The Dow needs a closing above 16350 to stabilize for now temporarily. Otherwise, we are not out of the woods here until we pass March. To suggest that the major low has been made, the Dow would need to climb over 17750 level on a weekly closing basis. Keep in mind we are in a string of Directional Changes for the next 3 weeks. So expect this to remain vulnerable and choppy. The maximum on the downside if we elect a monthly bearish is to 12900 to 13000 zone. There, a closing below 16013 will be at least a warning of weakness for month-end.
Naturally, the gold promoters are out in force. The problem with their theories has always been that they are dead wrong. The REAL BULL MARKET will see the metals rise with equities. Right now, they focus on the stock market and yell buy gold because a depression is here. Here we need to see a weekly closing above the 1143 level to raise any hope of a temporary low. Without that, we have a turning point in February which can be a high with a low moving into the next Benchmark target. A closing for January below the 1103 level will warn there is inherent weakness still lingering within this market. Next month, watch the 1097 level for that is key support. Break that and its looking into a low into the second benchmark.
In the “Cycle of War” report, we mentioned in passing our models on plagues. We reported that this cycle nearly matched the war cycle coming in at 25.15 years. Unfortunately, this has turned up also in 2014. We warned that the Ebola virus was in a bullish trend and should reach a major event in 2019. Interestingly enough, the places with the least impact should be New Zealand and Scotland.
We certainly seem due for a pandemic, which likely will occur between 2017 and 2020 thanks to the abuse of antibiotics. There has been an evolution in disease and superbugs are emerging. Now there is Zika, the mosquito-borne virus sweeping Latin America and impacting 22 countries. The Center for Disease Control (CDC) has issued a level two travel warning for Central America, the Caribbean, South America, Puerto Rico, and Mexico.
Only one in five people affected with Zika will become ill, and many remain unaware that they carry the virus. The disease appears as a mild case of the flu with headaches, muscle and joint pain, mild fever, and a rash. However, the virus holds serious implications for pregnant women as it can transfer to the unborn child and cause serious, life-threatening, developmental issues. Governments are warning women not to get pregnant as there is no known treatment for the Zika virus.
The virus is spreading rapidly and scientists are trying to determine whether the disease can be transmitted sexually as well. In fact, Zika is spreading so rapidly that 20 travel-based cases have already appeared in the U.S. One such case appeared right here inNew Jersey when a woman visiting from Colombia fell ill.
We are in a very strong upward cycle for disease. This will get worse as we enter the 2017 to 2020 time-frame.
We have penetrated last year’s low in the cash S&P 500, but not in the Dow yet. The Yearly Bearish does not come into play until we get to the bottom of the upward channel. Penetrating last year’s low is indeed setting the stage for the Slingshot. Everything on our models is clearly pointing to this trend extending into 2020, and instead of concluding by 2017 that will be the starting point.
We NEED the vast majority to get really bearish calling for the end of the world and declines of 50% to 90%. This is the fuel for the Slingshot we need in place, just as we saw in 1987.
We will be launching a special blog for those inside Socrates. This will be more technical and forecasting. Hopefully, this will start next week. We will make an announcement once it is available.
There will be a blog for the INVESTOR that gives long-term views for various aspects. Access to the INVESTOR will be $150 minimum annually per region. You may select one or more of the following regions: America, Asia, and/or Europe. If you want to access a particular market at any time, that is $25 annually per market. If you just want to look around the world, it is $2 per click per market. That way, if you just want to see what is happening in Shanghai without subscribing annually to that market, you are free to explore the world. The INVESTOR level provides the long-term view only from the monthly up to the yearly levels. The computer writes the view on a daily basis, so yes, it will change dynamically with the market developments.
The TRADER level will be launching soon. That will include the short-term daily to yearly and provide access to arrays, reversals, and technical analysis. You can save to charts to view every time you return. This basic service starts at $750 annually.
The TRADER RECOMMENDATION level is where you have access to see the trading recommendations in every market. Where does Socrates stand? Long or short?
The INSTITUTIONAL service is geared toward big portfolio management. Here we get into asset allocation models with specific recommendations for shifting portfolios. This will monitor whatever you have in your portfolio and alert you to changes.
We will provide tablets with voice capability in and out four our Institutional level clients.
FIXING BUGS ON AN ONGOING BASIS
We are still fixing minor bugs in the language, which is generated and ported. Keep in mind that the computer has to handle countless patterns of every market around the world. The number of possibilities for writing a report is off the charts. It will write a report and five minutes later it will be writing the same report on the same market; it will select different languages to express the same outcome. This is not some canned report filling in numbers. The computer actually articulates everything on its own.
We will post a 35-minute video update to the World Economic forum (see “Helpful Video” thread) that will cover key markets.
We have warned that January looked like a correction all around. Wall Street rallied after a hesitant start on Thursday as oil prices led the way after surging with a big gain. ECB President Mario Draghi raised hopes of further stimulus, which has done nothing anyhow. This is becoming like a person who gets married for the fifth time expecting ever-lasting love — the ultimate triumph of hope over experience.
Nevertheless, our models on oil were reaching critical major support for the year. The oscillators (stochastic) were also at extreme lows. Our Global Market Watch warned of a Waterfall the week of January 11. This global model will be available on the Trader version of Socrates. The Investor version is gear to long-term investors and the Global Market Watch will appear for the monthly to yearly levels, limited to the region of the subscription.
This is beyond artificial intelligence — this is a full-blown machine learning model since it does everything on its own. Socrates is monitoring patterns of everything globally while differentiating the slightest divergences among markets. I personally believe that this model will ultimately prove to be the end of human analysis since it does what it would take an army of analysts to do, and even then someone would still have to merge at the top all the analyses from individual markets. That seems to be beyond human ability.
The Global Market Watch on the Dow picked the May high last year and the key low at 15370 on the monthly model, but the last month is DYNAMIC so that comment will change as the final period unfolds. Once complete it no longer changes. So as of last week, the monthly level warned of new lows under 15842.
The weekly level went into crash mode the last week of December. So again, this has done a pretty good job from a pattern recognition perspective.
So far, all 10 major S&P 500 sectors rallied with a 3.2% rise in energy stocks. All but two Dow components were higher as well. This is starting to show something we have been warning about which remains on the horizon. As CONFIDENCE shifts from government to the private sector, we should begin to witness an alignment where all private assets begin to rise against government.
The European Central Bank kept its main rates on hold as Mario Draghi said the central bank would “review and possibly reconsider” its monetary policy as early as March. Many analysts had not expected a rate cut before June. They still have not figured out that lowering rates to try to stimulate borrowing wipes out savers and reduces their ability to cope with the deflation. This is like some medieval doctor bleeding a patient who he is killing because he keeps taking more blood out until he revives.
Therefore, the crude was overdone short-term and would only confirm a temp low with a daily closing above $32.20. Oil prices bounced, rising up more than 5 percent (just shy of $30 a barrel) after U.S. crude stockpiles did not rise. This mixed with Draghi’s comments lifted U.S. and European stock markets. Nothing but ANTICIPATION.
The Draghi-led rally is touted for the bounce in global stocks that had been set in motion by a relentless drop in oil prices. This is linked to the crisis in emerging market debt, rather than cheering a decline in oil’s cost of production in the reverse process of the OPEC actions of the 1970s. Of course, fears of a China-led slowdown in global growth are real for they will not be building the infrastructure they have, and that will not help emerging markets in any event, regardless of the direction of oil. Our Global Market Watch simply is not impressed with the long-term viability of the euro.
I have been a loyal reader since your early writings from prison and greatly appreciate all you do for society and the “common man” at least those willing to learn. Thank You.
We (a couple of loyal followers comparing your analysis) are a little confused on your recent Jan 19th coverage on oil. You state: We follow the 2016 low support targets of $25 and $16.
You state in running what-if scenarios to try to forecast where the Yearly Bullish Reversal (buy signal) will be generated from either low of $25 or $16 it ends up with $40-$41.50 This seems like it would be a sell signal instead of a buy signal??????? since $40-$41.50 clearly becomes the major resistance moving forward. Could you please clarify because we do not understand?
Thank You for your time.
ANSWER:The Reversal System is always calculating the counter number to the move. In other words, the system will generate the Bullish Reversal from a low and that must be elected to signal at least a temporary low.
In this case, the current Yearly Bullish stands at $82. This break to new lows should bring in a lower number in the $49-$42 area. This would be interesting symmetry since the Yearly Bearish elected was $41.25.
That would be the major resistance. I have explained before that in 1998 the dollar/yen rallied to test the Yearly Bullish at $147. We were running out of time, so I sold against that number and then placed a stop just above. We did not get through that Yearly Bullish Reversal.
This would be no different. It is showing us that a reversal in trend would require a yearly closing say above $42 (in general) before you could say a bull market would emerge.
QUESTION: Mr. Armstrong, your real estate cycle turned up from 1955. It does not match the Case-Shiller index which peaked in 1890s and bottomed in 1920 and then began to rally after 1940 into the 1955 period. Something seem strange with that index given the huge Florida real estate bubble which burst in 1927. Can you explain why the Case-Shiller seems to be off so much? Here is a chart that has been going around the Web.
ANSWER: This is the typical problem with people creating an index and then trying to extend it back in time. They ALWAYS ignore the currency and project purely a domestic view. During the 1890s, J.P. Morgan had to bail out the U.S. Treasury for it was dead broke. As people feared the government would declare bankruptcy, private assets rose in NOMINAL terms. This was matched by the massive exit of foreign capital from the USA.
The Case-Shiller index bottoms in 1920, but this was the point of a massive rise in the dollar’s value. Foreign capital poured into the USA to park because of World War I. This, in turn, led to wild speculation in Florida, which as you correctly stated, burst in 1927. Because this index is national, it also suppresses regional booms. As real estate peaked in Florida, the hot money then shifted to stocks creating the Phase Transition into 1929. It was this capital flows between asset classes into stocks where that concentration led to the 1929 bubble.
The Case-Shiller index, which suddenly rose from the Great Depression, does not take into account the dollar devaluation that sparked that rise as it did in equities. That was virtually a 60% devaluation of the dollar that moved it from $20 to $35 on a gold standard by FDR. Was that rise “real” or currency related? Sorry, the real rise begins post-war from 1955. That was the real housing boom.
The Case-Shiller does not accurately reflect the changes in currency. One must look at everything in terms of international value before they can see if they really made money or just broke even because the currency declined. From a value perspective, the 1929 high was more than three times that of the 1890s. So the high of the 1890s was purely a rise due to the collapse in the dollar; it was the hallmark of the panic of 1893 and was best expressed in Grover Cleveland’s speech before Congress.
We use international value rather than nominal local currency. If you fail to use the international value, the end result will always be erroneous for you will NEVER see when foreign capital will rush in or flee.
QUESTION: Greetings Mr Armstrong and thank you for your excellent blog!
I have recently started reading Benoit Mandelbrot’s The Misbehaviour of Markets in which he states that stock prices probably isn’t predictable in any useful sense of the term (p. 6).
I recall that you have stated that stock prices can be predicted but not by non-traders which Mandelbrot said he was. I’m curious to this discrepancy which probably won’t find an answer since successful traders like yourself don’t like to reveal their secrets to their edge. Wouldn’t mathematicians like Mandelbrot eventually also find a way to predict prices?
ANSWER:No. You cannot forecast something based upon math or fundamentals and the greatest of all math never reveals behavior for that is cyclical. So many people fail to even understand thatTIME and PRICE are two separate forecasts and saying the Dow can reach 23,000 by the 2015.75 turning point is not taking away from the fact that there is a turning point regardless of the price achieved. Since most people cannot comprehend there are two dimensions, how can they ever forecast anything?
Many people in the industry have attempted to duplicate what I have accomplished. They knew I had a physics background and began hiring “quants” in the 1980s and thought that was my secret. This assumption led to total disaster and theLong Term Capital Management Collapse which they called – When Genius Failed. There is something which exists that is indescribable; a Sixth Sense if you will. This is a dimension which somehow we draw upon which has produced the source of the phase: those who can, do; and those who can’t teach.
I was asked this question once years ago at a conference. What I tried to describe was really indescribable. It is a sense of just knowing, instinctively perhaps, which emerges from a synergy of experience to whatever we are exposed to. There was a retired surgeon in the audience who immediate chimed in and said: OMG, you just explained it.I was a little befuddled myself because I did not think I was able to describe what I was trying to explain. He immediately said that he had been a brain surgeon. At the top of his field. I would do his job brilliantly. Then one day, the though crossed his mind that what he was doing was profound and he held the life of the patient in his hand. What he had to do was so delicate, from that day on, he could not longer do his job because he now though about what he was doing.
I greatly respect Mandelbrot for his contribution. However, I noticed the fractal nature of market years before he invented the word. I would notice a market would crash in the last few minutes each day. That pattern then migrated and appeared in the weekly level. Eventually it migrated to the monthly level. It was an observation of the fractal nature of markets. Mandelbrot came out with his discovery in nature of the fractal structure of everything around us. I immediate saw the similarity to what I had discovered within human activity.
Mandelbrot and any other scientist shouldNEVER venture an opinion on a field they have no experience in for they risk becoming an authority which retards development of that science. Wesley Clair Mitchell (1874-1948) was an economist who had no understanding of cycles and pronounced that the business cycle could not be predicted because he was clueless. He severely destroyed all advancement in economics because people would not even try to forecast the business cycle just as Larry Summers admits claiming it is just too complex for them to understand.
You simply cannot move out of your field and be an expert. I do not care what your credential might be. You cannot comprehend any field WITHOUT experience and it is that experience which created that Sixth Sense. So there are better programmers than me, but without real trading experience, they can never reach that level of the Sixth Sense.
Jesse Livermore (1877–1940) was known as the Great Bear of Wall Street, who was an American stock trader. He was famed for making and losing several multimillion-dollar fortunes and short selling during the stock market crashes in 1907 and 1929. Jesse had that Sixth Sense which is indescribable. Jesse’s book Reminiscences of a Stock Operator, by Edwin Lefèvre, reflects on many of those lessons of Jesse, but it is more of a financial memoir of Livermore. Lefèvre dedicated the book to Livermore, but it was not written by Jesse. Lefèvre was a writer and journalist who interviewed Livermore. Livermore himself wrote a less widely read book, “How to trade in stocks; the Livermore formula for combining time element and price”. It was published in 1940, the same year he committed suicide. On March 28, 1933, Jesse married 38-year-old Harriet Metz Noble in Illinois. It was Harriet’s fifth marriage; all four of her previous husbands had committed suicide.
On March 28th, 1933, Livermore married 38-year-old Harriet Metz Noble in Illinois. It was her 5th marriage after all four of her previous husbands had committed suicide. Perhaps she had the personality to made men prefer death to quiet the insanity. For whatever reason, Jesse lost much of his trading capital made during 1929 to 1932 crash; PERHAPS BEING SHORT STILL AT THE LOW. Whatever the case, on March 7th, 1934, Jesse was automatically suspended as a member of the Chicago Board of Trade. While the point move at a low is a rapid doubling in price, it took just 43 days. No short could possibly withstand that. So even being short from 386 to 40, 40 to 80 wipes everyone out. Perhaps this was the downfall of Jesse. The reason for his loss was never disclosed to anyone. He may have bet wrong with the 1933 bank holiday or the FDR confiscation of gold in 1934. I suspect it was political driven.
Nevertheless, on November 28th, 1940, Jesse Livermore shot and killed himself in the cloakroom of the Sherry Netherland Hotel in Manhattan (lobby pictured above). The police revealed to the New York Tribune on the 30th that there was a suicide note of eight small handwritten pages in Livermore’s personal notebook. The police revealed a part of what it said:
“My dear Nina: Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie”.
He left his family over $5 million in trusts. He is said to have suffered from depression in his final years.
I can read a book on how to do brain surgery. Would you like to be my first patient? Experience manifests that Sixth Sense which is produced as a synergy from all our life experiences that combine into creating something indescribable. I could walk in and deal with a crisis of $1 trillion dollars. I never thought of what would the ramification be if I was wrong. I just did it. Like the surgeon said, once he thought about what he was doing, he could not longer do it. It is a level of confidence that simply emerges from combined experiences. Not sure how else to describe it. Closing trading floors are regulators creating rules about things they do not comprehend, it destroying the crucible from which instinctive trading is taught best.