Wednesday, May 15, 2013

Market Update: (Long Term) Investors Time Frame, The Rally That Just Won't Give Up!...

First off I want to address some questions my readers are having. I see there is some confusion that some people are having differentiating between my short term and long term analysis. Specifically how I could be looking for a correction but giving upside targets. To answer this question I will reiterate there are two time frames that we operate in, one is the short term or traders time frame. And the other is the long term or investors time frame. It all depends upon ones own risk tolerance and investment objectives when it comes to which category each individual falls into.

So to answer this question, I was bearish and looking for a correction in the short term. If I was a trader, which I happen to operate as one almost exclusively, I would be short. On the long term or investor's time frame I am bullish and would be long, only getting defensive at best until long term projections are achieved. I believe we are in the beginning stages of another long term macro bull market over the next decade or so. And I think the simple fact that this market rallies in spite of slow growth and bad news is a very clear and obvious sign of this fact. We can not wait until the flowers bloom and all the solutions to the global problems are established and made public. The S+P 500 would already be much much higher if that were the case.

So I hope that answers all the questions. Now as for the solution going forward, I have decided to break up my posts into the two categories. So investors or trader's can focus solely on the time frame they operate in.

Now on to the present state of the market on the long term investor's time frame. The chart above is the Dow monthly chart going all the way back to the year 2000. I believe the Dow gives us the best upside target projections so I am using it going forward.

First thing we should focus on is the green rising trend line connecting both the 2000 and 2007 bull market highs. As of May 2013 this trend line high is just sub 16,000 on the Dow and this rises each month that goes by. This is an approximation of course.

The second and more important thing to focus on is the projected high marked on this chart, which comes in around 16,645 on the Dow. This is static and won't change over time. In the simplest of terms, this projection comes about by taking a few calculations between the difference of each long term bull market high.

The last piece of evidence is the timing, as I hope I have shown you enough evidence to the fact in my posts over these last few years, the market very often replicates previous market moves in both time and price in each time frames. The time span between the last two bull market highs was 7 years (2000 to 2007). So a similar time span would project out to the year 2014 for a significant market top (2007 + 7 years). Also the last major bull market lasted approximately 5 years between 2002 and 2007. So we also come up with the year 2014 when we add a similar time projection off the 2009 lows (2009 + 5 years).

What we want is when time and price projections align. So armed with this information we can conclude a high probability of a significant market top somewhere in 2014 and somewhere in the vicinity of 16,650 on the Dow, with respect also to the rising trend line just shy of 16,000 as well.

I will wait to give my forecast of what to expect next after that market top is put in, but as of right now I would expect somewhere close to a 30% drop in equities before this market settles into what is now a new long term trading range to the upside!