Main 2011 Forecast
This forecast is using preliminary data as I1 is only accurate to 3 months. However, good estimates of future values are derived from algorithms that project the individual components based on historical behavior. The number of components comprising I1 provides an adequate statistical sample for a longer-term forecast. Beyond 2 years the data becomes very fuzzy.
Synopsis of the next 4 years
2011 will usher in the new bear market extending through April, 2015, with 3 to 4 sustained (3 month or 15%) rallies intervening. The cause is the same the world over, 70 years of non-stop debt creation painting civilization into a corner. China has enormous over-capacity at a time when export demand is falling. Japan is in the same condition as Europe and US, deflation, deflation, deflation until debts are liquidated. The Fed has halted the cycle but only temporarily and only at the expense of it's future policy options. During this hiatus sovereign debt is rapidly increasing, placing the coming renewal of the debt liquidation cycle with less fiscal response. From November well into 2012 world affairs will unravel and fear will rise.
My longer-term forecast is predicated on I1 values which, from 5/2010 through 5/2015 will contain only 7.25 months with I1>4, averaging 1.43 months per year. I1=4 is considered a balance point and historically the market averages 7 months per year >4.
To put this into perspective the only other extended bear markets were 1966-1974.
The bear market decade of 1966 through 1974 had a total of 13.5 months with I1 values > 4, averaging 1.5 months/year. I1 stayed below 4 from 7/12/1999 through 5/5/2003 (the I1 bottom was earlier at 2/10/2003). Even the most recent bear market from 6/2007 through 3/2009 contained 5.25 months with I1<4, averaging 3 months per year.
So I1 is calling for a prolonged bear market with sub-par I1 values through 5/2015.
Trading Strategy
Before the turn dates for 2011 are presented the strategy being employed to exploit them is as follows:
Trading Turn Dates will be used in 1/2 of the model portfolio stock position with the other 1/2 adhering to the dates in the Main 2011 Forecast. If my technical composite reaches +24 (extremely oversold) then the entire portfolio will take the next trading turn date to take profits (see Trading Turn Dates below).
My goal is to avoid the twin horns of investing:
Horn#1: Being short in a rising trend. Anyone holding shorts through QE2 is taking a big hit, depending on the proportion of exposure.
Horn#2: Being out of the market during the initial leg. The turn, when it comes, will be vicious because of the amount of leveraged money and trend-following in the market at this time.
I accomplish this by using I1 to time my windows. The turn will come within the I1 declining periods. So, I am quite happy to break even shorting the declining I1s because I WILL be positioned and psychologically ready to maximize the return of the bear. Thus my use of I1 is my method of implementing the 5-year bear market as indicated by I1 without the loss exposure.
2011 Significant Turn Dates
2011 will see a rally from 1/10 through at least 3/22 and probably through 4/15. From there the market will decline into early August. A recovery will then occur into late November.
Late November will begin a devastating decline well into 2012.
There are only 3 formal I1 signals in 2011, mid-May, early-November, and late-November.
Trading turn-dates will be used in 1/2 of the model portfolio stock position with the other 1/2 adhering to the dates above (ie. in the Main 2011 Forecast). If my technical composite reaches +24 (oversold) or -24 (overbought) then the entire portfolio will take the next trading turn date to take profits (see Trading Turn Dates below).
2011 Trading Turn Dates (at the close)
1/10 Bottom with a sustained rally for several months.
2/2 Minor top
3/4 Bottom
3/25 Top
4/6 Bottom
4/18-19 Major top. Look for decline to start after 4/15 by breaking support
5/5 Bottom
5/13-16 Top. I1 sell signal lasting through 8/12-15
6/30 Bottom profit-taking but not bullish due to
7/8 Top very low I1 level
7/27 Bottom profit-taking but not bullish due to
8/5 Top very low I1 level
8/12-15 I1 double-bottom
9/2 Top
9/14-15 I1 double-bottom
9/30 Top
10/12 Bottom
10/28 Top
11/7-8 I1 double-bottom. I1 buy signal
11/24 I1 top leading to major decline well into 2012. I1 sell signal
12/8 Minor bottom
12/22-23 I1 double-top leading to continuation of major decline
The following is my 2010 Forecast:
Main 2010 Forecast
Synopsis of the next 5 years
2010 will usher in the new bear market extending through April, 2015, with 3 to 4 sustained (3 month or 15%) rallies intervening. The cause is the same the world over, 70 years of non-stop debt creation painting civilization into a corner. China has enormous over-capacity at a time when export demand is falling off a cliff. Japan is in the same condition as Europe and US, deflation, deflation, deflation until debts are liquidated. From May through November world affairs will unravel and fear will rise.
My longer-term forecast is predicated on I1 values which, from 5/2010 through 5/2015 will contain only 7.25 months with I1>4, averaging 1.43 months per year. I1=4 is considered a balance point and historically the market averages 7 months per year >4.
To put this into perspective the only other extended bear markets were 1966-1974.
The bear market decade of 1966 through 1974 had a total of 13.5 months with I1 values > 4, averaging 1.5 months/year. I1 stayed below 4 from 7/12/1999 through 5/5/2003 (the I1 bottom was earlier at 2/10/2003). Even the most recent bear market from 6/2007 through 3/2009 contained 5.25 months with I1<4, averaging 3 months per year.
So I1 is calling for a prolonged bear market with sub-par I1 values through 5/2015.
Trading Strategy
Before the turn dates for 2010 are presented the strategy being employed to exploit them is as follows:
Trading Turn Dates will be used in 1/2 of the model portfolio stock position with the other 1/2 adhering to the dates in the Main 2010 Forecast. If my technical composite reaches +24 (extremely oversold) then the entire portfolio will take the next trading turn date to take profits (see Trading Turn Dates below).
My goal is to avoid the twin horns of investing:
Horn#1: Being short in a rising trend. Elliott Wave International has been short since November and, no fault to them, are positioned to take advantage of the bear when it resumes. Anyone holding shorts that long is taking a hit, depending on the proportion of exposure.
Horn#2: Being out of the market during the initial leg. The turn, when it comes, will be vicious because of the amount of leveraged money and trend-following in the market at this time. While mutual fund inflows have been positive for 4 months the real inflow has been from hedge funds and individual traders, gaming the system. Individual traders are very bullish and the Nasdaq and small-caps are leading the market higher, signs of speculation.
I accomplish this by using I1 to time my windows. The turn will come within the I1 declining periods. So, I am quite happy to break even shorting the declining I1s because I WILL be positioned and psychologically ready to maximize the return of the bear. Thus my use of I1 is my method of implementing the 5-year bear market as indicated by I1 without the loss exposure.
2010 Significant Turn Dates
2010 will see a sharp decline from 4/2 at the close into the middle of November.
There will be a couple of countertrend rallies in the interim which will only serve to flush out longer-term short positions. These will occur starting April 13 for 2 weeks and July 6 through August 13. Both will be followed by severe declines via strong sell signals rule 2.
The strongest decline will occur 8/16 into the middle of November.
The next sustained rally will occur from this low into April, 2011.
Trading turn-dates will be used in 1/2 of the model portfolio stock position with the other 1/2 adhering to the dates above (ie. in the Main 2010 Forecast). If my technical composite reaches +24 (extremely oversold) then the entire portfolio will take the next trading turn date to take profits (see Trading Turn Dates below).
2010 Trading Turn Dates (at the close)
3/19 Bottom
4/2 Top Sell signal
4/12 Bottom
4/29 Top Look for decline to start after 4/15 by breaking support. I1 sell signal
6/8 Bottom
6/21 Top Sell signal
7/5 Bottom
7/21 Top
7/29 Bottom
8/13 Top Sell signal
9/2 Bottom
9/10 Top Sell signal
10/26 Bottom
11/05 Top
11/18 Bottom 11/19 Projected as the start of a major rally.
12/6 Top
12/21 Bottom
12/31 Top
