Market Forecast for 2013

Here's an attempt to take that shot in the dark and try and predict where the market is going for the next 12 months. The first installment, which is finding the major turn dates, is shown below. It uses a cycle format I found on the Swingcycle.blogspot.com and has inputs from Jim Curry at cyclewave.homestead.com, and solarcycles.net as well as the 2013 Bradley turn dates.

The next step will be to try and put some sort of range on price movements. That's somewhat harder. The SPX daily chart below is a little difficult to read at first glance but the key turn dates for 2013 are:

Top at or near January 25th, a Low near April 4th, a High near June 22, a Low near early October, a High near early November and then lower into 2014.

OK now you have the rhythm for the year, next we need to work on the amplitude. That's coming. 




The indicators are suggesting the date of January 25th ,+/- a few days, is likely to be an accurate turn date.

The Market without investors............

The market continues to rush head long higher searching for new highs. Those individual professional participants that have endured many types of rising markets in both good and bad economies are left scratching their heads trying to figure out what's keeping this balloon (market) aloft?

Towards the end of 2012 we saw a mass exodus of small retail customer out of the markets. They are  also having trouble trying to figure out the logic of what's driving the market in the wake of bad news, unemployment, falling wages, the growth of participants on food stamps and a host of similar economic data. Having endured a couple of major sell offs, the small retail customer is not willing to be the bag holder for Wall-Street anymore.

It would seem that the money printed by Uncle Ben is finding its way to the big banks and then to companies who are not buying capital to secure future sales but rather are buying back shares of their stock so as to keep prices up. This is another "Ponzi" scheme that is likely to end badly.

Today we had another in an unending series of end of day mad rush buying.  Here's what the chart is saying:

The SPX has now risen to the overbought stage. The 2 period RSI has risen above the 95 level and should give us a pullback starting tomorrow or Thursday. Likely the index will pull back towards the 20 dma at 1458. We should get a signal as to whether this is the beginning of a major pullback or just a rest before the push higher to the 1558 area is undertaken.

This is not the time to chase this train

Chart from article at Zerohedge.

For those of you who have been told over and over that diversification is the key to long term investing and precious metals are too risky - the graph at the right should answer that question. You might want to start looking at the idea of allocating some portion of your portfolio to gold and silver. Just a thought.

Fed to the Rescue.................

Well it's time to take a closer look at the charts, as today we may have finally poked our heads above resistance and either a new leg higher is beginning or its a head fake and the market could finally be ready to fall.

The Fed continues to grease the skids with its weekly injections of paper money and the market seems to feel that all risk is off and its onward and upward from here on out.

Here's the daily price chart on the SPX and you can see that the price activity spent the last four days treading water and closed each day at or near the 1473 level. Today the Dow Transports set a new high and that flashed the signal to the laggards in the other indexes that all is well and a round of strong buying ensued. The thing you have to be careful with on a day like we had today is that it can be a double edged sword. This could be a throw over top or the continuation of the current bullish move. Indicators suggest, in either case, we are running out of steam and may need a rest.

Here's our long term monthly view of the same index which shows the market is completing a shorter term bearish rising wedge (yellow lines) and the longer term wedge, called by some the Jaws of death, in red. The six year cycle in green is projecting the next bottom in 2015 so the ride lower could take a year or two to complete.

Here's that super simple chart using the Renko format that provides near flawless signals. Currently the price data says we are bullish for now. Long Term investors should follow these signals with their equity index holdings.

Markets being Juiced?...........

Before the market chart appears, I've added another diatribe on what caused the Presidential election outcome to mystify the thinking person and why things are going to be profoundly different from now on. One issue that appears to be the tap root of our malaise is our educational system.

Education in the U.S.

In looking at the unemployment picture going forward, things beginning to look rather dismal for both the short and long term outlook. The economy is struggling for many reasons but one of the key elements is the structural nature of the change in the job market. Today everything is done by or touched by high tech products that do the much of the work in the production process. The requirements for high skilled workers is booming while the old school pure assembly processes are going away. Our economy is moving through another structural change on how work is done.

Today our schools are not turning out enough graduates in the math and sciences to keep up with corporate needs. We are having to move work to areas around the globe that have an abundance of skilled workers. Just to drive the point home about the jobs going begging, below you will find comments that should scare the heck out of you.

Excerpts from a report in 2008 by an educational advocacy group founded by retired general and former Bush administration Secretary of State, Colin Powell.

"Detroit, by many calculations the poorest US city, graduates less than 25 percent (24.9 percent) of its public high school students. Indianapolis Public Schools graduate 30.5 percent of their students, and the figures for the Cleveland Municipal City School District and the Baltimore City Public School System are 34.1 percent and 34.6 percent respectively."

"The city-suburb split is also immense in such metropolitan centers as New York (47.4 percent vs. 82.9 percent), Cleveland (42.2 percent vs. 78.1 percent), Philadelphia (49.2 percent vs. 82.4 percent), Chicago (55.7 percent vs. 84.1 percent), Los Angeles (57.1 percent vs. 77.9 percent), and Atlanta (46.1 percent vs. 61.8 percent)." 

 The former Secretary of State said of the study, “When more than 1 million students a year drop out of high school, it’s more than a problem, it’s a catastrophe.”

Here are a couple of succinct comments from Michael Rothschild, found in his book "Bionomics"which was released in the 1990's:

"....Recently, more than 80 percent of the applicants taking a simple test for entry-level jobs at New York Telephone flunked. While the newspapers are filled with listings for high skill jobs that go begging for qualified applicants, the flood of dropouts and functional illiterates disgorged by the public-school system swells a pool of 30 million illiterate adults already trapped in menial jobs." (remember that 47% number Romney was touting)

"Clearly, something is profoundly wrong with an organization that consumes ever more resources to produce an ever more pitiful product. Indeed the record of the public school system shows a negative "learning curve"- ever higher costs for deteriorating performance."

"Like other parasites, a bureaucracy lacks the capacity to anything but grow and reproduce itself."

And from an article found on Theburningplatform blog:

"If you live in a wealthy area of the country, you may look around and things may look really good to you. But in many other areas of the country things are worse than they have ever been in the post-World War II era. For the first time ever, more than a million public school students in the United States are homeless. That number has risen by 57 percent since the 2006-2007 school year.

 Can you imagine that? We have over a million kids that are attending our public schools that do not have a home to go back to at night.

Our economy desperately needs more jobs, but we just continue to lose more of them. On Thursday, it was announced that American Express is eliminating 5,400 more jobs. More announcements like this come out just about every day now. 65 percent of all Americans expect 2013 to be a year of “economic difficulty”, and there aren't a whole lot of reasons to be optimistic about things at this point."

http://theeconomiccollapseblog.com/archives/the-federal-government-hands-out-money-to-128-million-americans-every-month

It took 60 plus years for the nation to get to this point of near collapse. Short term fixes are not going to make a dent in the problem. The school system is turning out ever greater members for the legions of 47%'ers than any other demographic voting block. Once again we're screwed. Please take a moment to click on the links and read the original articles which yield many more details of our problems.

The Markets 

The following excerpts were taken from articles, same subject, on Zerohedge.com:

"And of all major inflection points, perhaps none is more critical than the just released data from today's H.6 statement, which showed that in the trailing 4 week period ended December 31, a record $220 billion was put into savings accounts (obviously a blatant misnomer in a time when there is no interest available on any savings). This is the biggest 4-week total amount injected into US savings accounts ever, greater than in the aftermath of Lehman, greater than during the first debt ceiling crisis, greater than any other time in US history."

"Will this comparable attempt to send stocks even higher and fool retail to be the dumb money bag-holder once again succeed? Or will this time not be different? Of course, back in 2007 we actually had a market: now it is merely a place where the Fed parks $85 billion in freshly printed money each and every month.  So maybe this time will be different after all."

http://www.zerohedge.com/news/2013-01-10/what-record-220-billion-deposit-injection-kick-start-2013-market-looks.

The basic concept at work here "in the broken market" is that the Government (The Fed) and the big Banks are working together. The Fed prints the money then gives it to the Banks interest free to invest in the market and make profits and the little guys (that's all of us) get screwed once again.

If the market (see SPX chart below) fails to break out above the red resistance zone then maybe its going to be different this time. If it makes a move higher the Ponzi game will continue for awhile longer. This is not the time to be jumping into the market and chasing the move higher, but rather one of extreme caution.

This is the chart of the SPX with Friday's closing price. The index is lacking the momentum at the moment to make the move higher. So far on Monday we have seen mostly a sideways move. The RSI is still above the 50% level which bodes positive for the market unless the index  falls through the 20 day moving average at 1450.

Longer Term, We're Screwed.................

In my last post we touched on the importance of the recent election and what the results are starting to tell us about how America has changed.  The one over-riding issue that I came away with was this question:

What the hell is going to happen when the entitled one's (free phones, free food stamps, free everything) start to elect themselves to Congress. Right now they are dependent on the enablers that currently occupy the seats of Government who trade free stuff for votes. 

This is a provocative article by a Jewish Rabbi, Steven Pruzansky, from Teaneck, N.J. It is a thoughtful explanation of how our nation is changing. The article appeared in The Israel National News.

"Obama’s America is one in which free stuff is given away: the adults among the 47,000,000 on food stamps clearly recognized for whom they should vote, and so they did, by the tens of millions; those who – courtesy of Obama – receive two full years of unemployment benefits (which, of course, both disincentivizes looking for work and also motivates people to work off the books while collecting their windfall) surely know for whom to vote. The lure of free stuff is irresistible."

"That engenders the second reason why Romney lost: the inescapable conclusion that the electorate is ignorant and uninformed. Indeed, it does not pay to be an informed voter, because most other voters – the clear majority – are unintelligent and easily swayed by emotion and raw populism. That is the indelicate way of saying that too many people vote with their hearts and not their heads. That is why Obama did not have to produce a second term agenda, or even defend his first-term record. He needed only to portray Mitt Romney as a rapacious capitalist who throws elderly women over a cliff, when he is not just snatching away their cancer medication, while starving the poor and cutting taxes for the rich."

My italics in the paragraph above highlight what I think is the most important thing this election has shown us. The scales in America have now tipped to the side of the ill informed and ignorant and elections that follow will be decided not on the issues but the freebies and keeping the status quo. This is why it is necessary to pay attention to what is happening in Greece and Europe. Here is where you will find the prelude to what eventually is coming to the United States. Think problems like losing your hard earned savings and pensions won't change the way you need to invest? Start paying attention to the mobs in the streets of Europe.

The current Government has voiced their opinions of what needs to change in America. The idea of taking from those that have and giving to those who feel the system entitles them to get whatever they need for free, is the new mantra. One of the next topics we'll touch on is the train wreck that is the US Education system which is at the root of most of our current problems.

Now for the charts.  The stock market, it would seem, is oblivious to any bad news and only the good news that is filtered through the main stream media seems to reach WallStreet.

The market has still not shown its hand  as to where its going. We've seen a couple of days of up and down movement on low volume. The red zone on the SPX chart is the overhead resistance level and today the index poked its head into the zone. We've had 3 previous attempts to move higher so the next few days should tell us if its higher or much lower.

The TRIN is in neutral at present with no clear signal for now.

Stay light on your feet for now.

The Decline and Fall continues .............................

Prior to the Presidential Election, I was of the convinced that the American people would have a rather easy choice to make. Logically - being fed up with unemployment flat-lined at or near 8% and the debt level rising  to astronomical levels ......... they would choose the guy who could fix the problems. What the hell happens ....... they chose a golfer who wants to spend like it's 1929. (That's not a mistake on my choice of years). 

But if you think nothing really important just happened you are dead wrong and you better start paying attention to what its going to mean to you and your money.  This assumes you have some money left after the coming tax onslaught.  More on the election phenomena in future posts.

Before we move to the market comments and the charts below, please read the the quotes that follow and try to put them into today's context. They are becoming more relevant each day.

"A great civilization is not conquered from without, until it has destroyed itself from within. The essential causes of Rome's decline lay in her people, her morals, her class struggle, her failing trade, her bureaucratic despotism, her stifling taxes, her consuming wars." ~ Will Durant, The Story Of Civilization III, Epilogue, 1944

 “They’re not going to tell you that a collapse is coming. You’re going to have to see it for yourself. The government’s never going to tell you that it’s going to happen. These guys are never going to tell you the truth, because they can’t tell you the truth. Their job is to promote confidence, not to tell you the truth.”    Kyle Bass 

I've exhausted my feelings about this market being broken but certainly the last several months should have given even the most ardent fans of Ben Bernanke a little twitch to itch. The market has been driven by only one thing ....... "The great fiscal cliff debate". Even if the market attempted a sell-off to correct its over bought conditions, the mere whisper of a possible rumor about an agreement in Washington, drove the market idiots to unleash the "Bots" to "buy only" no matter what the cost.

“Diminishing returns of ever-increasing complexity addressed with ever-more layers of complexity, larded with systematic lying based on mystifying, opaque jargon, sanctioned statistical misreporting, felonious cronyism, and scuttling of the rule of law. In short, the markets have been taken over in effect by a criminal racketeering syndicate. In doing this, so much resilience has been removed from these market structures that they are riddled with rot, like a mansion infested with carpenter ants.” – Jim Kunstler

OK, so now where are we? The sound of music was all the markets could hear after the quasi agreements over the Holiday week and the markets raced higher. Right now the SPX is once again nearing the resistance level between 1460-1470 where it was rebuffed in its last 3 attempts at moving higher. If the market can punch through the resistance zone, we could see a move to the 1558 area by late January or early February. If the resistance holds, we should be on our way to the 1270 area and lower. See the chart below:

A chart that is flashing a potential buy set up is GOLD. Gold seems to have a natural affinity for the 61.8% retracement level on its corrections. Note that we touched that area and so far the price level has held. Indicators suggest we may have exhausted the current corrective move lower and may try to attempt a rally going forward. In your portfolio you should have an allocation to the precious metals as a hedge against your other holdings.




Here's one of those tried and true indicators, the TRIN or Arms index, and it flashes pretty consistent signals at turning points. It called the move higher and is now approaching overbought territory and a possible correction. We should get a feel for the markets direction early next week. Because the markets have come way too far too fast, we may see a small correction before the final push to a higher high. The move higher should be over by early February and then the bear market should resume unless uncle Ben gets a new printing press for Christmas. (TRIN is an inverse indicator - so high value is a bottom, low is a top) 

Stay alert and you may want to lighten up on your stock positions.

The Consumer........................

The economic data from both the US and worldwide is really terrible. No reason for the markets to be rallying. However, the MSM is doing the devils work for him by seeing signs of recovery everywhere. The following thoughts are an effort to reinforce the fact that for the first time we are in a "things are different this time" because the consumer is finally waking up and beginning to realize what a huge problem we face and the fact that we have exactly the wrong people in Washington to fix it.

The importance of the consumer in our economy cannot be understated. The consumer's actions account for 70% of our Gross Domestic Product. 

The chart below (from chartistfriendfrompittsburgh) shows a fading GDP, much of which is due to a consumer that is just plain tapped out. On our last post we showed a chart that reflected the decline in net wage income that has been going on for some 20 years. The consumer's net worth is also in the tank as a result of the home and banking crashes we entered in 2005 and we are likely headed for another recession in 2013 which in reality is just a continuation of the recession that never ended. Now if you live in "bizzaro world" you believe we are on the road to recovery and we just need to spend a few trillion more to insure our success.

The real issue we need to address is the monumental amount of debt we have amassed in the pursuit of output to feed the consumption machines (the consumer). Here's a couple of quotes from Kyle Bass in an article on the Economic-Undertow.com blog. The Debt problem we face now is so monumental that no amount of Taxation nor spending cuts, in the short term, will be able to fix the problem.

(1) "...... the bottom line is … the total credit-market debt to GDP globally is 350%, it’s $200 trillion dollars worth of debt … against global GDP of roughly $62 trillion …"

(2) "Debts cannot be serviced — much less retired — with the economies at death’s door: future GDP growth is theoretical."

The article this information was taken from is titled "Japan=Detroit". The link is below and its worth reading and watching the video of what Detroit looks like today. All the spending brought us to the edge of the abyss.

 http://www.economic-undertow.com/2012/11/22/japan-detroit/

From "The Burning Platform" blog comes this rather scathing view of what most consumers have become. It really pays to look in the mirror sometimes to see what's looking back at you. I tend to agree we really need to begin looking at what's important rather than how much crap can we accumulate.

The Soulless Consumer

 “In the developed countries there is poverty of intimacy, a poverty of spirit, of loneliness, of lack of love. There is no greater sickness in the world today than that one.”

Americans are trained from the time they are babies their duty and right is to consume. Even a person living in a cave knows what generates 70% of our economy: consumer consumption. As an American there is no greater good and no better vocation than consuming as much as you can. It’s the mantra spewed forth from T.V.s, the internet, radio, billboards; there is no escaping advertising designed to make you feel compelled to consume. Americans have learned their lesson well, they consume more per capita than any other country in the world. But what does consumption get you really? Mother Teresa hit the nail on the head: Poverty of intimacy, spirit; loneliness, lack of love. There is no greater sickness. This from a modern-day saint who treated leprosy and saw more suffering and sorrow than most people can imagine. Yet, there is no greater sickness than in developed countries. A scathing conclusion.

 The modern day consumer. Walking the isles at Wal-Mart (the largest company in the world), wandering around the malls, filling grocery carts with crappy food that will make them fat. Consume until you can consume no more. Consume until you can barely walk anymore. Watch T.V. commercials for hours on end to get motivated to do it all again. On Saturday morning, get out of the way on the highways and byways, rabid consumers will run you over trying to get to stores to spend their hard-earned dollars on stuff they don’t need and can barely afford.

 Mother Teresa “In My Own Words”

Yet look into their eyes, as they try to get ahead of you in the check-out line. Their eyes are empty, their souls are gone, they don’t look happy like in the commercials, they look strung-out, vacuous. There is little joy in consumption.

http://www.theburningplatform.com/?p=44211

Now here's a look at the Market:

Found a great site that covers cycles and is very well done. It's called Swing Trade Cycles and it can be found at the address shown below the chart. Last post we showed an Elliott five wave down in process with the end of the fifth wave near the 1320 mark. Here the cycles also show the move lower and the initial target is the 1348 range. The target timing for the completion of this move lower is mid-December. We should then get a rally into January to placate all the folks that count on a Christmas rally.

www.swingcycles.blogspot.com