To All: A message on market direction this year.
Recently I've been seeing the number 2500 COMP tossed around, and I though, "hey, that's familiar."
Well, I went through some old posts at SI PS&O and noticed we were talking about this a year ago, as it was the .382 re-trace off the all-time COMP high to the 1108 lows.
That 2500 COMP number also fit in with some pattern projections off the Dow 1933-1936 market.
That got me to going over some old PM's looking for the MRCI pattern link. I came across that in an exchange with Jeff from SI.
Some of you here may not know who Jeff was. Jeff was a poster on SI who had an uncanny ability to look at the market from an entirely different perspective and find patterns and ways to predict market direction, including specific targets for the Nasdaq.
Some people did not get along with him, but I've often found some of the most brilliant market players have unique personalities that may not necessarily be appreciated by all.
Anyway, Jeff recognized a pattern playing out in late Dec. 2002, and he used that pattern to form his bullish views on the Nasdaq over the next few years.
I have not looked at that system since November when it forecast a Nasdaq high of 2156 (the high eventually was 2153). The system forecast a drop to 1925, a rise to 2140, then a drop to 1920.
The system has been nearly without flaw on predicting highs over the past 18-months, but it is not so good at predicting lows. However, you can see the first leg of the double bottom was only 28 points less than this system projected, and if you subtract 60-points from the 1920 low to accommodate a 220 point drop from 2080, you get within 5-points of our 1865 COMP low.
The reason I am mentioning this now is that I looked at the system last night and it is showing a parabolic rise to..........2940 COMP!
There is a small gap from Dec. 2000 from 2726-2727 COMP that has not been filled. Moreover, there is a gap on the NDX from CSCO's Feb. 2001 warning that runs from 2266-2356. The bottom of that gap coincides with 2900-3000 COMP.
3000 COMP was also the bottom of the crash in April 2000. It was a pivot high in Dec. 2000 and a pivot low in Oct. 2000. It is a very critical level. Furthermore 2872 COMP was the Jan. 2001 high.
What do we have to support this clownish notion that we're going to 2900 COMP? Well, you could look at the Pres election pattern and see it supports a rise into the end of the year. You could look at the price of oil and the possibility that the $42 high was the top of a wave 5 ending diagonal that started at $27, indicating oil will return to $27/Bbl. You could also point to the Fed pumping up the money supply last month at a 22% annual rate, which is triple the norm for targeted growth of 2-3%. You could also point to the lag time of 6-8 months it takes for Fed tightening to impact the market. You could point to a federal deficit of $500-billion plus low taxes as fuel for growth of 4-5% in the last half of the year. You could point to improved corporate profits resulting from a raging economy and extremely low borrowing costs. You could also point to possible optimism over a 2nd term presidency. You could point to J-Lo getting hitched.
Whatever the cause, the system says we are starting a parabolic rise to 2940 COMP, with this area just a short stop on the way.
What then? Well, the system says once the apex is reached, we should dump 30% in very short order (maybe a few months), with the first 15% happening very quickly. However, the system suggests the 2000 level on the COMP will be a floor going forward even after that dump.
How do you react to such outrageous projections? Well, the best way to take advantage of a parabolic rise is simple - Buy and hold, and for goodness sakes, don't short! It's also good to look at charts and see what's supporting this scenario (I posted some SOX stuff last night, for example).
Anyway, whatever happens, I thought this significant enough that I should share it in this forum. I will not be shorting much at all until November likely. I'll also be moving a portion of our extremely conservative employee funds into more aggressive small cap tech funds.
It does not mean abandon all sense when trading even if there is a parabolic rise in the market. We should always use stop losses on our positions to protect our capital and make certain our positions are diversified to spread the risk.
Anyway, enough ranting. Everyone have a great day!
