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The Implications of a 75-Year Cycle Top 1/24/08 Dow just broke its 75- year up trend line (see chart to right).

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Presentation on theme: "The Implications of a 75-Year Cycle Top 1/24/08 Dow just broke its 75- year up trend line (see chart to right)."— Presentation transcript:

1 The Implications of a 75-Year Cycle Top 1/24/08 Dow just broke its 75- year up trend line (see chart to right).

2 The Implications of a 75-Year Cycle Top – One Year Later Dow Jones Industrials declined from 11,921 to 6,463 Has closed below its 50- month moving average for first time since 1985! Has closed below its 200- month moving average for first time since 1975!

3 Conventional Wisdom of Last 75 Years is No Longer Valid 1/24/08 There is always a “January Effect” rally. SPX declined an unprecedented 16.4% between 12/11/07 and 1/22/08.

4 Conventional Wisdom of Last 75 Years is No Longer Valid – One Year Later SPX Declined 6.6% between 12/11/08 and 1/22/09 Once again, there is no “January Effect.”

5 Conventional Wisdom of Last 75 Years is No Longer Valid 1/24/08 Utilities is a safe haven for money in a bear market. Dow Jones Utilities Average declined 13.9% between 1/8/08 and 1/22/08.

6 Conventional Wisdom of Last 75 Years is No Longer Valid – One Year Later Utilities was indeed not a safe haven for money in 2008. Dow Jones Utility Average declined 31.7% in 2008! It declined 23.4% between 1/6/09 and 3/9/09 alone!

7 Conventional Wisdom of Last 75 Years is No Longer Valid 1/24/08 The Far East boom creates endless demand for commodities, making them a hedge against declining stock prices. The CCI Index peaked 1/16 and should decline at least 15% this year.

8 Conventional Wisdom of Last 75 Years is No Longer Valid – One Year Later CCI Index peaked 7/3/08 at 615.04 and declined 47.5% to 322.53 on 12/5/08! The Far East bust has revealed little demand for commodities, causing them to crash!

9 Conventional Wisdom of Last 75 Years is No Longer Valid 1/24/08 Gold moves in the opposite direction to stocks and is therefore a hedge against declining stock prices. Gold peaked on 1/14 at 916.10 and declined 7.4% by 1/22.

10 Conventional Wisdom of Last 75 Years is No Longer Valid – One Year Later Gold declined 27.3% between 10/10/08 and 10/24/08 while the SPX declined 12.1%. Gold rose 11.8% between 11/21/08 and 1/5/09 while the SPX rose 27.4%. Gold declined 10.6% between 2/20/09 and 3/4/09 while the SPX declined 14.3%.

11 Conventional Wisdom of Last 75 Years is No Longer Valid 1/24/08 Since International Stocks are typically contra- cyclical to domestic ones, it makes sense to overweight one’s portfolio with them. The S&P Euro 350 peaked last October simultaneous with the Dow and then declined 23.2%!

12 Conventional Wisdom of Last 75 Years is No Longer Valid – One Year Later The S&P Euro 350 declined 46.1% in 2008 as the SPX declined 39.4% - certainly was not contra-cyclical! It has virtually traded in sync with the SPX since the October 2007 peak.

13 The Implications of a 75-Year Cycle Top 1/24/08 A 75-year bull cycle cannot be corrected by a minor bear market – it takes a super bear to correct a super bull. During the past 75 years, bear markets averaged 15 months in length, but a super bear will last 36-48 months! During the last 75 years, the average bear market decline was 23%. We expect this super bear to contain a series of such declines interrupted by several short but sharp rallies of as much as 20%. Therefore, we expect volatility to remain at double its formerly normal level.

14 The Implications of a 75-Year Cycle Top – One Year Later We are clearly in a super bear market. Thus far this super bear has lasted 17 months and counting! From high to low, the SPX has declined 57.7%! So far, we have had three declines of 20.2%, 48.3%, and 29.6%, and two two short, sharp rallies of 20.4% and 26.9%. The VIX Index rose 526.3% from 17.01 on 5/19/08 to a record 89.53 on 10/24/08!

15 How PatternWatch Performed in 2008 Average Gain of 128 Trades 42.94% % Profitable: 109/128 85.20% Average Gain of 110 Stock Trades 51.51%

16 The Implications of a 75-Year Cycle Top – Where We Go From Here – Part 1 SPX has just closed below its 28-year up trend line, indicating a bearish long- term trend. We expect the first half of this super bear market to bottom in late March 2009 at SPX 625 and Dow 6250. We then expect the typical mid-bear rally to SPX 950 and Dow 9300 by late June 2009. Then we expect the second, and worst, half of the bear to decline to SPX 392 and Dow 3900 by late December 2012. Note: Typically the worst economic developments and indicators of the downturn do not occur until the second half of the bear, i.e., late summer/early fall 2009.

17 The Implications of a 75-Year Cycle Top – Where We Go From Here – Part 2 Economic Stimulus plan and Fed quantitative easing both fail, leading to runaway deflation in second half of 2009. CCI index declines to 175 by year-end 2009. Gold declines to under $200/oz by year-end.

18 My Contact Information Steven M. Frenkel, CFA Chief Technical Analyst, PatternWatch Office: 201-797-3419 Cell: 201-410-9335 Fax: 201-797-4241 Email: frenkly@verizon.net


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