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EQUITY
STRATEGIES 2000
This highly volatile year saw the rewards of the integration of our
thorough fundamental and technical research.
As described elsewhere in our intro material, our main models are based
upon the behaviour of key financial series through the dramatic climax of
five previous New Eras.
This has anticipated the sequence of significant trend changes as well
as their most likely timing. Confirmation of such change is provided by
The ChartWorks' seasoned and proprietary technical analysis.
For example, one sector in the Boom Indicators noted that, during the
conclusions of previous financial manias, short-dated market rates of
interest typically increased for 18 months. Beginning in January, 2000,
that this would be March was frequently repeated.
In February, The ChartWorks noted that the action in the techs had
reached extremes not seen since the Nikkei in 1989 or in gold in 1980.
This "Euphoria" model or, as we have also called it,
"Roadmaps", has been very reliable.
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A review of our work in 1Q2000 is
provided in the Website.
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Our work on methodical trends has also
been reliable. At the lows in October, 1999 and 1998, the team
identified the resumption of the bull market.
Details of the topping process are detailed below with the emphasis
added.
HIGHLIGHTS 2000
March 10, 2000:
Noted that all
previous New Eras (in London) blew out in the second quarter, churned
around during the summer, and suffered heavy liquidation from September
until November. In one example (1825), the crises lasted until January. We
concluded that this was the most likely forecast. [Nasdaq 5049]
April 26, 2000:
Noted the
perversity that great market declines can occur with superb earnings
gains, such as in 1974, 1962, and 1937. The conclusion was "While
earnings may not be inherently dangerous themselves, they can be hazardous
to the unwary." and pointed out that it would be speculative to
consider that the phenomenon at important market tops had changed. [Nasdaq
3630]
May 1, 2000:
We were looking for
the initial break to bottom in late May and then recover until the first
week in September. [Low 3165 May 23]
"Should the market take another hit, it would likely complete
around the 3rd or
4th week
of May. Are we seeing peak earnings
for the year in the first quarter?"
August 3, 2000:
Boom Indicators
deteriorated from 0 to -3 mainly due to adverse moves in the yield curve
and credit spreads.
August 11, 2000:
"Historically,
the turn from August to September can be very dramatic. The first week in
September marked the end of the 1873 and 1929 bubbles as they occurred in
New York. Since 1932, there has typically been a rally from mid/August
until the first week in September. However, if the market was
consolidating after a speculative peak early in the year, it increased the
probability of a significant
decline after September." [Low
3760 August 10]
"Technically, the rebound has been weak [and] spreads and the
curve have resumed their adverse trends. The
outlook for most equity groups is bleak."
August 18, 2000:
"There is
no guarantee that significant financial events will continue to follow the
typical path to deflation. On the other hand, there is no guarantee that
they won't. It's best to consider the probabilities. After all, there was
no guarantee that they would follow the usual path to a financial
bubble."
August 25, 2000:
Tom Peterson's
model identified 60 short sales. These were all institutional stocks and
included some big names such as Nortel. [Nasdaq 4043]
September 8, 2000:
Checklist For A Top reviewed
renewed speculation and the validity of the main pitch. The conclusion was
that "most sectors are
immediately vulnerable". [High
4259 September 1]
The Checklist For A Bottom did not appear until March 21, 2001.
September 20, 2000:
"Financial
Contraction Alert" This
included the reliable technical pattern known as "The Sign Of The
Bear" with the note that it had given only 7 such signals since the
1920s. All from July 22, 1929 to December 12, 1972 had been successful in
anticipating the failure. [3897]
October 6, 2000:
"Technical
Alert " Our "Contraction
Alert" of September 20 was
based upon deteriorating credit conditions and a rare technical sign [of
the Bear] in the NYSE. [Nasdaq 3361]
The review included the "Fail-Safe" that if the Nasdaq didn't
turn around by October 12, a significant failure was possible. [3075]
Also noted was that the Boom Indicators had deteriorated from -3 to
-5.
December 15, 2000:
DJIA The
unique model for the DJIA had been reliable since it was developed in late
1999. This provided an outlook for the start and end of the first quarter.
"Typically, the year-end rally has been 11 to 21 days.
The high is anticipated to be in place by January 10. [Then the drop
could range from a] minimum of 7% to a maximum
of 20% before the end of March."
This followed the November 24 observation that "patience is still
needed before establishing a long position for a bullish year-end
play".
The Dow's low was 10158 on December 21 and the rebound was to 11819 on
January 3. The subsequent break was widely acclaimed as the 20-percent
bear market. For the ChartWorks, it was a projected target in time and
price and an outstanding opportunity. The low was 9374 on April 4.
December 28, 2000:
"The Theme" This phase of the liquidity crisis has been expected to end with capitulation most probable in November with a secondary target in January.
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