562 7 12
I just find it interesting that so far this forecast is going along pretty close to reality - The market did move down in the first part of the year and it dropped the same magnitude (almost exactly) as forecast. Then the new high occurred and that happened after the correction and to nearly the exact same price as forecast. Now that we are facing the end of the year and the forecast was for a decline into the end of the year... can you believe that this forecast will come true???

Tim 8/16/2014 3:36PM EST Saturday

Here's the text of the forecast for this year 2014, from January:
2014 Forecast:
The market has not built enough time up here to sustain a long term rally. But with more time at lower levels then accumulation can develop and the bull market can continue. However, from current levels the market is not on sturdy ground. The market is stretched up at 165 and support is down at 149 and implies a downside risk of 10%. The time of the last consolidation was 12 weeks and we are in the 12th week of the rally. So, time has run out. Since the market has needed 20 weeks of accumulation before each previous rally, it is bearish to me that it only took 12 weeks in this latest accumulation.
The factors driving the market until now have been clear (stock buybacks, earnings growth, Fed driven low interest rates, equity fund inflows), but we are ahead of rational long term valuations and I would not recommend committing new funds to this market.
I think this year will be at best a sideways to down year as investors still have very few choices on where to invest and stocks will be a focus, primarily because money has flowed into equities and out of bonds and corporations have repurchased stock and issued debt. Corporate leverage is up. Margin buying is at record levels. Investors are optimistic again. Analysts seem unanimous in forecasting higher prices.
This is a great time to do the opposite and walk away.
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So far, pretty good. Many indicators show this was a good bottom for the short term today and yesterday 10/15-10/16. There is more to the downside from the strength in the dollar, the drop in global demand, the overleveraged stock market (High Margin Debt, High Corporate Stock Buybacks, High Sentiment with VIX near 10 doesn't end with one spike to 30)... etc... Look for another shorting opportunity on the lift from these lows of 5-6%.
This is still tracking... now just a drop of 10% going into year end ...
Recent weakness confirming the high is in for the year.
TIm, nice chart!..I wish you had done a similar one for the Russell.
+1 Reply
timwest christopherbrecher
Thank you Christopher. I think I can add it to my long list of things to do each year.
"This is a great time to do the opposite and walk away." - this quote by you is a great ending to your analysis, Tim.

Reminds me of a quote I saw by Dr. Colin Camerer, a behavioral economist from the California Institute of Technology, in a recent study about irrational exuberance in the markets:
“The high-earning traders are the most interesting people to us. Emotionally, they have to do something really hard: sell into a rising market. We thought that something must be going on in their brains that gives them an early warning signal. ”

I agree with your assessment of the DIA at its current levels. I have noticed that the QQQ has had a stronger rally from the recent pullback versus the SPY and DIA.

Interestingly, the QQQ seemed to be leading the push higher even before the recent market pullback. I observed this at the end of July: http://www.syncubate.com/blog/2014/7/23/qqq-taking-the-lead-higher

Is your present expectation of sideways to down movement going into the end of 2014 only applicable to the DIA, or do you also project a similar pullback for SPY and QQQ?

+1 Reply
timwest Syncubate
Thanks for the kind reply to my post: As a reminder - The content from my message was from January this year. I don't have a sense of how it will unfold amongst all the various market indexes - just overall I see that it has been an easy ride with the "Fed Put" the entire way up. Usually when we get a new Fed chief, the market usually has a big stumble, but that magically hasn't happened this time from the global Central Bank buying of all things "market traded". The latest Q-Ratio Chart shows we are extremely overvalued. The amount of Margin Debt is dangerously dizzying. The Buffett Valuation gauge is flashing danger ahead, but not many appear to be heeding the warnings. I have a secret indicator too that just flashed a SELL SHORT SIGNAL OF THE DECADE this week. An associate of mine who I have known for 15 years who is probably the most unfortunate market timer I have ever met just went full throttle into the stock market after sitting in cash for the past few years. He bought a little weakness AFTER THE HIGH in the SPY (S&P500) and is very bullish. I gave him my direct opinion, but he has really had the worst timing of anyone I have ever known. I'm sure many of you have someone in your life that is like this, so please feel free to share it with everyone when you too get a signal like this. I am not BANKING on making a big profit on this information, but it is just a confirmatory signal to the chart that I had posted at the beginning of this year. As for pure valuation - since M&A is still happening at these elevated prices, the environment still seems safe to everyone. It may take a few deals blowing up to start a top like the one we saw back in 1989 when a major market setback happened after a pullout by AMR/UAL (I think) and set the tone for a choppy environment all the way until 1991. So, I think we could really see just a choppy sideways period for awhile. Time will tell. Cheers to all. Tim
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