Odds favor being near a short to intermediate term high in many stock indices. My 2CS bearish sentimeter and a lot of other measures are close to levels from whence selling has occurred in the past two years. SPX has risen 7% in a month.
But, general public sentiment remains churlish and negative, and politics has already turned brutal three years ahead of the next presidential election in the US. Sentiment is rarely so pessimistic and defeatist at major highs, quite the contrary
The economy looks pretty good to those who accept accredited economic statistics and professional analysis. Even France may be turning the economic corner at last, and the ECB could even raise rates. Partly this is "jawboning" in Europe to counter the recent nano-revolution's effects on the Euro, but it seems to have believability nonetheless.
The madness of full moon US negativism and congressional posturing cannot be completely written off, since panic and further self immolation can follow such amazing displays on a mass scale. They can overcome normal responses and become self-fulfilling.
I saw the same things happen in 1974 and for the same political reasons and by the same people in some cases. So one has to buy a "crazy put" of some kind which in a worst case raises the cost of doing business but provides insurance.
The "crazy put" of choice in 2005 has been gold. Gold is up nearly 15% in dollars which themselves are also up nearly 15% against the US trading partners' currencies. (China still trades in dollars with a small recent cut.) 90 day US T bills are now yielding almost 4%. So the shotgun, T Bills, and gold folks are having a banner year and haven't had to fire a shot.
The left wing crazies have been short bonds and US stocks and dollars, and the right wing crazies have been long gold and t bills. I don't own a shotgun and have never fired a gun (yet), but the right wing look smarter to date. However, good stock pickers have beat everyone. I have stock mutual funds most of which are up 15-30% this year in a rising dollar environment and during sentiment as bad as 2002 and 2003.
My educated guess is that things are a lot better than they seem to the public since they are not long the stock market on balance.
Despite my belief in stats which suggest a downturn in the market, I think I have to mantain an open eye to a big breakout to the upside on grounds like but opposite to those often used to predict crashes: major breakouts occur in the direction of a strong trend. I don't want to be very leveraged to the upside, but I want an exposure to it since it seems so unexpected.
I've come up with an Elliott Wave count for the first time since 2002 which I think fulfills all the criteria. I would never suggest that those who don 't know Elliott Wave spend the years needed to learn it, because it it is so subjective and controversial. The basic cookie cutter of 1-2-3-4-5-a-b-c can be grasped in an hour. The other, and essential, 5% takes about twenty years. You would do better studying trends and reversals in other ways. But here it is anyway:
The basic premise is that 2004-2005 have been a complex Elliott market correction sideways in three segments. 2004 had the choppy down segment into August plus the recovery segment to New Year's Day. 2005's segment had choppiness again. In some indexes like small caps and mid caps, the whole correction may have ended in May 2005, but in the SPX it is almost certainly true that October's "Homeland Securities New York Subway Leak" plunge was the end. A correction whose end is at a higher price than its beginning is a "running correction" or runner in Elliottese. It leads to an acceleration of the trend.
An average target for the next larger trend segment would be the old SPX highs of 2000 in the mid 1500's. I don't "know" that this will happen, but I can put together an economic and political scenario which would support this interpretation of the SPX chart
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