Planet Yelnick

Not Your Father's Bear Market

A guestblog from Tony Cherniawski of The Practical Investor.  A relevant example of his work is here. In this post, he is applying a variety of technical analysis methods to divine where we are. As an example, many people have spotted the large head-and-shoulders in the S&P from 1998-2002. Maybe so many people see the pattern that it loses its predictive value, but in essence it reflects a switch from bullish accumulation (leading into the 1998 shoulder) to bearish distribution (leading out of the 2002 shoulder). As Tony notes, it has not been invalidated yet; indeed the S&P has been running into resistance where this pattern suggests it should. Well worth reviewing for the integration across many methods.

Currency Market

Years ago a pundit (I believe it was James Dines) described the 1980s as a rare currency market, meaning it was reacting to changes in monetary policy, not fundamentals.  At the end of an inflationary Kondratieff Summer, someone finally breaks the back of inflation, and we enter the 'false plateau' of the Kondratieff Fall. In 1980, Volcker broke its back.  In 1982, we entered the false plateau - the "decade of greed."  Once inflationary expectations were flattened, all financial assets were undervalued, since their future cash flows would have been heavily discounted against inflation.  Once their discount rate is lowered, they immediately are of higher value.  With the magnitude of Volcker's success the re-marking to market was quite a spread.  It took a while for markets to catch up to the new reality, but they did, faltering only in 1987 with a new Fed chairman and a change in US monetary policy, to cheapen the Dollar against the Yen.  Today, with markets in lockstep - a very unusual circumstance - are we in another Currency Market?

Bifurcation Ahoy!

The recent drop off the top fit the Zoran Bifurcation criteria: fell faster than the prior wave 5 had risen, and fell down into the range of the prior corrective wave 4.  The recent bounce rose slower than the fall, further confirmation of a change of trend downward (Zoran says: the faster move is impulsive, in the direction of trend; the slower is corrective).  So, is the top in?