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In light of
the latest round of QE, it seems that the consensus is we have entered into a
new paradigm. That being an era of milk, honey and endless financial
prosperity. The belief is that with the Fed at the helm, the markets will
only go up as they have now basically announced open-ended QE. With that
"back stop" in place, what can go wrong? What else matters? How can
any of the technical research still be relevant on the heels of this kind of
manipulation?
This sort of
thinking is dangerous, to say the least. When I hear comments like this it
proves the extreme emotional nature of the market place. It further serves to
prove that people have short memories, that they have not done their research
and that they do not understand the very basis of technical analysis.
Let me
explain. As the market began to turn down out of its 2000 top, the Fed
stepped in with what was then unprecedented measures.
Over the course of the nearly 40% decline seen by the Dow Jones Industrial
Average, the Fed cut the Discount rate from 7.50% to 2.25%. Yet, this did not
stop the market from declining. At the time, the sentiment was such that the
Fed was in control and would not "allow" the market to continue
lower. Yet, nothing they did mattered as the market acted Exactly in
accordance with the technical setup, Dow theory, my historical DNA Marker
that was in place and specifically my cyclical based statistical expectation
that called for a decline below the 1998 4-year cycle low in association with
the decline into the 2002 4-year cycle low. This cyclical based statistical
expectation was first written about in 2001, some 17 months prior to the 2002
low, while the market was still in excess of 11,000. This call was well
published in advance and even appeared in Technical Analysis of Stocks and
Commodities Magazine in 2001. As it turns out, the 1998 low was in fact
violated by some 200 points and the 4-year cycle low occurred right on time
in 2002. My point here is not to draw attention to a market call that
occurred some 11 years ago. Rather, my point is that in spite of the then
unprecedented actions of the Fed, the market still behaved exactly in
accordance with this cyclical based statistic. Additionally, the market also
behaved in accordance with the technical setup, the cyclical setup and Dow
theory. Nothing the Fed did mattered and the
evidence to that is that the market behaved Exactly in accordance with my
statistical finding going back to 1896. Again, this was a real time call that
was made and well documented at that time.
Let's now go
to the advance out of the 2002 low. My call in regard to the 2002 4-year
cycle low got a lot of attention and anyone who could count proclaimed that
the weakness seen into the 2006 summer low was a "4-year cycle
low." I emphatically said then that this was not the case simply because
of the fact that my DNA Markers, that have been associated with ALL other
4-year cycle tops since 1896, had not been seen. Rather, my stance at the
time, based on my research, was not only that the 4-year cycle had not
peaked, but that it was stretching and that this was a result of the Fed's
monkeying with the natural forces of the market. I further stated that this
monkeying with the market would only make matters worse. This too was all
well documented and once the DNA Markers in association with the 4-year cycle
top did occur, nothing else mattered as the associated statistical
implications prevailed once again. As this top occurred in 2007, it was
documented to my subscribers as the evidence presented itself. Part of that
evidence appeared in the way of a classic bearish Dow theory trend change as
well as my structural based DNA Marker, which has been seen at every major
top since 1896. All the while, we saw what was, at the time, unprecedented
efforts by the Fed to stop the inevitable. Yet, none of their efforts
mattered. This time the decline was in fact made worse by their previous
actions, just as I had said it would be, and the reason was because of their
actions to "fix" things. This time it resulted in the climatic
events surrounding the housing bubble that Greenspan claimed did not exist,
the financial irresponsibility of the public and the banks, which resulted in
the banking crisis. All of which was a result of the Fed's policy. This time,
we also saw the massive bailouts of the banks, brokers and even GM. Again, my
point here is not my 5 year old call of the 2007 market top. Rather, my point
is that in the wake of extreme bullish sentiment, the belief that this time
is different along with the efforts by the Fed, the technical and statistical
based setup once again prevailed. It did not matter what "they"
said or did. Fact is, once the setup was in place, the die was cast.
As the market
moved into the 2009 low I specifically told my subscribers in February that
the market was moving into a higher degree low, which was seen the next
month. I also said then that it would be a counter-trend advance and that the
longer it lasted the more dangerous it would become. Point there being that
the longer the advance lasted the more convinced the public would become that
the bear market had run its course. This is exactly what we are seeing. We
are also once again seeing unprecedented actions by the Fed as they have
again stepped up their actions with their announcement of what is basically
open ended QE. As a result, we are again seeing public sentiment and beliefs
that are similar to what was seen at previous tops. My point here is that
this time is not different. The efforts by the Fed and their monkeying with
the natural forces of the market will ultimately again only serve to make
matters worse. My other point here that I want to make perfectly clear is
that once again, the technical and statistical setup will again prevail. Once
the setup is in place, the die will again be cast and it is not going to
matter what the Fed says or does. I promise you, this time is not different.
The key will be the DNA Marker and the associated structural setup. You can
count on the fact that the Dow theory is still alive and well, just as it was
at the 2000 and 2007 top and every other top since 1896. The DNA Markers
still matter, just as they did at the 2000 and 2007 top and every other top
since 1896. The statistics also still matter just as they did at the 2000 and
2007 top and every other top since 1896.
The reason
this stuff still works is simply because it does not matter what is driving price. Price is price and the reason for that
price action, be it manipulated or not, does not matter. Rather, it is the
structural and statistical meaning of the price action that matters and
that's what's reflected in the cycles, the statistics, Dow theory and the DNA
Markers. Nothing but price matters and all of these studies are based on
price. Don't be fooled again. At present, we continue to operate under a Dow
theory bearish primary trend change and we have multiple Dow theory
non-confirmations in place. We are now simply waiting on the DNA Markers to
fall into place. The emotionless, technical and statistical based research is
available at Cycles News and Views, www.cyclesman.net
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