Sorry ~Shard~ I ment a lull in stocks
Ah, gotcha
Hoef. I think I know what you are getting at, however I was speaking specifically about Blow Offs and Blow Downs - allow me to elaborate.
Blow offs in the US equity market are rare, but wonderful events for investors holding US equity securities, ETFs and mutual funds.
Significant gains are recorded in a relatively short period of time. Unfortunately, blow offs are followed by
blow downs where gains realized during the blow offs are quickly lost. When blow offs occur at the end of an economic cycle the blow downs frequently take equity indices to
below levels where the blow off started.
Blow offs are characterized by a period of 2-4 months when broadly-based equity indices such as the DJIA and S&P500 move sharply higher with little or no correction. Roughly ten blow offs have been identified during the past 34 years with an average gain of 13% per period. Identifying the top of a blow off is virtually impossible. Blow offs take the market to unexpected levels on the upside. Guessing when the top has occurred can be hazardous to your financial health - trust me, I've experienced this firsthand.
Technical indicators (e.g. breaking of trend lines, RSI rollovers, MACD, stochastics, etc.) are useful only after the peak has occurred.
The
blow down phase is to be avoided at all cost unless you plan on shorting the indicies themselves as I plan to do.
The average loss per period after the past 10 blow offs has been about 18%. Blow downs typically occur 2-6 months following blow offs. Blow downs are characterized by declining investor sentiment, technical weakness in broadly-based equity indices, a fall in the ratio of stocks in an uptrend versus a downtrend and reductions in economic and earnings estimates offered by analysts.
Since I am an "investing geek" I track this stuff.
Following is data for the past 2 blow offs and blow downs (in a messy ad hoc attempt at a chart
):
Bottom date*** DJIA************** Top date******** DJIA ************* Percent Change
Oct. 15, 1999 10,020************* Jan.14, 2000*** 11,723************ 17.0
Jan. 28, 2002** 9,618************* Mar.19, 2002** 10,635************ 10.6
Top date******** DJIA************** Bottom date*** *** DJIA********** Percent Decline
Jan.14, 2000** 11,723************* Mar. 7, 2000*** * 9,796************ 16.4
Mar. 19, 2002 10,635************* Oct. 9, 2002*** * 7,286************ 21.5
In my opinion, we
are experiencing a Blow Off. The DJIA and S&P500 recorded exceptional non-stop gains from mid-July until the end of November. (Specifically, the DJIA added 15% and the S&P500 gained 14%.) More importantly, I think we are near the end of the Blow Off phase. Will the Blow Down phase start son? Has it started already? Impossible to say. I am seriously considering taking short positions, however I almost think things will not start to fully correct until the New Year, as many investors will not want to take money off the table and realize significant tax gains prior to the end of the year. So, I'm aiming more for January, however that strategy could change at any time.
December is a traditionally weak month for the USD so I will be looking at buying more Gold (next technical target of resistance is around $675/oz), possibly shorting the DJIA, S&P500 and NDAQ100 and will keep my eye on buying EUR/USD and GBP/USD. Lots of opportunities to make money out there and everything is related to each other if you look close enough - or stand far enough back to see the big picture, as it were.
