Zeev: Saville now diverging sharply from the turnips. Expects a 1-2 month rally in the stock market. Me -- I am even more bearish than the turnips over the next month or two.
Hi George,
I don't agree with your assessment of Saville's bullishness at all.
I think he's merely covering all the bases and has suggested that one or more of the following criteria would have to occur BEFORE a meaningful rally would ensue.
Caveats reign supreme...... <gg>
["Last month we said that the occurrence of one or more of the following would signal that global stock markets were near an important bottom (a bottom from which a powerful and lengthy bear market rally would be launched):
* The S&P500 Index dropping to near its channel bottom. As the below chart shows, for this to happen during the next several weeks the S&P500 would need to plunge to around 650.
* The T-Bond yield dropping to near its channel bottom. Based on the strong positive correlation that has existed between the stock market and long-term interest rates over the past 5 years it is logical to assume that any test of the major channel bottom by the bond yield would roughly coincide with an intermediate-term low in the stock market. The below chart indicates that the bond yield would need to fall to around 4.3% over the next several weeks in order for it to reach the channel bottom.
* The NASDAQ Composite Index dropping below 1000 (to the bottom of the channel shown on the below chart
* The German DAX Index falling to around 2000. As the below chart shows, there is long-term support for the DAX near the 2000 level (actually, long-term support extends from 2000 up to 2200 so the DAX has already reached major support). Furthermore, a drop to this level would complete a 100% retracement of the entire 1995-2000 bull market.
* A selling climax in the US stock market (a selling climax would be indicated by huge downside volume and extremely high volatility readings). * The S&P500/gold ratio dropping to near its channel bottom. For this to happen during the next few weeks the S&P500 Index would need to trade at less than 2 times the gold price. As explained in recent commentaries we expect some sort of bottom to be in place by the end of this month. However, it is unlikely that any of the above will occur over the coming 2-3 weeks, with the possible exception of the DAX hitting long-term support, suggesting that the up-coming stock market bottom will NOT be followed by a substantial rally. Rather, it will probably be followed by a 2-4 week bounce.
We could, of course, be wrong. Maybe a genuine selling climax is about to commence with war or terrorist-related developments being the catalyst. However, the market is simply not trading as though it is going to fall to pieces in the near future. Some commentators have speculated that the US market has not yet plunged below the October lows because it is being artificially supported. This theory doesn't do a good job of explaining the short-term market action, though, because any official intervention would likely be aimed at supporting the Dow Industrials and the Dow has recently been the worst performing of the major US stock indices. (As far as the longer-term picture is concerned US policy-makers have worked very hard over the past 2 years to support the US stock market, but not via direct intervention.)
To summarise the above, it looks like the March low we've been anticipating will not be substantially below current levels (last October's lows might be tested in the Dow and the S&P500, but a drop to well below last October's lows does not appear likely in the short-term). In our opinion this is not, however, a bullish development because it will simply mean that a major decline has been postponed by 1-2 months."
What I find interesting is his comment above (my bolding) that he doesn't acknowledge any direct intervention by the US policy makers.
Fwiw, I, too, am more bearish than the turnips at this point in time.
Except, of course, for gold. I remain steadfast in my beliefs about the bright future of the PM's.
Regards,
Dan
Dan 
AI
