Ides Of March 2014

Mid-March this year will mark the 5-year birthday of this current US stocks bull market. Historically what leaps to mind is the ominous Ides of March tragedy (ie March 15^th). 

Investment Analyst Gary Tanashian has identified a 5-year cyclical bull market in US stocks. He observes the manic phase of the secular bull that ended in 2000 lasted roughly 5 years.  Furthermore, the inflation-fueled cyclical bull market instigated by the commercial credit bubble that ended in 2007 also lasted roughly 5 years. Analyst Tanashian’s chart says it all:

(From Gary Tanashian – November 27, 2013  https://www.gold-eagle.com/article/sp500-gold-stocks-mirror-manias

To be sure today’s soaring stock market will be 5-years minus 2 months (ie the Ides of March 2014). Clearly, imminent danger looms in Wall Street stocks.

S&P500 Index (1999-2014)

The Technical Indicators (MACD, RSI & CCI) have all recently maxed out…just as they did in late 1999 and late 2007.  THEREFORE, any reasonably competent stock analyst must therefore conclude a BEAR MARKET IN STOCKS LOOMS.

Another infamous example of the Five-Year Bull Market cycle is the period 1982-1987.

For those uninformed naïve investors (often referred to as pollyannas) who skeptically delude themselves that stocks are NOT TODAY OVER-VALUED, I challenge them to dispute the following chart that screams that stocks should be sold NOW.  The chart shows the ratio of US T-Bonds ($USB) over the Dow Index ($INDU).  Also super-imposed is the Dow Index (purple curve).  The theory is quite simple. As the bull market plows ahead, the investing herd forces stock prices to rise much faster than that of US T-Bonds. Ego, the ratio of $USB/$INDU gradually grinds downward. Eventually the ratio of $USB/$INDU falls until it reaches the SELL STOCKS ZONE (when speculative stocks are grossly over-valued vis-à-vis the much more conservative US T-Bonds).  This is when the Bull Market will reverse and begin its Bear Market cycle.

The rationale is that when smart investors perceive stocks as over-valued, they begin to dump stocks in order to flee to the safe haven of US T-Bonds.  Consequently, the $USB/$INDU ratio will begin to rise. This reversal is clearly marked by the pink ball in the chart below in 2000 and 2007 (when each Bear Market was born).  IT IS IMPERATIVE TO NOTE  another Bear Market is being conceived at this very moment…as the $USB/$INDU ratio is clearly in the (green) SELL STOCKS ZONE…as the Dow Index threatens to run off the top of the chart.  

http://stockcharts.com/h-sc/ui?s=$USB:$INDU&p=D&yr=17&mn=0&dy=0&id=p13635642720&a=332542230&listNum=2

CONCLUSION…going forward

The 2000 Sell Signal saw the DOW Index fall -39% during the succeeding 34 months.  And the 2007 Sell Signal witnessed the DOW Index fall -54% during the next 16 months.  Today we again see a Sell Signal (USB/INDU).  And if we assume the DOW Index is indeed peaking, and that the subsequent bear market might be the average decline of the last two bear markets in magnitude and time duration, then the DOW Index could conceivably drop to 9000 by the Ides of March of 2016.

Can you really afford to risk another BEAR MARKET IN STOCKS?!

Frankly, I cannot!

CAVEAT EMPTOR…let the buyer beware.

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More by vronsky:  https://www.gold-eagle.com/authors/vronsky & https://www.silver-phoenix500.com/authors/vronsky