Big Picture

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One of the nicest compliments I ever received was from Tom Sosnoff (the co-founder of thinkorswim) who told an audience, “the thing I like about Tim, as opposed to a lot of other technicians, is that he actually has an opinion.”

That I do! Oftentimes I will read newsletters or speeches where technicians will carefully word things so that “either A is going to happen or B is going to happen”. This way, no matter what direction the market goes, they are safe. (“As I predicted, “B is going to happen”, and it has!)

I believe the historic levels of government intervention and interference in what used to be a free market is going to have disastrous consequences. I believe that the United States government, in collusion with financial institutions that have very close ties to the government, has embraced short-term solutions that will create long-term pain. In short, I think the market is going to be in much worse shape in 2014 compared to 2008.

On October 18, 2008, I hand-drew this picture of where I thought the market would be heading over the next several years. There are a couple of things to note about this conjecture:

+ Although the price movements have meaning, ignore the timeline at the bottom. No thought or speculation was put into the length of these various moves, although generally speaking I expect an ultimate bottom around 2015 or so.

+ As I am writing this page, which is on the morning of August 24, 2009, the first couple of elements of my prediction has panned out just beautifully. Specifically, I called for a choppy rise after the original drawing date (10/18/08) followed by a severe tumble down to 711.50 (we went down even further, to 666.79). I then called for a sharp rise to 1152. As of this moment, we have indeed had a sharp rise, and we’re at 1026 right now. Since the March 2009 low was even lower than my prediction, I’m not sure if the 1152 mark will be likewise exceeded or, because of the lower low, we won’t get as high as 1152 (Update: check the Amendments below). Suffice it to say that even if we dropped from current levels, the 52% rise seen so far in just five months has been powerful.

A good trading friend and fellow blogger put together the chart below, and I think it spells out very well the kind of pathway the market is going to take. Take note that this chart is of the NASDAQ, as opposed to the S&P 500 of my own chart, but the general ups and downs would be the same:


I will append this page on occasion just to augment it with any other macro thoughts I’ve got. But the bottom line for me is that I think we’re ultimately going to wind up somewhat beneath the lows of March 2009 (not by a huge amount, but somewhat) and, around 2015, begin a major upleg (at which time I will be as obnoxious a bull as I am a bear right now). Here are the amendments, in reverse chronological order:

2/13/2012 amendment:  This analog has been so butchered that I don’t even look at it anymore. It was interesting while it lasted, but I think I’m going to let this one Rest In Peace.

3/12/2011 amendment:  It’s been a while, but I’ve taken a fresh look at the analog, and it still shows some promise.

11/22/2010 amendment:  I’ve taken a much broader view of the market analog here.

9/21/2010 amendment: I have done a significant relabeling which calls for a small dip from here followed by a rally nearly back to April 2010 highs. You can read the post here.

8/14/2010 amendment: I’ve done some updated drawings; everything is still on track.

7/22/2010 amendment: A target of 925 still makes sense, and then it’ll be a steady climb up from there partly into 2011. Here are my latest thoughts.

6/2/2010 amendment: My last amendment said we’d fall to 1050 “very soon”; we got there a little more than a week after my post. At this point, I think we’re positioned for a push to 1143 and then the big fall to about 925, which should be the biggest plunge of the entire year. After that, it’s going to be a grind again.

5/16/2010 amendment: I created this chart to specifically follow, point by point, the steps in the 1937-1942 analog. I believe we are at point 17 as of this writing, which calls for a drop to about 1050 on the S&P very soon and a drop to about 925 by mid-summer.

5/4/2010 amendment: The market might have finally reached a top on April 26th, with the S&P peaking at 1219.80. This is about a 5.8% “overshoot” of my 1152 projection. That almost perfectly matches how much of an “overshoot” 666 was compared to my 711.50 projection.

3/30/2010 amendment: I put a video together expressing doubts about the 1937-1942 analog here.

3/17/2010 amendment: It seems 1225 is probably a new target for the S&P 500.

2/22/2010 amendment: So far, the predicted high of 1152 was nailed almost to the penny. We’ll see if it stays intact. The current phase of the cycle may be similar to what was seen in 2003/2004:

1/15/2010 amendment: An interesting little cycle exercise here:

 1/8/2010 amendment: I just took a fresh look at the 1937-1942 analog, and I’ve created this time projection. It calls for a drop on the Dow to 7,960 by July 17, 2010.

 11/17/2009 amendment: Well, the above obviously didn’t work out (at all). We are now at a new all-time record as of the 16th. Looking back at my prediction from 13 months ago, perhaps we’re either going to head as high as I originally predicted (1150) or, since we went 40 points low than the predicted low (670 as opposed to 710), perhaps the high will likewise be 40 points lower (the already-tagged 1110 level). 

 9/11/2009 amendmentNo hedging; no equivocating; no weasel words. I believe the following:

  • The S&P will head down to approximately 950 within the next six weeks before bouncing;
  • It will reach about 790 by early in 2010 (probably by March);
  • It will reach its ultimate low at about 600 in the next few years (2014 or so)

8/29/2009 amendment: I will add that a major concern I have is that our government, which has become quite accustomed to extreme interference with the markets, will step in to “rescue” everyone during the resumption of the tumble. As a person who hopes to profit handsomely from the downturn, my concern is that the government is going to specifically target the bears in a show of populist activism.

I put nothing past them. Some ideas that spring to mind are outlawing options (or at least outlawing put options), assessing a 95% tax on profits from short sales, and making short-selling on any securities illegal. So I plan to take most of my profits before I believe the final low is in place if I get the impression that the lawmakers are about to step in and save everyone from the bears who “caused” this calamity.