US stocks have entered a consolidation phase with falls recording thousand point moves. The size of the falls merely reflects the size and scale of the up move. The market is working off some of the bullish sentiment and flushing out weak hands.
Market sentiment and its overbought nature indicate however that within 2-3 months the market will resume its upward momentum. This correction is a crack in the bull market and an indication of how close we are to an all time top. The fundamental issues that will bring this boom to an end are beginning to gather.
Our forecast was for a major top to occur either at year end 2017 or in March 2018. An interim top occurred on January 29th 2018. Now the market is consolidating between 24099 and 25500. After recovering to these upper levels we anticipate another strong sell off towards the 22000 level, creating panic selling. This will bring a momentum swing higher. The sell off will provide a buying opportunity (possibly in March) which should bring new highs before year end. That will be the final move up of the great bull market of 2009-2018. A repetition of the 1927-29 bull market in all its speculation and frenzy, fueled by cheap interest rates. This final rise could be exponential. These are very dangerous conditions to trade as the collapse when it comes will be swift and unrelenting.
The monthly DJIA chart going back to 1992 shows the gathering and scaling moves of the stock market. The rise from 2009 look incomplete. One more move to new highs would complete the “look and form”. A classic look would take the DJIA several thousand points above the current highs in what chartists would call an exhaustion move or “blow-off move”. This move may well be characterized by a booming economy, rising prices and wages, full employment and a sense of a “new golden era” unfolding. At the same time, growing storm clouds blight the horizon that may cause stocks to reach their January highs then stall. What are some factors that could cause this? Rising interest rates, pension funds, debt levels, derivatives, an outbreak of inflation, geopolitical tensions, the list is growing.
All of this is part of the psyche and form of people and events that have built up over decades and centuries. It is the completion of the up phase of the Industrial Revolution Cycle that began prior to 1783. Whether we have a few more months or seasons of twilight before the beginning of a new “Dark Age”, the clouds are gathering and the storm is coming.
Suffice to say, from now on we can expect increasingly tough times punctuated by phases of optimism. This is the nature of major long term tops. And of course the coming generation of correction will not merely be confined to asset prices and the vagaries of fiat money and bad economics, but also to societies and politics, both domestic and geopolitical.
Generations of people will learn about long forgotten natural laws and how it applies to human behavior. Social mood will have become dark and
this will also express itself through every aspect of society, both culturally and economically. Music, the arts, fashion, crime, politics, social mood and drama will all reflect the new paradigm. The growing social political and economic tensions we have witnessed is a harbinger of what is to come.
This phase will reset the stage for a new beginning for people from which a new and sustained social and economic recovery will slowly begin. By the time that point has arrived however, the nature of our societies and the way we relate with people and as nations will have changed. The wrangling about why it had to happen will be well underway.