic rate the past 12
months (since Dr. Ben took over. Hummmmmm).
The reason is simple. With enough money available in the economy, the housing
problem can be handled and the consumer can continue to underpin the
economic engine we call our economy. And, even more important, the dollar can
continue to slide (I believe this is a planned decline) and really up the
pressure on the rest of the world to begin buying our lower priced goods instead
of the goods of others. (See my article of last week on the dollar - go to
MoneyNews Archive). Read Dr, Ben's book about such things. It is all very well
detailed there!
Can you imagine what this action by the Fed (read Dr. Ben) will do to our
economy?! Is this what the stock market is beginning to sense? Maybe so.
Anyway, the most important event that has to happen now, in my
estimation, is that interest rates on the long T-Bond must decline (the
30-year bond traded on the Chicago Board of Trade). This only occurs when the
price of the T-Bond increases, as interest rates and bond prices always
move in opposite directions.
Below is my 30-year T-Bond chart. It also carries my Super Chart keyline (just
like my S&P chart).
Here is what is important on this bond chart. First, note the three yellow
circles on the chart, the first dated 8-7-04, the second dated 9-30-05 and the
third dated 9-15-06. These three dates are the dates the price of bonds crossed
above the Super Chart keyline (8-7-04 and 9-15-06) and crossed below the
Super Chart keyline (9-30-05).
Simply stated, above the keyline is bullish, and below the keyline is bearish
for T-Bond prices. This is important because we are now ABOVE the keyline
and have retraced back to it two times, but held above the keyline each
time prices have "tested" my keyline.
Next, note the green up and down lines labeled "symmetrical triangle downline
and upline." The green lines converge late this year at an apex. (I have drawn
in the horizontal apex line.)
This apex line is also a guide to bias. Typically, above the apex line is
near-term bullish action, below the apex line is near-term bearish action.
But, until the vital upline/downline green lines are crossed, we
will maintain the present longer term bias the Super Chart keyline
indicates, now a bullish mode (current price above the keyline).
I will keep you apprised of the progress of this developing chart, as toward the
end of this year we will be approaching the Apex itself (where the
upline/downline intersect).
[Editor's Note:
5
Inflation-Proof, Recession-Proof Stocks to Buy Now.]
It is vital that we break above the symmetrical triangle DOWNLINE
before that time. Otherwise, as the chartist would say, the formation becomes
invalid. What we actually need is for T-Bond prices to climb over the 112-113
area soon to avoid invalidating the current bullish mode.
If we do cross above this symmetrical triangle downline, the Super Boom
is all but guaranteed, in my estimation. But, if T-bond prices fail and cross
below the symmetrical triangle upline, then the Super Boom could well
come into serious question. The suspense builds! STAY TUNED!!
Well now, this really is the end of our visit for today. Hope you take a serious
look at this potential Super Boom prediction. I believe it can make you a
great deal of money in the next 4-5 years - a great deal! Do hope your
coming investment week is a good one. In the meantime, you keep in touch. I do!
See you next week.
Editor's Notes:
