U.S. Markets' Future - I Think

What does the future hold? Tell me what the market is going to do tomorrow. I get a lot of questions like that, and if I really knew, I would be sitting in a five star resort right now with my laptop computer and a few close friends, not worrying as much about what the future held. I am no expert in technical analysis, or fundamental analysis, but here is my opinion, for what it’s worth:

click to enlarge

I will use this chart of SPY, the S&P 500 proxy, to represent the entire US stock market.

This six month chart clearly shows the spike downward in October, and the even sharper spike downward in November, the recent bottom around March 13^th, and the strong rally since then. The 50 day moving average appears to be flattening out since mid March, but in my opinion, we will test the March lows before moving onward and upward. This should result in a classic “W” bottom forming, and will lead to a possible cyclical bull within the secular bear, which is traditional in years following a steep loss on the S&P. In other words, I expect the S&P 500 index to fall to 675 to 725 in the near term. SH might be a good way to play this for the next few weeks if you agree with this analysis. The index bounced off its 50 day moving average in early January and again in mid February, and even though it pierced it on Monday, I believe that this was due to manipulative buying, and don’t expect it to hold above it. I expect the bear market in US stocks to continue until at least 2017, and I believe that buy and hold investors will get slaughtered.

I will use this chart of XLF to represent the entire financial sector, primarily big banks. This has also repeatedly bounced off its 50 day moving average, and recently pierced it for the first time since last autumn’s panic, but again, I don’t expect that it can hold above it. The 50 day moving average is still slanting straight down with no sign of leveling off, so I don’t expect a bottom and a rally in the financial sector this year. The best investment appears to be going short this sector, which is why I am now holding SKF.

I will use this chart of IYR to represent the entire real estate sector. The 50 day moving average appeared to be flattening out as the stock price held near the 50 day EMA from mid December to late January, but since then, it has resumed its decline. Since mid March, it has rallied higher in very choppy trading, but has not really challenged the 50day EMA, so I would say to steer clear of any real estate stocks at this time, or to short the real estate sector, as I have done using SRS as the vehicle of choice.

I will use this chart of GLD, the gold ETF, to represent the price of gold in general. GLD has been holding steadily above its 50 day moving average since mid December, and bounced off it in mid January and several times in mid March. The 50 day EMA crossed over the 200 day EMA around February 4^th, which is an extremely bullish sign for gold. If you must buy gold in paper form, I recommend GLD (or CEF, which also holds silver) at current prices since it is the most liquid, but in the long run, steady accumulation of pure gold investment coins (not collectible numismatic coins) and gold bars is a far better strategy. Use your imagination to come up with a storage solution. Gold is very compact, and does not corrode.

I will use this chart of SLV, the silver ETF, to represent silver prices in general. Silver has been holding above its 50 day EMA since mid December, and crossed over its 200 day EMA in mid February, where it has been holding ever since. The 50 day EMA has been rising steadily since mid December. As this chart shows, the 50 day EMA appears about ready to cross over the 200 day EMA, which is an extremely bullish sign. Also, the 200 day EMA appears to have flattened out in early February and begun a slow rise. If you must buy silver in paper form, I recommend SLV, but in the long run, steady accumulation of 1 oz silver rounds and 100 oz silver bars is a much better strategy. You will be paying a fairly high premium over spot price, ever since September, due to the extreme shortage of silver investment coins, especially the 1 oz rounds, so call several coin dealers to compare price before buying. Silver is much more volatile and more easily manipulated than gold, so be prepared for a longer holding period to lower your risk, and dollar cost average into it over a period of time.

Silver fell much further and much faster than gold in last autumn’s panic selling and has been lagging it ever since, but as the above chart shows, it has nearly caught up now, and the difference between the two may be statistically insignificant. If you ever see this divergent pattern again, buy silver at the bottom, or the point of maximum divergence.

Disclosure: I am long SRS and SKF

Comments

[pacman1947:]

Harold,
You predict a traders market, not a stable buy and hold market. The data supports that prediction within reason.

Good call.

Let's just hope that money has value until 2017. That's no longer a given.

Mar 26 09:25 AM

[Carlos Lam:]

What led you to pick 2017 as the end of the bear market? Do you see the Dow/gold ratio hitting 2:1 or 1:1 in 8 years?

You are correct that the bear market has trashed the idea of buy & hold. While such a strategy may be appropriate for a secular bull market, we are not in such a market now.

Mar 26 09:51 AM

[Larry House:]

Wow, Harold, you are a brave man! You have tackled the whole world. I certainly can't argue with your predictions, because as you say, they are your opinion. You may be right or wrong--just like the rest of us. My only prediction really is that there will be many occurences of the unexpected over the coming years. I don't think we have yet seen all the problems that are out there, and there will be new eruptions in financial, world, and social issues. Hang on to your hat!

Mar 26 10:53 AM

[GMiki1:]

Sounds right to me, except for the near term.

Mar 26 11:04 AM

[MattGigEm:]

"Use your imagination to come up with a storage solution. Gold is very compact, and does not corrode."
Harold, are you advocating storing gold in the toilet tank?

Mar 26 11:11 AM

[goodfigs:]

You recommend SKF and I want to agree, but the meeting on April 8 to discuss mark to market and reinstating the uptick rule scares me. Even though any changes likely wouldn't go into effect immediately both of these issues could significantly hurt SKF. Do you agree?

Mar 26 01:36 PM

[Harold Goodman:]

I don't really know how to answer this.

Mark to market should be a good thing for the economy in the long run, but in the short run, many more banks could be exposed as insolvent if the true nature and value of their speculative holdings became public.

That would be good for SKF, and good for the economy to weed out the insolvent banks. Unfortunately, the vast majority of the largest banks would have to go into bankruptcy proceedings, but we would come out of it a lot stronger and more productive.

Market perceptions could end up affecting SKF more than the long term benefits of mark to market.


On Mar 26 01:36 PM goodfigs wrote:

> You recommend SKF and I want to agree, but the meeting on April 8
> to discuss mark to market and reinstating the uptick rule scares
> me. Even though any changes likely wouldn't go into effect immediately
> both of these issues could significantly hurt SKF. Do you agree?

Mar 26 02:35 PM

[Harold Goodman:]

The average bear market cycle is 17 years long and this one started in 2000. I see Dow/Gold at 1:1 within 8 yrs, but you never know since they keep changing the components of the Dow 30 Industrials.


On Mar 26 09:51 AM clam75 wrote:

> What led you to pick 2017 as the end of the bear market? Do you
> see the Dow/gold ratio hitting 2:1 or 1:1 in 8 years?
>
> You are correct that the bear market has trashed the idea of buy
> & hold. While such a strategy may be appropriate for a secular
> bull market, we are not in such a market now.

Mar 26 02:45 PM

[nova:]

A rear-view mirror is not a good tool to predict the future.

The author predictions that "the bear market in US stocks to continue until at least 2017, and I believe that buy and hold investors will get slaughtered", in my point of view, are partly accurate:
- "Buy & Hold" investment strategies are indeed suicidal
- However, a prediction, based on historical data, that this recession/depression will end in 2017 is a pure speculation based on an assumption of no major domestic political & social upheavals in the borders and no major wars outside of America borders.

Remember that the WWII got America out off the last depression.

Mar 26 06:46 PM

[oneijoe:]

You seem like nice enough guy, Harold.

However, it must be said, there were MANY opposite "ignore the short term bearishness...we're FINE" articles circa 1998. The market will always improve/worsen before the economy.

While I'm not advocating "buy and hold", I would encourage everyone to trade what is in front of them. Right now, we're entering a bullish phase. Treat it as such.

Mar 26 06:49 PM

[Conan the B...:]

Harold: According to the wikipedia, The average Secular Bear Market is 17 Years long. But it also states that this is was calculated from cycles lasting 5 to 25 years using a Bell curve.

On Mar. 24th, in a different Article, contrary to another posters comment, I included the above from the Wiki, but also that this Secular Bear started in 2000 which is not in the Wiki but was from what I had remembered being said in 2002.

I know you read my earlier comments on March 25th, Your Words, from an earlier Article of yours.

Harold, where did you read that this Secular Bear Market started in 2000? An Article, a link, something?

This is something that I had "remembered" reading , I would like to be able to relate that memory to a Factual Article.

Thanks in advance.

Mar 27 11:11 AM

[bebido:]

Harold, great article. Keep them coming.

Mar 27 12:16 PM

[Conan the B...:]

In the Middle of a Secular Bear Market, the 1970s produced 3 cyclical Bull Markets.

The 1970's included an the Vietnam War, oil embargo, Oil spikes, a housing bubble and Bust, a Gold surge which makes this one a Piker and the beginnings of hyperinflation.

3 cyclical Bull markets. This is History, see if you can change this too.

Mar 27 12:57 PM

[Gripper:]

Good stuff Harold but throw out your charts and use the Cramer indicator. Sell when he says buy and vica- versa. you'll sleep good and be a gazillion- air! Does anyone know if he really made money in his hedge fund?

Mar 27 06:31 PM

[Gripper:]

Sell it


On Mar 26 11:51 PM Cetin Hakimoglu wrote:

> The future is oil is going to 150
> gold 1200
> dow 10,5000 end of year
> gas $4
> we're in a new bull market
> i17.photobucket.com/al...

Mar 27 07:05 PM

[Gripper:]

Check out Moneyandmarkets.com-th... been pretty accurate!


On Mar 26 09:25 AM pacman1947 wrote:

> Harold,
> You predict a traders market, not a stable buy and hold market. The
> data supports that prediction within reason.
>
> Good call.
>
> Let's just hope that money has value until 2017. That's no longer
> a given.

Mar 27 07:09 PM

[Conan the B...:]

Of course, you can predict the Future. You said so yourself. "Knowledge is Power", you told people you could predict the activities of the "Manipulators".

I don't understand how your views have changed so drastically so quickly.

Knowledge Is Power.

Read Harold's other Articles and Learn.

An opinion on this article after having read the previous Articles.

Mar 28 05:20 PM

[Northstar:]

I am curious about this:
Why SKF and not FAZ. FAZ is 3X bear fund on finance?
Any answer?
S

Mar 29 09:42 PM