Charting Where We Are in the Market Cycle

From a technical perspective could the market be following the path of past sentiment cycles? The below sentiment cycle chart was first published in 1991 by technical analyst Justin Mamis in a book titled, The Nature of Risk. In looking at the below chart, it appears the current market pattern is following the pattern outlined in Mamis' chart.

Click charts to enlarge:

The market's recent advance from the early March low appears to follow the sentiment cycle's "wall of worry" advance. The next phase would then be the investor's "aversion" portion of the cycle. Consolidating some of the gains achieved since the March low would be healthy.

Although the market has had a strong recovery off the March low, since the beginning of the year, the market has essentially traded sideways.

From a longer term perspective, the market has a long way to go to reach its earlier high.

Click to enlarge:

From an economic perspective, I could cite a number of factors that would support a bullish case for the market and I could cite an equal number of bearish factors. One statistic that sticks out like a sore thumb is the continued increase in the jobless data.

Source: Federal Reserve Bank of St. Louis

Source: Chart of the Day

Initial claims have exceeded 600M for 22 straight weeks. Historically, the consumer has represented 70% of the U.S. economy and unless there is some job creation, this 70% stat is not going to hold. What then will stimulate economic growth?

Comments

[Roger Knights:]

One could also interpret "where we are" thusly:

1. The sideways pause on the first chart correlates to the mostly sideways movement in Oct. thru Dec.

2. The decline to the "Panic" point on chart 1 corresponds to the drop to the March low.

3. The rise to the resistance line in chart 1 corresponds to the rise to the June high.

If so, the next move, down to the Discouragement area of chart 1, would push chart 2 down to 6000 or so on the Dow.

Jul 05 09:30 AM

[Northstar10000:]

Bull Bear who would care. the market must take out as much money as possible by fooling the little guy so the big boys get their money.
One more rally to suck in a few more than SDS time baby.

Jul 05 04:40 PM

[untrusting ...:]

Maybe so, but who is the little guy?? Probably 90+% of the equity market is comprised of big guys ... being the banks (big trading platforms), the hedge funds, the mutual funds, the pension funds, the endowment funds, the insurance funds, etc. The litttle guy meaning individual investors/traders, personally controlled retirement accounts, etc, is a very very small part of the equity market. In addition, the fixed income markets and the currency markets which are almost totally controlled by the big players and are far larger than the equities markets anyway. Thus the real problem seems to be that the banks/trading platforms are beating the crap out of the other big players (which collectively is us the small players who own the other biggies) and apparently the other biggies just ain't smart enough to compete with the banks/insider trading platforms. Just a guess ..... but if one added up all the compensation, cashouts, stock options, bonuses, etc. of the bank and investment bank executives and traders over say the last two decades ..... my guess is it might approach the losses of the rest of the equity market put together. In essence a massive wealth transfer to the insiders in the financial system from the rest of the market participants. Would be interesting to see if that could be quantitatively proven.


On Jul 05 04:40 PM Northstar10000 wrote:

> Bull Bear who would care. the market must take out as much money
> as possible by fooling the little guy so the big boys get their money.
>
> One more rally to suck in a few more than SDS time baby.

Jul 05 07:35 PM

[snoopyjc:]

Here is where Brian Shannon (@alphatrends) thinks we are at:

chart.ly/xn9fzm

FYI,
--joe

Jul 05 07:49 PM

[Trend Surfer:]

>"Historically, the consumer has represented 70% of the U.S. >economy and unless there is some job creation, this 70% stat is not >going to hold. What then will stimulate economic growth?"

Good article ... and this is the chart that tells me that the recent 'bull' case has been weak as there has not been a confirmation of a technical bottom formation - in terms of the short, intermediate & long term.

In response to your question regarding the stimulant to the US economy and hence, the world's, it is my view a significant technical event occurred in the March 09 low. The fact that the low pierced the 02-03' low confirmed the double-top in the long term chart. Hence from a longer-term technical perspective, a strong case can be made to support the premise that the US economy is now in a long-term decline.

Fundamentally, the consumer has been an overwhelmingly significant factor in the US GDP. Should there be a fundamental shift in the consuming habits of the consumer that is structural in nature, then the long-term decline in the US economy has started.

In the short to intermediate term, we would see another 'bull', but it would be within a long-term bear.

Jul 07 03:38 AM