The Dow Jones Industrial Average lost 6.4 percent last week; the worst performance in three years.
Stock prices, on average when compared to expected future profits, are now nearly as low as they were in March 2009. As you may recall, that was the beginning of a massive bull market. Are we there again? I don’t think so. Take a look at the three charts below:
The first chart shows a century+ view of the DJIA. As you can see, it appears we are in a multi-year “Consolidation Phase” of the market, from a historical perspective. It is important to note that for the past 100+ years, every time we have come out of one of these Consolidation Phases, the market has moved into a protracted Bull market.
This second chart is a ‘blow-up’ of the current Consolidation Phase. You can readily see in this chart that the trend is decidedly Bearish and not headed toward a break-out to the top. It is also important to note that the average duration of Consolidation Phases is about 14 years. The current Consolidation is only 11 years old. This ‘could’ continue for several more years if history is decent guide for the future.
My last chart is the time-cycle forecast for the next 6 months. It is not a particularly optimistic forecast…
As you can see, the forecast indicates that after a nice rebound late this year (something that could get obliterated with a ‘super-committee-exogenous-event’), then turns seriously Bearish. Think about what this chart might look like if the rebound forecast for mid-November turns into an inversion. If that happens, we ‘could’ see the market retest the 8,000 level.
Of course, we could assume that all of a sudden, we realize that it really is the government that creates jobs… and, we may indeed learn that printing money out of thin air is exactly the right thing to do… and, we come to realize that Europe is solvent… and we find out that socialized medicine is exactly what the doctor ordered… and, we do not need to expand our domestic production of oil… and the over regulation of private businesses by the federal government is a big net positive for business… and raising taxes on job creators while encouraging more people to be dependent upon the government by disincentivizing them from self-reliance is a very good thing… and 9%-plus unemployment is no big deal… and that the tax-and-spend policies of the past and current Congress and White House is just wonderful… and the super committee will reach total consensus as both sides of the aisle finally realize that liberal democrat policies are exactly what we need as we all open our hearts and minds to socialism and the death of that horrid thing called capitalism. Yes… I am sure this will all be very good for the stock market. Happy Days MUST be right around the corner!! I am sure of it!!
My liberal friends in my audience are saying, “Yes! Turner finally gets it!” The rest of my audience understands the sad truth that much of what we see happening in our great country is exactly what my facetious comments infer.
