Just a quick update.

We are approaching another time window that may represent an end to this current leg down. Market movements in the primary directiontend to move in 5 wave patterns. On the S&P Master chart (attached) we can clearly see the starting of a 5th wave from the pattern beginning from the Top on May 2nd 2011. The end of this 5th wave can continue to subdivide as an extended 5th wave however we are approaching significant levels where the big money may support the marketsfor a trade able rally over the next 1 to 3 months before the next expected set back in the early part of next year. At that point a more certain and durable rally may begin with little fan fair. 

Sentiment indicators are at extreme bearish levels so averaging here is not a bad idea but a full position is not recommended because there is always a possibility of a panic move down to much lower levels. Again, if we do stabilize here this is not the start of a new bull market but most likely a significant retracement of the recent move down.

Watch carefully over the next week to see if we see divergence within the market. If we do we may have the bottom at least for a 1 to 3 months. 
The market to really watch is the bond market. I have always said the smart money is in the bond market. The bond market was forecasting what we are see now 6 to 8 months ago and the best investment this year has been north american governments bonds. I got a lot grief from colleagues at the beginning of the year, becausemy recommended allocation was close to 70% bonds and 30% equity. This allocation would yield you a positive return this year compared what the majority are holding. However government bonds are at a great level to re-balance out and position into corporate bonds or dividend paying stocks.

 

Take Care
This is just "One Man's Opinion"

It has been a number of weeks since I updated last.
The dynamics of the market has not changed and the intra-day market volatility has been extremely news driven with little progress. The pattern that has developed is daunting and will cause great confusionover the net 12 to 18 months. This environment will not be for the faint of heart however these are times where going against the majority consensus at the right TIME will pay off in the long term. Picking a bottom in this environment is a risky game so averaging in quality dividend paying investments is a sound long term strategy. However not every sector and industry will recover as it didin the previous cycle. Understanding the global economic landscape and future catalysts will be key to get expected returns. 
We are not quiet there yet , however there will be time where the stock market indexes rise as the economy gets worse and this confusion will cause many to miss out on this profitable wave. It will be important to remember during this phase that "The Stock Market is Not the Economy". For instance the worst part of the Great Depression was between 1932 and 1937, however the DOW Jones Industrial Index rose from 41.22 to 194.40 by the end of 1936 (a gain of 373%). I am not saying we are at the bottom but to always be aware of this contrarian dynamic that may face us.
February 2012 looks like a interesting TIME for this down leg to stabilize. We are at a point of recognition therefore if governments step up here we may see a TEMPORARY bottom in the next few weeks.However the TIME cycle is telling us that this down leg may have further to go with dramatic rallies and drops over the next 6 to 9 months.

S&P Master Chart

We are in interesting times and the point of recognition has been reached.   The internals of today's decline was one of the worst on record.  We have entered period of liquidation all when a time cycle is approaching for a temporary bottom. The technical damage has been done and it will take TIME to repair this market.  The next recovery in the stock market will be on of confusion but that maybe 6 to 18 months away.  The economy will remain week and muddle along but there will be point where we see the stock market outperform the general economy similar to the 1932 to 1937 period where the stock market rose over 200%.  Before that happens we are going we see huge volatile days such as today to the upside and downside.  The damage today is significant and the recent decline may have reached its half way point in price but not in TIME.  Dollar Cost Averaging into this environment over the next 12 to 18 months would not be a bad idea but you always want to be sure you are averaging into this market when we have large down day's.  As well you want to be positioned in assets that lead the next wave up.  Understanding the dynamics of the world economy and future growth will help you be positioned properly.   It may feel like the end of the world but the problem is debt and it can be fixed with TIME and tough decisions by government.  Our problems today are peanuts compared to getting through 2 World Wars where tens of millions were killed countries were destroyed.  The charts are the key to help us navigate through this most emotional time. 

Attached is my Master Chart of the S&P500.  We are at a confluence area of many support levels.  If we get a monthly close or even a weekly close below 1040 we will most likely see triple digit figures sooner than later.  It amazes me how the so called experts continue to get it wrong and how we are at last years lows already.  It was 3 weeks ago where the majority of experts were calling for higher prices.  

We are in interesting times however over the next few years we may witness the last great investment opportunity of our generation.  Complacency is not an option and being dynamic with your allocation is necessary for expected returns.

INTERESTING TIME AHEAD

Here is another update. See charts ATTACHED

Next week is the long awaited time frame where I believe we will see a SUBTLE change in trend in a few markets. As it looks now these changes in trend will be realized in HINDSIGHT. It looks like the interest rate market (bonds) could be the market to watch for a significant change in trend. It will not happen immediately but in hindsight we may look at this period as the time frame where interest rates bottomed. 

Many may have not realized but bonds have again out performed the broader market based on where the market is today. In Canada the TSX Composite is down over 3% and the U.S. markets is about 1% higher for the year. On the other hand a well diversified portfolio bonds is up over 3% year to date. THis may change going forward. Right now the short term bond market is pricing in another recession within the next 12 months as it did in 2007. The question, is this time different because of the government intervention in the bond market to keep interest rates low or are we headed for another downturn.

This why I am big believer in a DYNAMIC Asset Allocation in this environment versus STATIC ASSET ALLOCATION, which has failed over the last 15 years. The Dynamic approach is the only way anyone will get expected returns for the remainder of this decade. However that may change in the next decade where a buy hold approach will be appropriate (this big picture thinking). The understanding of TIME and HISTORY is so important when developing an investment strategy over the short to long term. 

As many know the issues of 2008 financial crises have not been fixed and a lot of the financial issues have just been moved to the government balance sheets. The government (European Union and USA) need low interest rates because the astronomical amount of debt they are holding now. I won't get into the numbers but when you break them down they are staggering. If interest rates rise there servicing cost of the debt can effect ability to continue to stimulate the economy. Therefore it will be up to the private sector to carry us along instead of the helping hand of the government. 

The good news is that the large multi national companies have hoards of cash and if we continue to selloff they could be good entry points. Because large corporations are in much better shape to withstand another slow down, the stock indexes may hold up better than they would usually do in a recession. Remember the stock market is not the economy and in prior periods the stock market could trade contra to the economic fundamentals for some period of time. In the end it looks like we will be just muddling through this deleveraging environment but the big picture is that it will create opportunity but patients is the key to take advantage of the opportunities at the right TIME. TIME is always the most important element to investing and money always flows to where it feels most confident over the long term.

$SPX - Weekly Candlesticks

$SPX - Weekly Candlesticks: "

via StockCharts.com
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$TSX - Weekly Candlesticks

$TSX - Weekly Candlesticks: "

via StockCharts.com
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$SPX - Weekly Candlesticks

$SPX - Weekly Candlesticks: "

via StockCharts.com
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