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A Pivotal Set-Up Worth Watching


...many elements are dovetailing into place suggesting there is a better than average likelihood that this set-up could in fact play out.

Where the sky begins the horizon ends despite the best intentions
And a big ol' man goes up for sale. He becomes his own invention
Oh, the days go slow into the changing season
Oh, bought and sold for all the wrong reasons
Oh, down they go for all the wrong reasons

--Tom Petty & The Heartbreakers (All the Wrong Reasons)

"There are places in this world that are
Neither here nor there, neither up or down,
Neither real nor imaginary..."

--Thomas Moore

"That which is not yet, but ought to be,
Is more real than that which merely is."

--Zoe Lund

The lines between anticipating and forecasting are blurred. Forecasting is a mug's game while as traders we get paid to anticipate. We bank on and bank expectations. At the end of the day, this is an up, down, sideways game of expectations. And expectations are etched out based upon past behavior and past correlations.

Right or wrong, stocks move on the perception of reality as emphemoral as where the sky begins and the horizon ends. The market may be an ethereal perpetual motion machine, but the gears and levers to that machine are pulled by human beings and, human nature doesn't change.

In my view, patterns of the past are embedded in our DNA. The stories of the past are stored in the great "Spiritus Mundi" of mass consciousness.

In other words, no matter how hard I try to shake off the idea that under the chaotic surface of the market's waves, there is a somewhat orderly ebb and flow – a stillness in symmetry - I cannot. Beneath the day to day frantic price action whipped around like whitecaps by short-term winds and cross currents, an order of sorts emerges. Sometimes in the chaos, the waters clarify and the big picture below the surface comes into focus.

In my work, in the tools I use, this is such a time. This may be the most pivotal piece I have penned since March of 2000 when I wrote a column "Pop," followed by a piece I penned at the end of August 2000 when I felt that the most speculative area of the market, the NAZ, was as vulnerable as the DJIA was in September 1929.

This may be the most pivotal piece since I wrote in October 2002 that in my opinion a successful test of the July 2002 low was being carved out.

This is not meant to be a forecast or a "call." It describes a set-up. A set-up I believe is worth watching as many elements are dovetailing into place suggesting there is a better than average likelihood that this set-up could in fact play out. In other words, the more factors in time and price that cluster, the greater the potential for and the significance of such a turning point.

This is the big picture as I see it. Again this is not a forecast, but it may be a roadmap worth watching.

Every year ending in seven since the mid 1800's has seen a sharp decline or panic. As the market winds its way to the end of second quarter, the odds that such a sell-off could play-out increase. Why? The fifty-year or Jubilee Cycle is an important period. For example the two biggest lows in the last century were July 1932 and August 1982. Fifty years ago in 1957, the DJIA had a sharp, short-lived break in February and a virtually straight line run-up into June/July of that year. Subsequently, the DJIA collapsed from 520 to 420. The next cycle of fifty years back from 1957 is 1907 when the Rich Man's Panic occurred. The DJIA declined from 96 to 53. Although the whole year was down, it is worth noting that the lion's share of the damage began in July. In 1907 the complete ruin of the national economy was averted when J.P. Morgan stepped in to meet the crisis. The severity of the panic eventually pressured congress to accept a plan by a group of bankers to create, buy, and OWN the shares of a Federal Reserve in 1913. This is the Federal Reserve that has created a boom in the last few years undeterred by the fact that over-expansion and poor speculation triggered the panic in 1907. When you consider all the money being thrown around by the masters of the universe, the private equity emperors, and the hedge fund kings, the notion of a Rich Man's Panic has a familiar ring. J.P. Morgan, apparently a man who believed in cycles, stated "Millionaires don't believe in astrology, billionaires do."

So we've talked about the fifty-year cycle. Then there is the important twenty-year cycle. The July 2002 selling climax was the anniversary of the bottom of the bull market in August 1982. I know this cycle well as twenty years before 1982, in 1962, my father went broke being on margin when the market collapsed. Fortunately my dad never gave up and worked his way back eventually getting back into the market where he took back three times his earlier losses – eventually. But he was a rare individual. Twenty years ago in 1987, the second half of the year saw a panicky sell-off.


No positions in stocks mentioned.

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