Category: Stock Market

Continuation from yesterday….(The Secret Behind Timing 2007 Market Top)

That brings us to today. Between March of 2009 and September of 2014 the Nasdaq ran up from 1,200 to about 4,500. Exhibiting all of the signs typically associated with a 5-year cycle. Particularly, the market surged higher for 2 years (2009-2011), rested for one year (2011) and then resumed its surge higher for the next 2 years (2012-2014). This is a typical internal composition of a 5-year cycle.

The only deviation of the cycle thus far is its longevity. As was suggested earlier in the book, 5-year cycles are typically exact, lasting no longer than 5 years +/- 2 months. As of this writing the 2009-2014 cycle has been in development for more than 5.5 years. While unusual, it is not unheard of. For instance, the 1924-1929 5-year cycle lasted 5.5 years as well, leading right into the 1929 stock market crash.

What’s more, many market participants have come to a conclusion that a bear market that started in 2000 has completed itself at the bottom in March of 2009 and that we are now in a full blown secular bull market.  Sadly, nothing could be further from the truth. Since the stock market first started trading in May of 1790 not a single bear lasted 9 years. Once again, a 17-18 year alternating bear/bull cycle is always present. Plus, given today’s extreme overvaluation/speculation levels and macroeconomic issues, it is evident that the stock market is set for some sort of a decline.  Finally and as was mentioned earlier, all secular bear markets tend to complete themselves with a final 2-3 year bear market leg.

This sort of an arrangement gives us a perfect opportunity to illustrate how one should prepare for a bear market by selling at the top and going short. Given the setup above an analyst following the market and following the “Buy Low, Sell High, Go Short & Cover” investment strategy would be watching the market with extreme caution. Ready to sell his net long position and to go short at a moment’s notice.

What would justify such a move? If the Nasdaq breaks below its lower low and continues lower. That would be a first sign that the market has changed gears and shifted into a multiyear bear market.

Trade #6 (Anticipated): Exit your long position at 4,300 and go short. Anticipated move gain 2,950 points. Anticipated net realized gain up to date 12,780 or 1,675%.

To Be Continued………

The Future Of Nasdaq Google

Continuation from yesterday…….What You Ought To Know About Shorting Nasdaq In March Of 2000

This simple strategy would have allowed investors to cover their short positions and go long shortly after the bottom was reached.

Trade #3: Cover your short position at 1,350 in October of 2002 and go long.  Move realized gain 3,400. Net realized gain up to date 7,430 or 931%.

What followed was a 5 year bull market represented by an exact 5 year cycle. Lasting between October 10th, 2002 and October 11th, 2007. Once again, any analyst familiar with the work above would have known two things. First, once the five year cycle was over the market was likely to start its next bear leg down. Second, this bear leg would represent a “Mid-Cycle Panic” discussed earlier or the fastest moving decline of the entire 2000-2017 bear market.

In other words, such an analyst should have been looking for a market reversal as soon as October of 2007. Ready to liquidate his or her long position and to go short. Such a confirmation arrived in early January of 2008 when the Nasdaq broke below both its lower low and a rising trend line. Once the confirmation was received a long position should have been liquidated and a short position should have been established.

Trade #4: Exit your long position at 2,550 in January of 2008 and go short at the same time. Move realized gain 1,200. Net realized gain up to date 8,630 or 1,100%.

As expected, the market proceeded to collapse between October of 2007 and March of 2009. When the mid cycle panic ended most indices had lost in excess of 50%. The Nasdaq bottomed on March 9th at 1,265. An analyst familiar with the cyclical composition of the market would have known that “Mid-Cycle Panics” do not last longer than two years. In addition, given the extent of the decline on the Dow and due to a number of powerful cycles arriving in early March of 2009, it would have been a good guess that the market was about to bottom.  As such, a bottom of some sort should have been anticipated in the first half of 2009.

The first signs of a reversal occurred in late March and early April of 2009 when the Nasdaq both broke above a down slopping trend line and set a higher high. Suggesting a trend reversal. A short position should have been covered at the time and a log position should have been established.

Trade #5:  Cover your short position at 1,350 in April of 2009 and go long at the same time. Move realized gain 1,200. Net realized gain up to date 9,830 or 1,265%.

To Be Continued Tomorrow……

The Secret Behind Timing 2007 Market Top Google

Continuation from Friday….. (How You Could Have Made A Fortune Shorting The Nasdaq)

That is exactly what happened in early March of 2000. The Nasdaq topped out at around 5,050, declined slightly into the middle of March before bouncing up into a perfect bearish setup by March 24th.  An analyst familiar with the cyclical work above would have been aware that if the March bottom of 4,800 was to be penetrated on the downside a bear leg and a possible crash would be in the cards.

As soon as such confirmation was realized, all investors following the “Buy Low, Sell High, Go Short & Cover” investment strategy should have exited their net long Nasdaq positions and reversed their portfolios to net short. Immediately. And indeed, the confirmation was received by the end of March when the Nasdaq broke below its March 17th bottom of 4,800.

Trade #2:  Exit long position at 4,750. Reverse course and go short at the same price. Net realized gain up to date 4,030 points or 560%.

As soon as March low was broken on the downside the Nasdaq quickly collapsed by more than 30%, reaching its intermediary bottom by the end of May. Yet, investors familiar with the overall cyclical composition of the market would have been aware that bear market legs do not last 60 days.  They would have been aware that this collapse was just the start of a prolonged bear market cycle.

Furthermore, they would have been aware that initial bear market legs tend to last 2-3 years as all previous bear markets had initiated with such prolonged declines. For example, 1900 top to 1903 bottom, 1929 top to 1932 bottom and 1966 top to 1970 bottom. The Nasdaq continued to decline until it reached its bottom of 1,108 on October 10th, 2002. An 80% decline.

By the time October 2002 bottom was reached, analysts familiar with the cyclical work above should have been, once again, on a heightened state of alert. This time around they would have been anticipating and looking for a market bottom.  Ready to cover their short positions and to go long at a moment’s notice.  Such a confirmation was obtained when the market broke above its down trending trend line in October of 2002.

To Be Continued Tomorrow……

What You Ought To Know About Shorting Nasdaq In March Of 2000 Google

Continuation from yesterday…….(Short-Term Cyclical Composition Of The Stock Market)

Once the 2000 top was reached the market was doomed to repeat the next secular bear market cycle ending in 2017. This bear market was kicked into high gear with a sell of 2000-2002, during which the Dow lost 40% of its value and the Nasdaq crashed 80%. The initial sell off was followed by an exact 5 Year and 1 trading day bull market cycle. Terminating on October 11th, 2007.

What followed was a mid-cycle sell off of 2007-2009. Such sell offs typically represent the fastest and the deepest moves down during any secular bear market cycle.  We saw the same mid cycle sell offs develop in all previous bear markets.  For instance, the crash of 1907 was the mid cycle panic of 1899-1914 bear market, the crash of 1937 was the mid cycle sell off of 1929/32-1949 bear market and the massive sell off of 1972-1974 was the mid cycle point of 1966-1982 bear market.

When the mid cycle panic bottom was reached in March of 2009 the market turned around to stage the next 5 Year rally of 2009-2014. Thus far, this 5 year bull market cycle has lasted 5.5 years, the longest since the 5.5 year cycle of 1924-1929. Leading many to conclude that a secular bear market ended in 2009 and we are now in a long-term bull market.

Unfortunately, there is no evidence that secular bear markets last only 9 years. On the contrary, since the stock market first started trading in May of 1790 all bull/bear market cycles repeated in a clearly defined 15-20 year patterns. Today’s environment is not very different. In fact, most bear markets end with 2-3 year bear legs.  For example, 1912 to 1914, 1946 to1949 and 1980 to 1982. When we combine this information with the overall composition of the stock market described earlier, it becomes clear that a bear leg of 2014-2017 is essentially imminent.

Once again, the cyclical composition background above in necessary for understanding today’s environment and its application to various investments strategies one could have implemented during the time.

In November of 1994 (our starting bottom) the Nasdaq was trading at approximately 720. Let’s now take a look at 3 different outcomes or investment strategies to determine which one was the best.

Investment Strategy #1: Buy and Hold. (Middle Path).

If you would have invested in November of 1994 and held though today (September of 2014 with the Nasdaq is at 4,500), you would have generate a ROI of 525%. Representing an annualized compounded rate of return of approximately 9.5%. Not bad.

However, if we are to account for an upcoming bear market of 2014-2017, in the best case scenario the Nasdaq ends at 3,000 by 2017. Yielding a ROI of 316% or just 6.5% a year. Still not bad, but it seriously underperforms buying and holding a 30-Year US Treasury Bill that was yielding 8% in November of 1994.

To Be Continued Tomorrow…….

The Composition Of 2000 -2017 Bear Market Google