Written and Published by: Michael S. Jenkins
STOCK CYCLES FORECAST P.O. Box 652 Cathedral Cathedral Station PO, New York, N.Y. 10025-9998 10025-9998 WWW.StockCyclesForecast.com WWW.StockCyclesForecast.com Volume 26 Issue 12 _________________________ ______________________________________ __________________________ __________________________ ________________________ ________________________ _______________________ __________
January 7, 2011
Dow 11,697 Pushing On A String
Historical precedent shows that secular bear markets have rally phases that last only two years at most before an intervening nine month, to two year decline sets in. In the last issue I showed a few of the two years up, two years down patterns and below is another way to look at it counting the calendar days from the last bull market high which as of the date of this letter is approximately 1184 days from October 11, 2007.
The 'red' horizontal lines above show these 1184 day periods and what happened just after that. Stock Cycles Forecast
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Because humans are destined to repeat their history, they are also destined to rationalize why 'this time it's different.' They will tell you the economy is finally recovering so nothing bad will come for years, or earnings are finally improving and P.E.'s low, cash flow good, the Euro panic over etc., etc., etc. Of course it could be just as easily said, 'sell on news', Christmas sales were a onetime aberration, mortgage losses will bankrupt the banks again, California, Illinois, NY and the rest will go under by March, the rising rates will choke off the economy, etc., etc., etc. Cycles do exist and they repeat and all the rational thinking about why stocks should be bought or sold are always the same argument at both the bottoms as well as the tops . What was the reason people bought for the past two years? The only way to really gauge a popular mood of a cycle is look to the 'themes' in morality, religion, art and theater, politics, and perhaps count the number of Wars active or heating up or cooling off. In every one of these long term categories we are in a deteriorating decline. We must use technical analysis in light of these big themes that move thru time and create the real economic conditions. I would be more optimistic if I could see a mathematical possibility of any of the State governments being able to pay their obligations without firing 20% of their work forces, or not have the Republicans cut spending 10% across the board, or not have the Democrats raise taxes at every chance they get. In the secular bull markets where all these conditions are being solved you get the classic bull market like 1949 to 1966. During this time technical analysis disappeared because it was just a 'buy and hold' environment and everyone just learned to buy the dip and it always worked. This chart below shows that early beginning phase but even in this very bullish alternative we find ourselves at the 1184 day count to be near a short term decline to be followed by one last rally for a couple of months
before declining for many months (1184 calendar days = 169 natural square WEEKS). In the 'modern' era, technicians are trying everything possible to get an advantage, and over the years I have discussed circular arcs, square roots, JTTL's, and of course the oldest profession-Astrological forecasting. The Eclipses occur at least twice a year and this year I believe we have four sets- always a sun and moon two weeks apart. The recent solar eclipse on January 4th got a lot of press and did turn the market and exactly picked the tops in gold and silver and many commodities. Those of you who get my daily email service saw the eclipse square of nine calculation of 1424 for gold tying in that date with the eclipse and gold's terminal high- or at least a very nice short term trade. I don't want to get into a philosophical discussion of planets or eclipses here but it does stand to reason that the sun and the moon do affect human behavior in many ways and you can use Stock Cycles Forecast
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information about the eclipses for trading without any real knowledge of astro physics. The key to remember is that a 'Solar' (Sun) eclipse occurs on the suns calendar date and since the eclipse cycle (Metonic Cycle) is 19 years almost exactly, you will find past similar eclipses at 19 year intervals near the same date. If we think our January 4th eclipse means something than we should see its past effects near the January 4th-5th date at 19 year intervals. From January 4, 2011 we subtract 19 and get: 1992, 1973, 1954, 1935, 1916, 1897 etc. Of course 1973 leaps off the page as the most significant event in modern investment times starting the horrible 19731974 economic wipeout and resignation of a President and the stock market getting cut in half. Other patterns are similar or exactly opposite to what we expect for this year as shown in the last letter namely a top in January, a decline to late February / March, and a final high spike into April and then down for many months. This chart below from 1935 shows a fairly bullish outcome but the eclipse in January had all the same harmonic moves we expect near term, so I show it. This pattern had a VERY BULLISH second half of the year and the April pivot was the low. That will be the key this year- whether April is a high like 1981 or a low like shown here.
1897 was a little later than January with the eclipse near February 1st so from an astro perspective it's a bit different but this chart does show the same corrective pattern. Our strategy is to be defensive the first three weeks of January and wait until we see the March damage before we assume things are getting substantially better. Stock Cycles Forecast
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Here's our current S&P chart updated from prior issues and it is still in a strong uptrend but creeping along an angle which if broken will lead to a quick plunge of 5% or more. We need to see acceleration to the upside of these angles well above 1300 to stay in the bull camp without a very close stop. 1274 is the key pivot and a likely point for a FINAL HIGH if we are not to surpass 1300. If we stay above 1274 we will go to 1308 and 1325 or higher.
Trader's Tip: Time & Price Proportions- The Fibonacci Ratio In the last issue I talked about scaling and angles of 1 x 1 and 2 x 1 as dividing time and price into harmonic proportions. These work all the time but the key to the universe is growth, and the Fibonacci growth ratio of 'adding each number to its neighbor' usually works as in: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, etc. Each of these numbers divided by their 'neighbor' yield either .618 or 1.618 as a limit as they grow towards infinity. All cells which spit or double often exhibit these ratios and the Elliott Wave guys have made a science out of it although I don't use that method as there are much easier ways to find harmonics. The big 'problem' with the Elliott .618 ratio approach is that MOST of the time the early sequences are additive and will eventually converge to a .618 ratio but the early sequence ratios are nowhere near that. For example adding these numbers (30, 47, 112) to their neighbors gives : 77, 159 and this ratio of 159 / 77 is 2.06, a long ways from 1.618. After the trend is evident for a good time the ratios will start to show up but it's usually a better approach to use simple additive trendlines on charts. The chart below is a snapshot from my Secret Science book and shows a simple way to take highs to lows or highs to highs distances and add them together to find the actual Fibonacci ratios growing within each chart. These distances get more and more accurate as time passes just like the .618 ratio but it's usually easier to keep track of them this way as a warning flag. If you were an Elliott Wave practitioner you might make a mistake by multiplying 1.618 times the first distance of a top to top and expect another one, but that would rarely work but the additive approach will give closer hits. One way around all this is to combine the growth ratios into a growth angle or instead of using 45 degree 1 x 1 angle, use
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a slope of .618 or .382 as a trendline. That way every time your angle intersects a high or low in the chart history you will be at a Fibonacci time and price harmonic and usually a good breakpoint.
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This weekly IBM chart above, shows red vertical week counts in Fibonacci numbers and I show two sets of timing angles, one a 45 degree trendline, and the other a 38.2 Fib angle. Note that as the 1 x 1, 45 deg angle crosses the Fibonacci vertical time zone it set ups 'hot zones' in time and price similar to the method I showed in an issue or two back on sensitive points. The 'fit' of these Fib vertical week counts is certainly not ideal simply because the 2002 low is not a good starting point for this series. Sometimes you want to move these grids back and forth horizontally to find good fits. In IBM's case the July 2006 low is interesting now since that's 233 Fibonacci weeks back and IBM is currently selling near $144 the next Fib number adjacent to 233. The chart above shows a 45 deg angle connecting a number of tops with the current price so IBM may be getting ready to correct if it goes under 144 which will be a hot spot now and support if it is to go higher.
Above is an example of slopes at the rates of .618 and .382 points per calendar day ( i.e. .618 x 365 days plus starting low @788 = 1013 March 12, 2004- one year later). Note how these angles served as support and resistance and gave time cycle turns when they intersected prior highs or low points in the chart. Also note how when the .382 lower angles finally broke in October 2007, the bull market was OVER. Curiously, the 'last' touch of the angle was 1618 days (1.618) from the origin. As with ALL angle methods you should run these BACKWARDS to see if a Fib relationship from the past is due in the current week. Here's a look at Amazon with 'smaller' Fib angles of .618 x multiples of lower numbers until we find a good fit like these .236, .1458 and .09 Fib ratios. Note that the 'zero' angle starting under the 2008 low is at $186 so the stock could be 'squaring out'. That also ties in with a Fib parallel angle from the last top. The alternative is a big spike to 220, and support is $148.
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CAT shows a more traditional 'square out' of a major high being 99 months from the major 2002 low and 96 weeks from the March 6, 2009 low. The importance of this $96 price is that it is a key Square of Nine translation number on the Cardinal Cross and the attached bottom was the opposite $23 Cardinal Cross number. This is SqRt (23) + 5 re-squared = $95.95 exactly where the stock is hesitating now. Since this is a member of the Dow Jones Industrials which also had a major low on March 6, 2009, this 96 weeks time cycle coming out is likewise a top for most Dow stocks and the general market. The 'test' of this is that the immediate number below 96 in the square of nine is 61, and 61 weeks ago was November 6, 2009 when Cat had a top AT THE PRICE of $61.
The following stocks have cyclic turns during the next three weeks. GLW 1/10 NUE 1/11 CDE 1/14 BIDU 1/17 MMM 1/21
HON 1/10 COST 1/11 KLAC 1/14 WFC 1/17 MCD 1/21
SMH 1/10 APA 1/12 MU 1/14 GS 1/17 X 1/21
Stock Cycles Forecast
JNJ 1/10 APC 1/12 NEM 1/14 HD 1/17 XOM 1/25
DNDN 1/10 OXY 1/12 SNDK 1/14 IBM 1/17 CCU 1/28
SOHU 1/10 ASA 1/12 MON 1/14 KBH 1/17 CVX 1/28
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DISH 1/11 TRV 1/12 MSFT 1/14 NSM 1/17 ADM 1/28
AA 1/11 XOM 1/13 WDC 1/17 CAT 1/19
AMZN 1/11 BP 1/13 AMD 1/17 HGSI 1/19
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AXP 1/11 CVX 1/13 AMZN 1/17 GM 1/21
The new Trading Video is out and runs six hours and 32 minutes and is an effort to teach anyone to trade. The cost is $900 and is a cheap tuition for your son or daughter or spouse, or even a pro who wants to learn something long overlooked. You can watch a free 10 minute sample on my website or go directly to this link http://www.stockcyclesforecast.net/scfArchiveMovie.htm just scroll to the bottom of the table of contents and click on the video. Even if you aren't planning on a purchase you will pick up valuable tips in this 'freebie'. January Activity Calendar DATE 10 11 12 13 14 17 18 19 20 21 24 25 26 27 28
UP /DOWN DAY D D U U U U D U U D D U D U U
DAILY
*
WEEKLY
*
*
*
*
HOURLY 3 3 10 10 1 1 10 1 10 2 10 11 11 10 1
Notes: U means up day, D means down day. Trend changes indicated by the * will generally be more accurate than the frequent U/D day indications and will usually trend in the same direction until the next *. Hourly turns are given in local New York City (Eastern) times, i.e.10=10 AM EST .
Summary 90% of the cycles I follow have a high in January JUST LIKE EVERY SINGLE YEAR FOR THE PAST 10! (Except for two small Early Feb tops) and then ALL decline until March. April is the pivot for the rest of the year and will go with either the recovery, or 'double dip'. Support is 1248, 1218, 1180. Upside 1274, 1297, 1333, and 1351. Cycles dates are January 12th13th, and 26th.
On the website: for $20 US, (or $30 Non US), you can order my MTA video presentation and slides..it's the best buy of your life!!! Stock Cycles Forecast voicemail telephone number is (212) 866-2934, but I rarely answer phone messages. To get a quick response it is better to use email at:
[email protected] , or
[email protected]. Let me know if you can get email delivery of the newsletter as it is at least two to three days faster than regular mail. Stock Cycles Forecast is published approximately every three weeks. Annual subscriptions to the newsletter including the nightly telephone update are $500, a six month subscription is $265. One-year subscriptions without the telephone service are $300, and a two-issue trial is $50. Mr. Jenkins books and course: The Geometry Of Stock Market Profits ($50), Chart Reading For Professional Traders ($75), The Secret Science of the Stock Market ($135), Basic Day Trading Techniques ($125 ) as well as The Michael S. Jenkins Complete Stock Market Trading and Forecasting Course ($529 US $550 Foreign), and Secret Angle Method ($500), and Michael S. Jenkins Trading Video ($900) are available for purchase by check mailed to : Stock Cycles Forecast, P.O. Box 652, New York, N.Y. 10025-9998 . PayPal is also accepted on the web (www.paypal.com) by 'sending money' to
[email protected]. The information and statistics as well as the original theoretical concepts utilized in this report are presented solely on the basis of the writer’s interpretation of such factors and may not reflect specific knowledge or fundamental analysis of any of the companies mentioned. Any opinions expressed are subject to c hange without notice. Neither the information nor any opinion-expressed herein constitutes a representation or solic itation for the purchase or sale of any security. From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report. Stock Cycles Forecast
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