I thought I’d dedicate a portion of this week’s report to providing some long-term perspective on the stock market and although my INDU data only begins around 1920, I think it’s sufficient to point out a few key ideas about price movement. As most of you are aware, all of my models are “fractal” meaning that my 5 minute bar model works exactly as my monthly bar model in its laws and mechanics. The advantage of this concept—once you believe in it as I do—is that it has allowed me to study the equivalent of thousands of years of bull and bear market data on a 5 minute basis which has in turn allowed me to be comfortable in the knowledge that the monthly bar chart is a very valuable piece of information (as opposed to random chaotic squiggles as some scientists and quant-model architects would have us believe.)
The first chart below was created using a “semi-log” approach and the second chart was created using a “linear” approach (which is the type of chart most of you are familiar with.) Notice the nice parallel lines that create the long-term trend channel back to the 1932 low in the first chart and then notice how the market “jumped” the track during 1996. This is especially important to me because the “jumping” of the trend channel is a visual confirmation of what my model has been telling me all along, namely that the US stock market—as well as a vast number of other “investable assets”—entered into some type of super-speculative period 1996 through 2007. The other even more interesting idea the chart points out is that IF price follows a normal pattern after a trend “jump” i.e. falling back into the original trend channel and moving rapidly back down to the BOTTOM of the channel…we find a perfect match of price and time with the INDU “revisiting” the BAM model’s important 3971 level into the 2010 period. I can hear the chuckles and I’ll try not to take it personally—after all, I’ve spent eighteen years of my life working on this voodoo—but even the BAM model’s staunchest skeptics must now admit that its predictive capabilities over the past three years have been well established especially given the fact that I didn’t have much/any company when the model made the call.
BKX Revisits 1996 Level…An Abomination of Preposterous Proportions or Harbinger of Things to Come?
In any event…the BAM model’s original prediction has now come to fruition with the BKX having already crashed a full 62% off the February 2007 TOP and a new even more important prediction also worked out recently—more important to me because it might have actually disabused a few subscribers from the idea that the BAM model is a perma-bear model—when we were fortunate enough to be warned of a “very sharp spike” coming in July. In fact, on July 10 we covered that long-held BKX short and went long for a brief period catching a portion of the upside stampede (sparked by government intervention a few days later.) This was also the period where we caught a short-lived but large long-side move in GM and MBI finally proving (I hope) that the model can and will move us to the long side when it is finally advisable! I’m personally VERY tired of being bearish and will love it when the model finally flashes a view of blue skies ahead BUT BACK TO REALITY…BACK TO THE CRASH SET-UP.
Full report coming soon
