17 NOV 2009, Tuesday (Part 3)

1. Again, more from cyclepro.com:
2. Taking a very long term look at things I pull out my updated 200 year chart and some zoomed-in charts of the current situation. The top is CyclePro's most noted chart. This is a 200 year history of US stocks with yearly Hi-Lo-Close bars all adjusted for US Bureau of Labor Statistics inflation rates. As is easily visible on a log scale chart, stocks stay within a consistent channel through its entire history. Each time it touches or pierces the upper channel, eventually it moves to the lower channel, and vice versa. There is even a higher channel line (orange) that has only been touched in 1929, 2000, and 2007. The lowest channel line (orange) has only been touched in 1813 and 1982. The 1900-1906 double touch was followed by a bear market through 1920. The current 2000-2007 double touch may follow a similar pattern. My target is actually 2016-2018. Even the 1906 bear market initially came down to the centerline, bounced up, and then fell through several years later. I expect the same to happen this time around with my target no later than 2012 -- but maybe we are already there...
3. Notice that the sub-prime mortgage reset default peak was September, 2008 and the stock bottom was March, 2009. That was a 6 month delay.  I believe spring, 2011 will be a wave low caused by aftereffects from the fall, 2010 mortgage default peak. The final stock low should be in spring, 2012 following the 2011 mortgage default peak.  I dunno yet if these will be lower lows or just retest lows. I think because of the cumulative effect of the series of events causing more and more weakness, stocks will react with progressively lower lows.  The 1929 scenario did not play out exactly the same way, but events occured in a series that progressively broke down and stocks reflected that with its own series of progressively lower lows into summer of 1932. You can imagine the stock charts of 2010-2012 looking like a slinky walking down a stairs.
4. A Fibonacci Exercise...I like fibonnaci numbers for my forecasting. I think the current environment is one fibo expansion larger than 1929-1932. The 1929 event took 34 months to go from 1929 peak to 1932 low. Our current event should therefore go 55 months, from Oct, 2007 all-time printed high to May, 2012.