In our weekly report dated 12-17, we featured an SPX chart showing re-entry into a crash channel along with our “first stop” target forecast at SPX 1270-1240 and based on the model’s prediction of future weakness we guessed we would see that level between 12-20-07 and 1-15-08.
Well, as seems to be the case lately, we were a little aggressive on our timeline but the SPX did plunge to our 1270 target on 1-22 (a handful of days later.) Looking back on our stubborn, albeit only “intermittent,” calls for a crash at various points during 2007, nothing really spectacular has happened thus far. But on a positive note, our pervasive bearishness allowed us to sell short issues at very attractive price levels and because of that fact we hope subscribers will cut us a little slack. After all, the 17 session 18% SPX decline off the 12-11 high certainly represented something more than a garden variety correction! In fact, when they SPX traded down to its pre-intervention low on 1-22, the SPX was down a full 22% from its October high and IF the FOMC had not stepped in we were surely crashing right on schedule.
The bottom-line on the stock model’s performance for 2007 is that at its highest intraday high (on Oct. 12) the SPX was up 11% over the 2006 year-end closing level and at its lowest point this year (1-22) it was down over 10% from those levels. The real story however is that, as I mentioned above, the SPX was down 22% from its October high into its January low so we have been well-rewarded by positioning ourselves bearishly as strength presented itself during 2007. BTW, if the crash continues into our near-term target at SPX 1150, we’ll be a full 27% off the October 2007 highs! Again, we all know that shorting the MFX, BKX, XBD, RLX, etc. was a very profitable call during 2007 (up 30-70%) but the point of the exercise above is to also prove that shorting strength—even in the major averages—was the proper call during 2007.
One quick point about something I hear the talking heads mentioning. It seems that they consider the retail investor’s lack of excitement over the US market as a sure sign that we haven’t yet seen any meaningful top. Hmm. Maybe they didn’t notice, but money-flows showed the retail investor going “all in” two years in a row in the high-flying foreign markets and my take is that that’s much more bearish for stock markets in general than it would have been if they had simply remained at home in the US market! Think about it. Not only did they go “all in” but they went “all in” in the most speculative markets in the world. All this talk about China, India, Brazil and Russia continuing to boom even if the US slows down or enters a recession is absolutely ridiculous. Never happens and it won’t happen this time either. In fact, if our work is correct, this is going to be “the crash heard around the world” during February. The collective psyche has shifted, just as the model told us it would, and now news—whether apparently good or bad–will be met with the same reaction this year—selling.
Full report coming soon