Stock Bear Market in 3Q 2015?
11/28/14 INSIIDE Track – When Cycles Collide: “Periodically, a subscriber question will be formulated into a Weekly Re-Lay Q & A. Since this particular one dealt with a bigger picture outlook, I thought it worthy & beneficial to include in this issue. There are multiple reasons for including it, not the least of which is one possible (hypothetical) scenario for 2015. More important, however, is to illustrate the way in which seemingly contrasting viewpoints… are not always at odds:
Given these facts, a strong argument can be made for market gains to continue at the very least through the end of 2015, and possibly longer, as the election year is the second best performing year in the election cycle long term. Eric, this forecast definitely contradicts your outlook for a late 2014 bull market peak and the onset of a bear market into 2015…Eric, what would be your response to the arguments I listed for the continuation of the bull market. And please know, that despite this evidence, I am firmly in your camp.”
Answer: The response can be broken into three parts…
1 – The first possibility should always be the most obvious – I could be dead wrong and the prevailing Election Year Cyclescould be right & remain as consistent as they have been in the past.
2 – The second possibility is that BOTH outlooks could be close to being right. A look at the action following the Jan./March 2000 peak gives a close approximation of what I am describing…
What if… The Indices topped soon (for simplicity, let’s pick a DJIA level of 18,000), saw a sharp drop into late-Dec. (already discussed as a possibility)…
From there, the market could consolidate with some wild swings – as would be expected near a major peak… and similar to what was seen in 2000–2002. Maybe, the Indices work back toward the highs – but never quite reach them – and close on April 30, 2015 around 17,500/DJIA (which would make it slightly up for the Nov. 1–April 30 period, but still below the highs)…
From there, the Indices could trend downward and see a sharp decline into August–October 2015, completing an overall 20+% decline from the ~18,000/DJIA peak…That could be the culmination of an initial down phase.
In their all-too-often manner, the Indices could then see a sharp rebound in/into 4Q 2015. The DJIA could recover into year-end…potentially closing near ‘break-even’ for the year… or even up a couple points, for good measure. The 2015 close would be positive… even if only by a few points.
[To reiterate, a look at the swings between Jan. 2000–March 2002 give an interesting analog…if you act as if Feb. 2000 & Feb 2001 are the equivalent of Dec. 2014 & Dec. 2015, since this scenario entails a Nov. 2014 peak instead of a Jan. 2000 peak, a similar scenario unfolds, where the year-to-year trend from Feb. 29, 2000 to Feb. 28, 2001 is positive… in the midst of a developing, 2+ year bear market. Even 1966–1974 has a lot of similarities, except for the fact the 1973 peak was slightly above the 1966 peak.]
To close out this scenario, 2016 (The Golden Year) would arrive…Gold/Silver could be forming a base… and then the next phase of a stock market decline unfolds… much like the declines of 2000, 2001 and ultimately 2002.
If current expectations for 2016 are accurate, Gold & Silver would begin to move higher… a more serious event accelerates the global move away from the Dollar and… all of a sudden, investors realize that paper assets priced in US Dollars are a bit more tenuous then they originally seemed. A slightly more accelerated rush to the exits would then take hold (in 2016 or later). And then…”
“When market historians look back, the DJIA would have adhered to both of its 4-year bullish cycle expectations… Even as a bear market was unfolding. In fact, those positive events (closing higher on April 30th and on Dec. 31st) could be touted as another reason for investors to maintain blind faith in paper assets and ‘hold for the long haul’… and then the decline accelerates in 2016–2017.
The DJIA 4-Year (Election) Cycle would have been right.
The DJIA ‘6-month/post-mid-term election cycle’ would have been right.
The DJIA Pre-Election Year Cycle would have been right.
And, the 40-Year Cycle of Stock-flation (and my interpretation of it) would have been right.
No contradiction at all. However, a LOT of different context… and a lot of different expectations… and a surprise result. The two seemingly contradictory analyses would merge into one.
…the 40-Year Cycle projects a ‘shift’ of MAJOR proportions during this overall period…
Every bubble eventually bursts… even as the talking heads are proclaiming ‘it’s different this time’! This bubble – a 40-Year Inflationary Cycle of Paper Assets – is poised to do the same thing. Just as interest rates cannot keep going lower, ad infinitum… nor can paper assets appreciate forever (when ultimately funded by debt).” IT
40-Year Cycle of Stock-flation peaking in late-2014… Bear market signs expected in 2Q or 3Q 2015… 4Q 2015 should see sharp advance in equities… And then 2016 ushers in the real trouble!!