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CHARTWORKS
JULY 17, 2002
STOCK MARKET and DOLLAR INDEX
Near Term:
Our July 10 piece, "Decennial Anomaly", demonstrated that the
second year following the end of decade typically produced an important low
in the mid-June to mid-July window.
We have this and typically the stock market regained the June high by the end
of August. Also, the more pronounced the plunge, the stronger the rally. Independently, the long term model expected new lows for the bear to be set
around June, from which a 5-6 week recovery would follow.
Confirmation:
Beyond recognizing that both models have been satisfied with
a low, its importance is indicated by the registration of "Double Capitulation"
on the Dow and the dollar index. That the $ is on the weekly reading provides
considerable confidence in a tradable rally starting immediately. Of course, golds will resume their correction. The initial target for the Dow is
9000.
Another Statistic:
The August 25, 2000 Pivotal Events included:
" The August-September Transition: Since the 1932 low, the typical pattern
for the move from Month 8 to 9 has the DJIA recovering from around mid-August
to the first week in September. Within this, if the August rally came out of a consolidation from a significant top earlier in the year, the probability
of an important failure after early September increased."
Overview:
After improving from November until April, the Boom Indicators
have deteriorated one notch. This was based upon credit spreads and is at –12
out of the worst possible reading of –14. Since this reading turned from +12 in February, 2000, we have considered that
each expected rally would be a rebound within a bear market.
The last sustained recovery in the Indicators ran from October, 1998 to January, 2000.
Again referring to the long term model, it expected another acute phase of the
contraction to begin after August and run until around December.
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