MEA CULPA
Having successfully called the market’s
direction for over two years -- the low
near March 09, the high near May 2010,
the next low at the beginning of July, the
most recent high near May -- all the time
relying on moving averages, cycles,
sentiment indicators, Moving Average
Convergence Divergence (MACD) and
Stochastic Indicators; we have failed to
call the market’s direction correctly more
recently.
Given the new high in the DJT in July,
the already oversold condition last week
and the successful resolution of the US
vote, it seemed proper to stay positive.
However, it now seems obvious that
either the indicators all failed or that we
have totally misread them. It does not
matter; the fact is that we were wrong.
The most difficult thing in this forecasting
business is to take a stand and then
worry about a double whammy of
reversing one’s position and then be
wrong again as the market changes
direction once again! This creates
indecision and therefore one keeps the
status quo until it becomes painful. The
market has now arrived at this point.
Although market sentiment is as oversold
as it was at all major lows in the last
two years, the damage done in the last
8-10 days is overwhelming. Those who
were there in 1987 may see a parallel
with the current sell-off and subsequent
action. Then, after a major decline, the
markets rallied, then returned to retest
recent lows and then rallied strongly for
the next 1½ years. In other words, we
see a parallel not with 2007-08, but with
the intermediate sell-offs of recent years.
So here is our forecast. The markets
in U.S., Canada and the the U.K. have
done significant damage. The 200-day
Moving Averages on all market indices
have turned down and are unlikely to
turn back up in the near future.
Important support levels have been
broken, eliminating any possibility of an
immediate recovery. However, given
that today, August 5th, is the end of a
21-day cycle and the markets, as
measured by oversold indicators are
hugely extended, a recovery rally should
begin either today or Monday, to repair
some of the decline. In other words, the
remedy for now is to use any potential
rally to generate cash, to be ready for
future opportunities.
Use rallies to generate cash.
Should the rally be stronger than
expected, fool us once more and cause
us to reverse direction once again, it is
better to be out for now and if
necessary enter again, than to wait
around for a miracle.
PAC-11-151; Thought-71; August 5, 2011 Ron Meisels