Stocks Adhere to 2015-’16 Outlook
12/29/15 Weekly Re-Lay Alert – “Stock Market Roadmap 2015”: “Cycle analysis – like technical & fundamental analysis, many sports & even meteorology – is an exercise in probability assessment. When a batter is standing at the plate (in baseball), he is assessing the probabilities of what pitch is more likely to be thrown.
If he goes into the ‘at bat’ with a specific assumption – of what sequence of pitches are most likely, based on diverse data like the opposing pitcher’s habits, the number of men on base, the number of outs in the inning, etc. – and the first three pitches are just as he expected… it increases his confidence in what is likely to follow.
Similarly, if a meteorologist expects a ‘front’ to reach his/her area at a specific time and trigger a specific weather reaction – and it all occurs according to plan and on schedule – he/she has an increased level of confidence in what is expected to follow.
It may not be that those initial events (the first three pitches or the initial meteorological events) cause the ensuing ones – although they are likely to have a strong influence – but rather it is an affirmation that the original conclusion is accurate, on track, and now validated multiple times.
So, if someone expected a, b, & c to arrive at d time and to be followed by e & f… and a, b, & c DO arrive at d time… it increases the likelihood – or at least the confidence level – that e & f will soon follow.
My point?
Stock Market ‘Roadmap’
If the Stock Market ‘Roadmap’ for 2015/2016 (published in Nov. 2014) called for the following:
— A rebound into late-April 2015.
— An April 30, 2015 close that is just slightly above the Dec. 31, 2014 close.
— A sharp, 15–20% decline during the middle third (May–August) of 2015.
— A strong advance in 4Q 2015.
— A Dec. 31, 2015 closing price that is very near and potentially slightly above the Dec. 31, 2014 close.
— An ensuing decline in 2016 that is greater and more significant than that seen in 2015.
…and the following occurred…
— A rebound into late-April 2015.
— An April 30, 2015 close that was just slightly above the Dec. 31, 2014 close (17,840/DJIA close as opposed to 17,823/DJIA close on 12/31/14).
— A sharp, 15–20% (or greater) decline was seen in most indices – including many global indices – during May–August 2015.
— A strong advance followed in 4Q 2015.
— A Dec. 29, 2015 closing price that is about 100 DJIA points below the Dec. 31, 2014 close.
…it would certainly increase the potential – or at least the perceived potential – for the following…
— An ensuing decline in 2016 that is greater and more significant than that seen in 2015.
To newer readers, that might sound like a hypothetical scenario. However, it is anything but.
That was/is the scenario laid out in Nov. 2014, in response to multiple subscriber questions regarding the seeming conflict between the outlook for 2015/2016 (a slowly-developing & disguised bear market, that would strongly resemble much of 2000–2001, followed by Crash Cycles in 2016 and possibly 2017) and various annual stock market cycles like the mid-election and pre-election year cycles in U.S. equities.
The summary included the following quotes:
2 – “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…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…”
3 – “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.
I try never to view apparent contradictions as black and white. It is similar to when readers clamor that Gold & the Dollar could never trend in the same direction. They can… and they have – multiple times.
Often, the precise highs & lows are slightly offset. Usually, the biggest moves are at different times. But, the general trend is similar – though counter-intuitive (it is often when the Euro is in focus). There are times when more than one scenario can be correct… even if they appear to contradict on the surface (refer to Axiom of Correlations).“
4 – “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).”
With the beauty of 20/20 hindsight, it is now apparent that all of the initial stages – of what is expected to be another 1–3 year/35–50% drop in many equity indices – have unfolded with uncanny precision… right down to the 2015 closing level. If the DJIA can tack on another ~100 points in the next two days – and close right around or slightly above 17,823 on Dec. 31st – it would fulfill the latest stage… again with uncanny precision.
Stock Indices continue to mimic the overall action of 2000–2002, when almost every sharp sell-off was quickly met with a contrasting rally and almost every rally was followed by a slightly larger decline.
The action of late-2014–late-2016 (potentially extending into 2017) was expected to be similar… not an exact replica, but a generally similar pattern in which a sustained decline (or advance) is never able to take hold.
In the near-term, the Indices are in a 2-month period of consolidation with most of them remaining below their early-Nov. highs. The Nasdaq 100 just gave the second neutral signal to its prevailing daily downtrend, so the coming days should be decisive.”
Stocks keep moving in lockstep with the ‘2015–2016 Roadmap’ while reinforcing the similarities between 2000–2001 & 2015–2016. Expect that to continue through much of 2016, with a convincingly decline waiting until late-2016 to materialize. The 32–33 Week Cycle should continue to help hone some key turning points.