Peeing on a Forest Fire
BY TIM W WOOD CPA
My research suggests that the secular bull market, which began at the 1974 low, peaked at the October 2007 high and that we have been in a bear market advance since the March 2009 low. According to Dow theory, all bull and bear markets unfold in 3 phases with important counter-trend moves separating each of the phases. As I have said all along, the rally out of the March 2009 low has been a bear market rally that should prove to separate Phase I from Phase II of the longer-term secular bear market that is now under way. Nothing has occurred to change this point of view. Since the rally out of the October low began, I have received a number of e-mails asking about manipulation and if “they” could prevent or if “they” have perhaps already prevented the phase II decline.
All throughout the period between 2003 and 2007 I explained that we were seeing a stretched 4-year cycle. I also explained that the efforts by the powers that be to hold things together would ultimately only serve to make matters worse. There is no doubt that the manipulative efforts seen during this period contributed in a very negative way to the credit and banking crisis of 2007 and 2008. In my eyes, this was largely accomplished through the unscrupulous lending practices and mass financial irresponsibility, resulting in the housing bubble, which Greenspan tried to tell us did not exist and which I called, in writing, in late 2005, before the top became apparent.
In October 2007 the equity markets peaked. My subscribers were informed of that fact as we knew what technical signs to look for and as they occurred we knew exactly what was happening. As the decline took root the manipulative efforts became even more drastic than what was seen into the 2002 low. But, cyclically, none of this mattered as the market continued lower until the cyclical events required to make the 4-year cycle low and the Phase I low were achieved. It was from that point that the bear market rally began. In the eyes of most people and the politicians, they believe that they have “saved” the market and that the economy has bottomed. This is not so. The market and the economy merely reached a temporary bottom in March 2009, in which the rally that should ultimately prove to separate Phase I from Phase II of the bear market began. This rally has served to give the public a false sense of security and hope that the economy is now on the road to recovery. This rally has also given the powers that be a false sense of power in that they think they have every thing under control as a result of their manipulative efforts. Sure, the decline into the recent October low was scary and we saw levels of bearishness not seen since 2008 as that low was being made. The fact that the market continues to hold above that level will in time also create an even greater false sense of security. But, according to the historical bull/bear market relationships and the longer-term phasing of Dow theory, this is a bear market advance and there is a Phase II decline out there, regardless of the manipulative efforts. Once the proper setup occurs, the bear will have his opportunity to cap this advance and at that time, financial hell will be unleashed on the world markets regardless of the efforts to prevent the inevitable. Unfortunately, in the meantime, the hope and hype of Wall street and Washington keeps the public blindly optimistic.