Roadmap for 2009
Course of the market may be relatively predictable.
Some things are too hot to touch
The human mind can only stand so much
You can't win with a losing hand.
-Things Have Changed (Bob Dylan)
Just as the consensus was cobbled that a Santa Claus Rally had not and would not materialize, the broader market once again defied the conventional wisdom to move up strongly last week. Just as the lack of interest reflected by low volume seemed sure to dominate, the market erupted.
Some things never change. One of those is the irascibility of Mr. Market and his commitment not to accommodate. Perhaps Santa simply got stuck in Hoofy's chimney causing him to show up late.
On New Year's Day in 2002, the Wall Street Journal published its annual survey of economists for the upcoming year. Although the economy had been declining for almost a year, not one of the 55 economists thought that 2003 was in for a serious economic decline. 100% were wrong and proof that Ph.D. economists are as prone to mob psychology as the rest of us. The fact is we were already in a recession when they came to their conclusions.
At the end of 2007, when Barron's asked market strategists to look ahead to 2008, they predicted that stocks would rise 4% during the year. Not one of the 12 strategists polled by the paper said they saw a recession coming in 2008. And, now we are told that we were actually once again already in a recession when those predictions were made.
There is no place like Wall Street where so many have been paid so much to tell you the future and be so wrong. Incorrect calls seem to get lost amongst the junk heap of media politesse.
It is part of human nature to believe that they or at least someone else can understand why something has happened and that there exists some rational explanation that will then point to what is most likely to happen next. One sunny day does not mean that it will not rain the next. But, that does not stop folks from telling us with certainty what the future will bring--for a fee.
From where I sit, any economist who tries to understand and predict the behavior of the economy, any market strategist who tries to understand and predict the behavior of the market without an good understanding of cycles, will have to rely more on chance than otherwise.
Things confront us in non-linear form and we construct linear explanations and assume that the dots have been connected leading to knowledge. Just as a painting can express many complex concepts at one time, so can an historic chart of the financial markets express and communicate multiple concepts immediately. In the marrying of Time and Price a study of the past often times gives us a peek at what might just happen again in a somewhat similar form.
When you look at numbers, it seems to me, you can't look at them in isolation; you've got to look at relationships between them, in time and in price. As, W.D. Gann said, "God geometrizes."
Before I go into my outlook for 2009, I think it is important to say that this roadmap is not a forecast but my interpretation of the cycles of time and price. They represent possible turning points. A look back at two of my pieces from 2007, "The Market's Remarkable Symmetry," and "Anniversary of Important Historical Lows," show my approach in real time.
Mark Twain said, "By the Law of Periodical Repetition, everything which has happened once must happen again and again--and not capriciously, but at regular periods, and each thing in its own period, not another's and each obeying its own law…the same Nature which delights in periodical repetition in the skies is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint."
Going into the 3rd calendar year of the financial panic that began in the summer of 2007 on the 100 year anniversary of the Panic of 1907, it may be worth recalling that J.P. Morgan stated that, "Millionaires don't use astrology, billionaires do."
Cycle analysis is given short shrift on the Street, but it is worth noting that the Rothschild's of Europe stated that they accumulated all of their wealth by following a 41 to 42 month cycle of economic activity.
It is interesting that 2009 opened with the best gainer since 2003. In both opening sessions, the DJIA advanced approximately 250 points.
Click to enlarge
Both years showed a low in March. Following a rally into late January early February, I am looking for a low in March this year (not for the reasons above) which may be the low of the year. If the S&P holds above 870ish and particularly 850, then last November's low will mark a low that should hold throughout 2009 and March 2009 should be a low for the year.
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