Monday, December 08, 2008

LT update - Dec 8, 2008



In my Last update on Oct 10,2008 i said we would break the Oct 02 lows marginally and start a bear market rally.

It's been a while since i posted my LT indicator. Just thought i will update where we are, to add a little bit perspective to many LT bottom calling that are happening on the web with little to nothing technical evidence to support their calls. There's also a lot of discussions going on as to how we are almost close to a bottom similar to 2003. Nothing is further from truth (technically speaking) as the charts speak for themselves. Look at the massive base building that occurred near the 2003 lows with some nice divergences on my LT indicator.

This indicator called the onset of bear Sep 2000, onset of bull in June 2003 and onset of bear in Jan 2008. Again this is not an IT indicator, but a LT indicator. So one is bound to miss the bottom 10-15% of the rally, if confirmation is needed from this indicator. But if one is playing the LT, why the uncontrollable anxiety of missing the bottom 15%, on what would turn out to be a multi-year rally, i ask ?

One look at the indicator says, where we are now and what is required to create LT divergences on this indicator and how long would it take to build such a long lasting bottom. Any serious technician worth his salt can make some educated guesses on that.

As for the ST, today's action took out the prior swing high on the daily charts at SPX 916. So that confirms that a minor low is in place on the daily charts. That does not mean one can go and buy the strength here, like one would have done in bull markets when the monthly, weekly, daily are all uptrending. In a bull market, if you err on the daily, the weekly trend would bail you out. If you err on the weekly, the monthly would bail you out. Currently with only the daily uptrending, if you err on the daily, you would get killed by the weekly. In other words, at this point, one has the latitude to err only on the hourly charts and get bailed out by the daily. That to me, means, wait for the next hourly oversold condition with divergences and hop in on the rally until it exhausts itself. If the next hourly oversold comes near the prior lows or below that, too bad ! :-). Looking at the NYSE MCO itself, the bulls have probably used up all their ammo already. We'll see...


As for the economy, things should only start downhill from here. The worst of the economic conditions is always past the stock market lows. This whole infrastructure spending is nothing more than another crappy measure by the government IMO. Mimicking the bygone era solutions to new age problems only shows the lack of ingenuity. Moreover, if one believes that infrastructure spending got us out the Great Depression, then yes, i would also believe that Al Gore invented the internet. The cycle needs to run it course. Until then all this government spending and bailouts is throwing good money after bad, throwing precious liquidity into inefficient goverment enterprises. Sorry, i keep forgetting, capitalism as we knew is dead.

Enjoy the rally. I will be back next year after my holidays.

7 comments:

Shawn said...

Nav, You are truly a Master.

thanks for the insights.

Salsabob said...

Hello Nav,

Been following your work at TT for years; this latest of yours is once again top notch. Just wanted to comment on that last paragraph regarding govt spending by suggesting the old notion that it is hard to prove a negative - n this case, its hard to say what would have happen without the govt spending.

At least you didn't present the rather amusing conclusion that 'it wasn't wasteful govt spending that pulled us out of the Depression, it was WW2' -- as if war is not economically wasteful or as if the gov't had taken a vacation between '41 and '45 and left it to our financiers to fight it out with the Nazis on Wall Street. ;)
Many also fault FDR's temporary abandoning of Keynes as the reason for the second big dip of the Depression in '37. Others, of course, lay it at the feet of the New Deal’s hostility towards business -- perhaps this time around Keynes can be pursued without that hostility.
Today, it is hard to know what would have happen without the stimulus to date or the stimulus being considered. However, don't you find it interesting that it is being pursued with some vigor by those who are generally not considered socialists (e.g., Paulson)?

Also, and perhaps more importantly for understanding what is going on, one might consider what comes after the crisis. Think about the late 40s and 50s - very high marginal tax rates and huge government spending. All waste? Do you think the interstate highway system or the electric or communications grid from that period would have evolved from the private sector? The Internet and its commerce remain completely dependent on these systems, and the Internet itself was also a result of the govt 'skunkworks' held over from that time.

It’s very hard to remember, but govt can do wondrous things. It just takes the right people and the right culture. That is what is building now. It will require us Boomers being shuffled off to nursing homes and GenXers being overwhelmed by the cohort even larger than the Boomers, the Millies – those kids just starting to come out of college got the same generational characteristics as the last “Hero generation” - the GIs that hit the beaches at Normandy and built the suburbs in the 50s.

Something that many Boomers and nearly all Xers can't fathom, Millies, like the GIs, respect, if not like, what government does.

This doesn't have much to do with trading the market today or tomorrow, but the near certainty it gives on a multi-year timeframe can give some confidence in addressing the smaller frames, or at least keep one from getting too cocky going against the inevitable.

Or then again, one could just follow your excellent work!

Thanks for sharing your great stuff..

NAV said...

Salsabob,

Again, i am not saying that the infrastructure spending of the 30s was a waste. But atributing that as a causality for us coming out of the great depression is a big mistake. Without a question, all those infrastructure measures propelled the U.S to where it is today, as that was the need of the day, for a country coming out a super cycle degree wave 2. It set the foundation for the next big economic wave. Unfortunatley, today's policy makers are using the 30s as a reference, the infrastructure spending as a causality, as a solution for getting us out of a deflation.

Anonymous said...

Hi...

Vry nice blog (I'knew bout you but didn't know of this Blog).
Seeing your Indicator is giving interesting signals and diff from the usuals ones: I was wondering how is that one made...-ofc if you have no prob disclosing that info, maybe is a personal discovery and I can understand if you want to keep some of the magic for yourself.

Thanks in advance and wishing you da best :)

Anonymous said...

Sorry bout my basic Q: seeing MACD with some exponential close to 42 giving the signals...

Cheers

Shawn said...

Nav, have not seen you posting for a while.

Would you mind sharing your stock market thoughts for IT?

Thanks
Sean

Anonymous said...

Nice work Nav. As I have mentioned many times on TT, Martin Armstrong's pi cycle showed the high in the financial indices in early 2007. Not only did the 8.6 year cycle hit but also the larger fractal of it the 51.6 year and that was after a ever bigger one the 224 civilization cycle hit in 1999 from which Armstrong predicted publicly that the USA would be attacked in either Sept. or Oct. of 2001. As he said, the first major low from this crisis should come in on the next major pi cycle data of june 2011. Russ