Alan Watts is a British born philosopher who popularized Eastern Philosophy for a Western audience. I came across his musings on peaks and valleys (cycles) and how they go together. As I was listening, it struck me that the Fed and all the other central banks are deathly afraid of the valley. Valleys must not be allowed! The super leveraged economies of the world can not handle a growth scare because a recovery that was born and baptized in credit needs constant credit creation (more debt) to sustain itself or it implodes. The longer they delay the inevitable and stretch this stock/credit cycle the deeper the valley once we descend. Sit back, relax, open a bottle of wine and listen to the soothing voice of Alan Watts as he waxes upon the inevitable decent into the valley. In fact he believes the valleys may have more meaning than the peaks.
Food for thought: Since the inception of the DJIA the stock market has averaged a 4 year cycle from low to low. Some cycles are longer and some are shorter. Prior to this cycle, the longest 4 year cycle ever was 77 months which ran from October 2002 to March of 2009. The advance from that low was 60 months into the peak of October 2007. Currently we are in month 72 of the current advance with the last ATH in February of this year. So unless you think that we are already going to meaningfully exceed the longest prior 4 year cycle record of 77 months, it is likely that this cycle ends in the next 5-7 months. If we are in a secular bull market then the average decline into a 4 year cycle low over the history of the DJIA is in the range of 25-30%. If we are in a secular bear we know that all secular bear market four year cycle lows will take out the prior 4 year cycle low which, in this case, is 666 on the SPX. So whether we are in a secular bear or bull a meaningful correction is coming very soon. Unless the CB’s can continue to deny mother nature this cyclical math suggests that time is running out and the piper must be paid soon. Could I be wrong? Absolutely! However the CB’s better have some more magic and fairy dust because we are long in the tooth in time. I am always asked what will be the catalyst? The catalyst is that time has run out. Price and time…people always forget time.
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Classic over fitting syndrome, justifying insanity, veiled with anecdotal reasoning.
I can perform brain surgery on you and cure this ailment.
Watt’s writings are superb. Check those out as well.
Blue, I don’t think we can really under estimate CBs. They will continue to provide liquidity by all means necessary.
I remember having conversations with other PMs before QE2. The consensus was, if QE2 was enacted then it was and admission that QE didn’t work and markets would fall hard. Well since then no meaningful correction.
These markets do not make a lot of sense and the model which flashed 50% cash lat week quickly reversed on the close the next day to fully invested. The model is not perfect, but has called some pretty good corrections.
Long and strong for now, until the model says otherwise.
Good luck on your trade. Did you get stopped out?
“the longest 4 year cycle ever was 77 months” Yes, that’s a mighty long 4 year cycle. Looking backward at a series of events like economic cycles is not going to help you divine the future. Meaning, if we are 72 months into a cycle, are we “likely” to have only 5 months left. Why? Because across a relatively small sample size of cycles that’s been the longest? These are unprecedented times. Just like any time is. Humans like to do this type of backward looking analysis, using a protractor and graph paper (remember all of those ominous 1929 market graph overlays) because it’s easy and satisfying. The fact is that we are the best country on a really shitty planet, and who knows how much more this market can be inflated. I agree with your sentiments though. In my opinion the best way to play this is with options and a fair amount in cash. Keep most plays on the long side, but with some put protection, trying to keep the expense to a min.
I read some where that the latest downturn was 2011.I do remember it being nasty and
fortune being what it is
I managed to call that and got rid
of all my holding at the time. So if
we measure from 2011 does that
change things.
Dr. Fly,
I am just trying to class up the joint here.
Alan Watts was an enlightened cat…. but keep in mind that he drank himself to death as well.
Watts was a walking oxymoron. He preached clarity and spirituality while drunk and high.
Bluestar how do you define a “low” in your 4 year cycles? Isn’t it possible as gorby mentioned that 2011 was the last “low” everyone who clamors about a lack of 20% correction seems to dismiss the “only” 19.5% decline on the S&P as invalid.
From the highest intraday print to the lowest the S&P corrected 21.7% I’m not saying this rally doesn’t seem long in the tooth. Mostly curious how you are defining a “low”?
No doubt Watts was a free bird. Spent the 60’s and 70’s living in those hippie hills just northeast of Frisco.
if you like Watts, I recommend
http://www.figu.org/ch/files/downloads/buecher/goblet-of-the-truth.pdf
Jimmy,
Not stopped out yet. Looking to a add leverage if/when we break a certain level.
Da, TM and Gorby
I asked my very close friend Tim Wood to answer your question on the 4 year cycle since I use his cycle work in conjunction with my fundamental and other TA work. This response will likely show up on Safe Haven later today:
The 4-year Cycle Phasing Explained
March concluded the 72nd month of the advance out of the 2009 low. Given the duration of this advance, I feel that it is important for me to clarify for you why I maintain that this is the longest 4-year cycle advance in stock market history. Below, I have included a monthly chart of the Dow Jones Industrial Average going back to1896, which is the inception of the Industrials. Since 1896 there has been 28 completed 4-year cycles. We are now in the 29th. Of these 28 completed 4-year cycles, the average duration from low to low has been 47.07 months. Of these 28 completed cycles, 13 have been less than 47.07 months in total duration from low to low and 15 have been greater than 47.07 months.
During the advance in 2006 and into the 2007 top, some tried to argue that the modest decline into the 2006 low marked a 4-year cycle low. However, I said that this was not the case. I further explained that the 4-year cycle was not only extending, but that due to this extension it was only going to make matters worse once the 4-year cycle did peak and the inevitable decline into the 4-year cycle low began. More specifically, I said, in print and in numerous interviews, that the decline into the 4-year cycle low would carry price below the 2002 4-year cycle low, which it did. I was able to make this call based on statistical analysis of the 4-year cycle.
Part of that statistical based analysis is what I term my DNA Markers. These markers are nothing more than a set of statistical and technical based common denominators that have been seen at previous 4-year cycle tops. The very reason I developed these DNA Markers was so that I would have a concrete way of identifying cycle tops, in real time and in spite of their duration. Without a set of common denominators, there is simply no way to know when a cycle has in fact peaked. What if the cycle peaked early, as it did in 2000? How would one know? Fact is, without these DNA Markers, it is impossible to know until well after the fact and by then it’s too late. For the record, yes, I also used these Markers to identify the 2000 top, which was documented, in print, in Technical Analysis of Stocks and Commodities Magazine.
Anyway, I said all that to say this, there are some who want to point toward the 2011 low as having marked the most recent 4-year cycle low. Because of my extensive research on cycles and the development of my statistical based DNA Markers and the complete absence of those markers at the May 2011 price high, I said then, in real time, that the May high was NOT the 4-year cycle top. In fact, because of the absence of these DNA Markers, I explained that it was only a decline into an intermediate-term cycle low and that once that low was made, we would see higher prices. To date, I maintain, based on these same statistical methods that the decline into the October 2011 low was without question not a 4-year cycle low. I also maintain, based on these statistical DNA Markers, this is the longest 4-year cycle extension since the inception of the Dow Jones Industrial Average in 1896. In addition, as was the case with the liquidity induced extension of the last 4-year cycle, which peaked in 2007, I further maintain that the current liquidity induced extension of the current cycle is likely to end with a severe bust. I am telling you that because of the efforts to prevent the natural ebb and flow of the cycle and the resulting extension, along with the fact that the masses do not understand the environment in which we operate, as is evident from the extreme bullish sentiment readings, this is the most dangerous stock market environment since the inception of the Industrials in 1896 and it is not going to end well. Anyone that is interested in the specifics, the research is available in the monthly research letters, Cycle News & Views, at cyclesman.com
Thanks Blue.
What a difference a couple of days makes. Bonds and cash showed up in the model. This could get interesting.
jimmy,
Thanks. I am stalking the end of the cycle. When it flips it will take many off guard.
Mr. Wood your ideas intrigue me and I would like to subscribe to your newsletter.
Nice find (Alan Watts.) Blue have you read his works?
dan,
i am not mr. wood. his contact is at the bottom.
superpositron,
No but I will start.
This comment section is going to get busy when the cycle turns.
superpositron,
The cycle has been trying to turn since March of last year. we have had six set ups. every time we have been saved by CB intervention. the set ups come quicker and quicker so that means diminishing returns from intervention. Prior to 2014 we had zero cycle top set ups. I was long until last year. My thesis is that when this turns it will be vicious and quick. A crash perhaps. All the intervention and stretching of the cycle will unwind very very fast.
Blue – what do you have to say to the credit guys, like Brian Reynolds who says this is simply a correction in an ongoing credit-driven bull market that will resume shortly after the pre-programmed equity dip to SPX 2010 +/- and it will likely run into 2018 +/-?
Most assume the future will resemble the recent past. Eventually that will not be the case. When that occurs; the world changes – and in a heartbeat.
Europe does not want a war with Russia.
When the inflection point comes, most of Europe and the US “allies” will align with Russia/China’, isolating the US financially.
Tumult like the world has never seen.
I hope it’s later rather than sooner.
Enjoy yourselves. These are the good old days for most. (BlueStar readers excepted)
Song https://www.youtube.com/watch?v=Z-HLxpWGCzc
We’re winning the war:
https://www.youtube.com/watch?v=RopnOq6SXH0
Rouge Wave,
What do you mean Bluestar readers excepted!
Juice,
no idea who that is.
Blue. The Central Bank Church of Scientology has recently suffered “glitches”. Back in the bear camp.
Ironbird,
Welcome home. Remember keep your stops tight.
What do you mean Bluestar readers excepted!
I mean, if you have a clue about what is actually going on in the real world economy (like BlueStar readers do) you give yourself a chance to either sidestep the calamity or even become very wealthy.
I don’t know how ‘it’ will happen or when, but I think it’s possible ‘it’ will happen rapidly at some point.
https://www.youtube.com/watch?v=GxKvTepymxs
The best days of all may be in the future for BlueStar readers. But for the general populace the best days may be today and in the past.
anecdotal,
thanks