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Erik McCurdy
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Erik is the senior market technician for Prometheus Market Insight and has been performing chart analysis since 1995. The software program that he developed to monitor long-term stock market trends has correctly identified 92% of the cyclical turning points in the S&P 500 index since 1940.... More
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  • Stocks Struggle to Break Out of Trading Range 9 comments
    Oct 17, 2011 11:31 PM | about stocks: SPY, DIA, QQQ

    The S&P 500 index closed sharply lower today, moving back into the trading range between 1,120 and 1,220 after breaking slightly above resistance at the upper boundary on Friday.

    We are 10 sessions into the short-term cycle from the beginning of October and the sharp decline today indicates that the Alpha High (AH) may have formed on October 14, although we would need to see additional weakness during the next few sessions to confirm that development. A brief alpha phase decline followed by a move above the AH would reconfirm the bullish translation of the current cycle and forecast additional short-term gains. Alternatively, an extended decline that moves down into the lower half of the trading range would suggest that cycle translation remains in question.

    Regardless of how the current cycle develops, we will be monitoring its character closely for signs of an important reversal. We have been expecting the development of another recession since the long-term distribution pattern broke down in early August. During the last three months, several reliable indicators have signaled that a return to economic contraction is highly likely, including the recession warning composite tracked by fund manager John Hussman, and the Economic Cycle Research Institute (ECRI) recently joined the recession camp at the beginning of the month. According to the most objective, reliable measures at our disposal, the likelihood that we are entering a new recession in the US is now above 90%. Consequently, the stock market will likely experience a decline of 30% to 50% during the next 12 to 18 months and the new cyclical bear market from May should resume once the current rally breaks down. Therefore, we will be monitoring market behavior closely during the next several weeks in anticipation of this important long-term signal. We will identify the key developments as they occur in our market forecasts and signal notifications available to subscribers.

    Subscribe to our RSS feed to receive our free daily market update.

    Stocks: SPY, DIA, QQQ
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Comments (9)
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  • untrusting investor
    , contributor
    Comments (9904) | Send Message
     
    Good article. Would agree that market breakdown is probable. But 12-18 months is a long long time in these markets or any market. And downside of 30-50% is a lot of downside from current levels.

     

    Would guess that markets will hold up fairly well into 2011 year end, but that downside pressures will start to build in early 2012. Would further guess that corporate earnings will start to weaken in 2012, and with comparisons to 2011 being no longer very positive, that should provide the ammunition to support downside moves.

     

    With worldwide austerity building vs. worldwide stimulus in 09/10/11, corporate revenues and profits will decline with worldwide trillions in lessor government spending. Corporations have little or no room to reduce fixed cost (payrolls) this time around, so with falling revenues it virtually has to translate into falling profits.

     

    One can only guess that world central banks will panic at some point in the sell-off, and restart massive money printing and QE yet again. But at what point that may be is anybody's guess. One has to guess that political pressure to not undertake such inflationary measures will probably prevail until the panic becomes fairly severe. 30% downside is about 850 on S&P from here, and 50% is about 600 on S&P. One has to guesstimate that world central banks will start panicking if S&P even gets under 1,000 and that considerable pressure will be put on central bankers at that point to start doing something.

     

    Then there is the whole EU mess and how they try to rationalize that. Since they really have no good solutions, it would appear that their only alternatives are to take some fairly big losses on Greek debt and possibly other PIIGS sovereign debt as well. Then recapitalization of most if not all of the big EU banks will be necessary thus seriously diluting EU bank shareholders. But the EU really has no way to obtain the large amounts of money required except to either borrow it or print a lot money. They likely will initially try to borrow it, which should put pressure on EU interest and credit rates. As interest and credit rates pressures rise, the EU likely will have no alternative but to eventually succumb to aggressive money printing and QE pressures.

     

    Will be very interesting to see how markets play out over the next 12-18 months. But would very very surprised if much much cheaper entry levels on equities and commodities are not forthcoming in future months. But even then, it becomes a question of what level should LT investors start buying into much cheaper risk assets? Just wish one could get a good estimate on that, but seems that such is almost impossible to do. Personally have decided to start gradually making small buys once S&P gets below 1,000 and keep buying if and when it continues to fall. Would be great to wait until a low such as 800, 700 or even 600, but that outcome seems too highly uncertain as to whether or not such levels might ever be reached.

     

    Eric,
    Any thoughts or comments on how to try and time any significant downside moves?
    22 Oct 2011, 12:06 PM Reply Like
  • Erik McCurdy
    , contributor
    Comments (318) | Send Message
     
    Author’s reply » "But even then, it becomes a question of what level should LT investors start buying into much cheaper risk assets? Just wish one could get a good estimate on that, but seems that such is almost impossible to do."

     

    That's why we use a combination of technical and cycle analysis to identify likely inflection points. With one focused on price and the other on time, you can construct relatively narrow windows for turning points across all time frames with a high degree of statistical confidence. The 12 to 18 month and 30% to 50% windows are based on "typical" cyclical downtrends that occur during secular bear markets, but they are only rough estimates. When the time comes for the next cyclical bottom to form, properly applied chart analysis will once again ring the bell, just as it did back in March 2009:

     

    http://bit.ly/sqNwOU

     

    Best, Erik
    1 Nov 2011, 09:58 PM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1800) | Send Message
     
    Erik,

     

    That's quite the link - I wonder if Doug Kass subscribed to your service. His call was on the same day.
    2 Nov 2011, 10:06 AM Reply Like
  • Erik McCurdy
    , contributor
    Comments (318) | Send Message
     
    Author’s reply » There is always a bit of luck involved whenever you call the start of a cyclical move on the exact day it begins, but properly applied chart analysis will tell you when it is time to pay close attention. The historic nature of the oversold condition achieved in March 2009, across all time frames, was a once-in-a-generation development that was fairly easy to identify if you knew what to look for. I suspect the next cyclical low will be more difficult to call. We will see.
    5 Nov 2011, 06:58 PM Reply Like
  • inquisitivemind7
    , contributor
    Comments (205) | Send Message
     
    Erik, I just wanted to say that I am a PMI subscriber (and for life!) and I would be at a significant disadvantage without your service.

     

    I use PMI's technical analysis to complement ECRI's macro forecasts which is used in turn to confirm things like turning points in the business cycle.

     

    I noticed that PMI used to have a section on the gold mining index but is not longer there in the daily e-mails and on your new website. I ask because I am interested in this sector, will you be no longer be tracking the gold mining index or only provide updates when important turning point signals are triggered?

     

    Aside from that question, my trading methodology is as follows if you are interested:
    According to ECRI's macro forecasts, Nov 22 job report will be worse than expected in terms of real GDP expectations and GDP Price Index but not sure by how much and how market will react. Dec 2nd jobs report will be horrible (with worsening macro to follow) and that is around when we could see a real turnaround, just like July of this year with a horrible jobs report. Macro is all downhill from there until late January 2012/early February 2012 plus or minus 2 weeks where ECRI sees a bottoming in the macro and uptick in growth. This may signal the beginning of another sustained rally. Whether this is a dead cat bounce or a permanent bottom in the macro (shallow, quick recession) remains to be seen with more time and data (ECRI data is limited to 3-4 months into the future).

     

    This is also the same methodology I used in calling the Oct 4th bottom when PMI issued a potential annual cycle low signal around that time since ECRI had forecasted a bottoming in macro around late September/early October & I knew Oct macro would be improving and the peak in macro would occur sometime in mid-late November. However since bear market rallies run for typically 2 months, have a delayed sensitivity to macro, sprinkle in extreme volatility, lots of inline/slightly positive data and you should have an explosive upside which will require lots of persistent, negative data to turn around. This is why I believe this market will most likely peak in late November at earliest (less likely) to early-mid December (more likely) if macro dominates. I will not attempt to forecast any S&P500 prices as the peak as that is PMI's job but I have realized that the extreme market volatility has rendered shorter term technical analysis less effective as every minor and major market move is amplified so that is something to keep in mind as the market will most likely overshoot and undershoot every major resistance and support line.

     

    Incorporating ECRI fundamentals with PMI technicals will provide the ultimate, most reliable, objective, and accurate trading strategy in my humble opinion. Both services have consistent, 90%+ accuracy rates, and use different methodology and the combination of using both services covers any deficits in forecasting overlaps when both sources are in agreement.

     

    Thank you sincerely,
    IM7
    6 Nov 2011, 12:34 AM Reply Like
  • Erik McCurdy
    , contributor
    Comments (318) | Send Message
     
    Author’s reply » Thanks, I'm glad you are finding our service useful.

     

    "I noticed that PMI used to have a section on the gold mining index but is not longer there in the daily e-mails and on your new website. I ask because I am interested in this sector, will you be no longer be tracking the gold mining index or only provide updates when important turning point signals are triggered?"

     

    Our service is now focused on providing better coverage of the five primary markets that we monitor (stocks, 10-year treasury note, US dollar, gold and oil), but we will continue to provide GDM updates whenever significant technical developments occur.

     

    Best,
    Erik
    7 Nov 2011, 12:20 PM Reply Like
  • timstafford99
    , contributor
    Comments (4) | Send Message
     
    Eric, The market breakdown still looks like it is progressing as a typical bear. Is it still tracking your expectations?

     

    I recently discovered your newsletter as well and am so impressed with your work. Especially the fact that you audit all of your forecasts and market signals. Most analysts try to sweep their misses under the carpet but you review everything and track performance history and that is incredibly valuable to me as a reader. I've recommended your service to about a dozen people and hope some of them sign up. Tim
    10 Dec 2011, 01:50 PM Reply Like
  • Erik McCurdy
    , contributor
    Comments (318) | Send Message
     
    Author’s reply » Thanks, Tim. A large percentage of our new subscribers are referrals, so we appreciate your spreading the word. The market has been tracking our long-term computer model since peaking in late April and continues to do so.

     

    Best,
    Erik
    10 Dec 2011, 09:02 PM Reply Like
  • timstafford99
    , contributor
    Comments (4) | Send Message
     
    If there is anything else I can do to support your service please let me know how I can help. You have already made (or rather saved) me a bunch of money and its the least I can do. Thank you so much!!
    14 Dec 2011, 02:26 AM Reply Like
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