Markets May Be Magnetized to Top in March
Over the next several weeks, a classic signal will come, whether it be a divergent high or an overt failure.
Stocks are simply sloshing around here. A multitude of clues for an incipient top are drifting in the wind. There is an aroma.
But the jury is still deliberating in terms of where and when that high will arrive. At my firm, we're seeing our long-standing time target of 3/9-14 grow nearer with each passing day of what we've dubbed "BlitheBidding." It now looks like a "MagneticMarch" high just as we had advised a "MagneticMay" high last year. You won’t find magnetism or Mesmer in Edwards and Magee. You won’t read about Jung in technical analysis journals. But, hypnotic psychological gestalts recur in harmonic historical fractals. There are three cogent analogies noted below. But we reiterate our Dow (^DJI) forecast for 24,000. That is due near 2024 and, yes, stocks could rally 400% from their abyss lows. Do the math. In football, in golf and in markets, you need to know your yardages. The next two years are the most important “yardage.” They are likely to resolve in a uniquely negative catharsis. Don’t pay any attention to Dow 24,000.
Equities could have corrected but don’t seem to be able to turn away from their recent habitual upside gestalt. Most players and pundits alike, allow that a “pullback” is due and, that it would be “healthy.” This psychological trope is keeping the market a bit skeptical but still essentially, bid. Over the next several weeks, a classic signal will come, whether it be a divergent high or an overt failure.
Time and Price Analogs: In our esoteric architectural market investigations, markets currently have a trifecta of analogs. No, it won’t be just like any of these prior historical examples, but it will “rhyme” in some way. The first is 1987. Ah, I remember it well. It was characterized by a complacent distribution in bonds, which led to a 30-point drop in six months. Moreover, stocks soared on presumably cheap money until they crashed in the fall. There's one fractal harmonic of the 1987 high which comes due in mid-March. The next one is the stock market decline into the lows of the fall of 2002 and Q1 of 2003. It was a heavy durable double bottom. Actually the third analog may be the most cogent. It was the stock crash in 1893. Do you remember “93”? No one does, because humans only remember events that they have experienced which they have not repressed. The most important price history is never what investors are currently handicapping. They only draw upon their most convenient cognitive databank. That is, what they heard yesterday or today on the news. Treasuries may continue to churn. The media and the punditry have no idea what kind of hard times are coming. Never forget that this is a uniquely bearish phase in financial culture and that we're on the precipice of the expected abyss.
Near Term: Stock markets may keep muddling through near term. Investors' brains are still tuned to a hopeful channel. We expect major moves this year. Note that the yen and sugar may be embarking on very big moves. These may be adumbrations of more popular or notable asset embarks in the near future.
My Posture: I don’t trust the market but remain long and got much longer of gold equities into the expected low near last week's option expiry. Actually, I got frightfully long of these assets. So long that I automatically hedged much of it on the spike up. Precious metals equities have been relatively dead money compared to the bullion, but that may change here near term. Their profile is up into mid-March. I remain generically long of volatility but remain profitably hedged by selling options on it. I'm waiting for a significant signal to become frightfully long of it. The risk is that we will all be "Waiting for Godot” for too long. But maybe Godot has already left the building? Still, I would like to at least see his shadow before becoming aggressively short.
Special Forces and Timing: The fuzzy top appeared to have clarified but reverted back to some sort of hazy shade of vague halcyon hopefulness. The timing still allows for some corrective episodes into perhaps 3/2 followed by a vain but entirely seductive upside try. Don’t deny the denial? Bulls usually die hard, and they always do die, in time. But there's no need to rush them or to push them. They will topple all on their own when the time comes. Equities are resolving for a slow, but sure, cascade into the 2013 abyss.
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