When you define the term, "Whipsaw", you could just point to the swings in the market this past week as the prototypical definition of the term. When I told you in last week's letter to expect some significant volatility, I certainly did not expect to see such incredible swings in the market day-after-day-after-day. I don't expect this coming week to be a repeat of last week, but there could be some even bigger swings as this market tries to find its footing and either put in the bottom or lunge over the cliff to new depths. The time-cycle forecasts are not overly optimistic (more on this, below).
Some (pundits) seem to believe the market gyrations only portend ominous and cataclysmic economic events that are about to unfold. Stories abound about "The End is Near..." or "The End is Now!" or "This is the REAL End-Game... this time!"
The scary thing is, many of these pundits make a lot of sense. After all, can the world kick-the-can-down-the-road forever? Are we seeing the blind-salamander syndrome playing out in the human race where there are generations of welfare recipients who, like the cave-dwelling salamander that has forgotten the need to see, have forgotten how to depend on self-reliance and hard work to survive? Are the riots in England really nothing more than the result of taking the blind salamander out of the cave into the sunlight and told the state will no longer provide them with a never-ending source of free food and shelter? Has the provider of 'social equality' become the enemy of the lazy who have lost the will to work for a living? What happens when there are no more fat cats to redistribute their wealth to those who do not earn the right or privilege to live off the sweat and ingenuity of productive contributors to society? How much more money can be created out of thin air in the hope of avoiding the fact that the emperor is naked, broke and clueless?
Maybe forever... or maybe... not much longer.
I wonder if the following chart depicts the outcome of the 2012 election? I wonder if American exceptionalism coupled with the only real path to prosperity through free market capitalism will prevail or if we are destined to sink into the morass of nanny-state socialism where we all eventually become mind-numbed robots that dutifully click our heels and do the bidding of the so-called elite who, thank God, know what is best for us?
What do you see in the tea-leaves of the time-cycle chart above? If this forecast holds (and the odds are extremely high that it will not), then the market will limp along until January of 2012 where it will fall precipitously to the 10000 level, followed by a rally, then a sell-off in late July, followed by another rally... only to see yet another precipitous fall into the November 2012 election. This is an ugly looking forecast and if it holds true, it will likely see the end of the current administration. But, then again, who knows... maybe we can continue to blame the previous administration for all of our economic problems... it has worked so far.
Near-Term Market Forecast from Elfdom...
The Bull-to-Bear ratio continues to be Bearish but the pace of Bearishness has slowed appreciably. This results in a Bull-to-Bear Rating of [ - 3 ]. The Turner CrossOver Oscillator Composite of Signals (black) line is virtually unchanged in its down-trend. The Short Sell (red) line has flattened with a slightly lower trend indicating a bottom pattern is forming. The market is oversold but the charts are not giving an all-clear signal. Cash is king.
We made a little money in our SDS trade last week. I may nibble at this market again this week, but I am mostly taking a wait-and-see approach. If my time-cycle forecasts are right, we could easily see another move lower this week with 'maybe' a bit of a recovery in September. But, if the Russell-2000 forecast proves to be accurate, the market could drop another 30% by late October.
My advice is to remain mostly in cash while you wait to see if there is a bottom anywhere in our near-term future. However, I do have a bear-market strategy that I will be implementing if the downward trend continues (see more on this below).
Can We Avoid Europe... or Vice Versa?
Polls indicate that most Americans think our duly elected representatives on both sides of the aisle are more the cause than the solution. I like that old saying, "If you're not part of the solution, then you are part of the problem." And, I know my liberal friends (yes, I do have several) believe that the only thing keeping their socialistic, wealth-redistribution, nanny-state programs from working is they are just never given enough money or time. If our country would just spend more money and give these programs more time, then poverty would disappear, happiness would abound, and they would achieve their goal in life of proving once-and-for-all that the road to hell is NOT paved with good intentions and good feelings.
But, since we can merely look across the pond at what our president believes is the blueprint for America, we can come to the conclusion that socialism only works until it runs out of free money and/or confiscated wealth. But, as much as we should be ever so appreciative of the very fine examples set forth by France, England, Italy, Greece... well.. all of Europe... for 'showing us the way', we seem bound and determined to simply ignore the 8000 pound elephant in the room... which is, "We are out of money and out of time!" And, if we cannot or will not stop this madness, then those pundits who are screaming that "the end is near", may well be right this time, because this time it is NOT different. The writing is on the wall and few are willing to read the message.
"The Inverse Progressive Trading Strategy"
If you assume that Progressive policies (by the way... for those of you who continue to believe that I am always referring to democrats... PLEASE understand that I happen to believe there are almost as many republicans who are Progressives in Congress as there are democrats that are Progressives... ) will prevail and that our country will not reverse course, and if you believe that Europe is faced with the same conundrum and cannot or will not throw out their Progressive policies, then the odds are very high indeed, that America will slip back into a recession and the economy could tank. The market is likely to warn us of this event by moving lower well in advance of the actual event.
If this happens (I did say, "If"), then the best way to make money in this economic and political meltdown is to play what I am calling, "The Inverse Progressive Trading Strategy." This is where we sell short into every rally that coincides with a SuperCycle top. If you don't know what I mean by the term, "SuperCycle", please review my "Introduction to SuperCycles" video on the website, under the "Training" tab.
For example... When the market rallies up 400 points and if the SuperCycle is topping, then we plan to be buying inverse ETFs and/or buying Puts. Of course, the more money that is made in this fashion, the more the Progressives will look at it as wonton gain that should be redistributed to those who would rather depend on government assistance than work for a living. Have you ever wondered why liberals refer to raising taxes as increasing revenue... or, even a better replacement term for raising taxes is, "investing". When you hear a politician say, "We need to invest more in America", he/she is actually saying, "They need to tax the 47% that pay taxes and redistribute that money by giving it to the 53% who pay no federal income tax. Yes, I realize there are those who cannot work due to age or physical or mental conditions. And, yes, it is our responsibility to provide a safety net for those folk. But, a safety net is not intended to be a free-loading way of life. I mean... seriously... just how many months of unemployment is reasonable? 2 years? 5 years? 50 years? At some point, you have to say, "Get a job or you won't eat!" I have, over the course of my life, been out of work. I have never collected unemployment. Instead, I found a job that I didn't like or want but could keep my family fed and sheltered while I found the job I wanted. Most of my life, I have created my own job. That is (or was) the beauty of America. If you can't find the job you want, create the job you love.
My trading strategy (for the time-being) is to look for selling and shorting opportunities. I will be watching the SuperCycles for timing my trades... getting in at the tops of cycles and covering at the bottoms. By the way... some of you may not know that the SuperCycle charts are ONLY for my use for trade selection. I use these charts exclusively for my managed account clients and for some (not all) of my CycleProphet Trades. I do not release these very time-sensitive charts to the public. If you want the benefit of them (not the charts, themselves), you will either need to subscribe to CycleProphet Trades or become a managed account client in my "Growth and Income" portfolio.
We made money in the market last week and we avoided the massive and near record-breaking swings in the market. There could be more of these swings in the weeks and months ahead. My goal is to provide you with some, hopefully unique insight into how to navigate this market... how to look at the market through a different perspective... and most of all, help you preserve and grow your wealth over time. Not every trade I make will be a winner, but it is important to me that you clearly understand my approach and methodology. My rules, tools and methodology will help you mitigate risk and improve your odds for making money in the stock market. There is no better way, in my opinion, for you to grow real and substantial wealth than through smart, disciplined stock market investing. I must hasten to add that the risk is high that you can and will lose money in the stock market. You should never put all of your financial net worth into the market. And, you should ONLY follow my or anyone's advice about trading in the stock market after you have consulted with your trusted, professional financial advisor. Hopefully, I can make you aware of some of the forces at work in the world's economy that can and will impact share price movement for stocks. Knowledge is an essential ingredient to making consistent profits in the stock market... along with a discipline approach to trading using the right tools, rules and methodologies.
Your looking-forward-to-another-week-in-the-market-with-a-little-less-volatility portfolio manager,
Mike Turner, President (www.cycleprophet.com)
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