Why the Market May Be Topping Out

Many market participants aren’t content to follow price action in and of itself. They need to know why something is happening.

They worship at the altar of fundamentals versus the idea that price is the final arbiter. However, in investing and trading, often times, the reasons come at the tail end of a move… if at all.

For example, as intellectual an understanding of the markets that George Soros has had, he states, “By the time a participant figures out why the market has adopted a particular thesis, it may be too late… it is better to anticipate the fluctuations by studying market patterns. This is what technical analysts do.”

There is no unfailing regularity in the study of history but there are irregular periodicities. There is a compelling periodicity as the new decade begins.

We showed some of these in Friday morning’s report, The News Breaks With the Cycles, Not the Other Way Around.

There was a ‘natural’ cycle that ties to the Declaration of Independence that hit in September 2008.

The market crashed, but at the same time there were wild swings up and down, although mostly down.

This same ‘natural’ cycle is potentially is due to hit in 2020.

This cycle is due to exert its influence INITIALLY — if it is going to — no later than this spring.

I find President Hoover's statement in April 1930 that it looked like the stock market problem was well in hand quite telling because it will be 90 years since he said that this spring.

The market sank like a stone soon after Hoover’s overly optimistic and unwarranted statement, and since the market turns on ‘nines’ and multiples of nine, that is not encouraging for investors, many of whom have jumped on the gravy train that has sped through record after record — the last three months especially.

Just in time for The Street to heave a sigh of relief about the prospect of the 90 year cycle.

W.D. Gann believed in the principle of anniversary dates — that major events create ripples in the great Spiritus Mondi of time and space that project into the future.

The October 1987 crash is a good example of this.

As for the 90 year cycle — from the 1929 top to the 1974 bear market low was 45 years—half this Gann 90 Year Cycle.

45 years from the 1974 bear market low gives 2019.

At the same time, this week is the anniversary of the January 11, 1973 ATH that preceded the 2 year bear market into late 1974.

The Jan 11, 1973 top culminated following a 90 day blow-off.

The recent runaway move started on October 3 with 90 days taking us into January 3.

January 2, 2020 ended with large range, high tick close followed by what may turn out to be an Exhaustion Gap.

In January 1929, W.D. Gann forecast “panicky selling” in the fall.

One of the factors leading him to make this forecast was the panic on Black Friday, September 24, 1869.

This is Gann’s Master 60 Year Cycle.

The panic was caused by an attempted corner on the gold market.

A few months of economic turmoil ensued, but a national depression was averted.

There is something called a Principle of Alternation that plays out in markets.

60 years later panic did precede a depression.

Nearly 60 years later, in 1987, another panic played out, which again in keeping with the Principle of Alternation, saw turmoil for a few months, but a depression was averted.

Obviously, this “master” 60 year cycle is a component of what Gann called the Great 90 Year Cycle.

Ditto the 30 year cycle.

What happened 30 years ago? The Gulf War started and the seeds from that conflict have spread through the last 30 years.

Like clockwork, on the beginning of the 30th year of Iraq’s invasion of Kuwait, war is on the radar.

I think it noteworthy that 90 years before Hoover’s April 1930 statement, we were in the throes of the Panic of 1837 that lasted for most of seven years (but began with a vengeance in, of course, 1837).

A variety of the aforesaid ‘natural’ cycle that hit in 2008 hit in 1837. So this is 180 years ago or opposition the current period. However, today the scale of business is vastly greater now and the population of the country is more than ten times what it was in 1837, so a garden variety reaction to this cycle now could be distinctly worse than the scale of the problem that began in the spring of 1837.

Most market participants are familiar with October’s infamous reputation based on a few crashes.

But if you scroll back you will find that it was also the bull market top in 2007 and the bear market low in 2002.

It must be remembered that a major higher low played out in October 2011.

October 1997 and 1998 both marked mini-crashes.

As offered above, October was the 1974 low as well as the low in 1990.

January has marked major turns the last 4 years.

January 2016 was the start of a major advance.

The Trump rally accelerated in January 2017 with his inauguration.

January 2018 was a major momentum peak.

January 2019 marked accelerated momentum.

This January sets up as a major turning point.

This year we are 107 years from the start of the Federal Reserve in 1913.

Intriguingly, on the Square of 9 Wheel, 107 ‘points to’ March 6 and September 7.

Of course, March 6 was the low in 2009 (9’s end things) and September 7 was the SPX high in 1929.

Red arrow is 107
Blue arrow is March 6
Green arrow is Sept 7

If there is any consensus at all on The Street, it is in the power of the Fed to dominate markets.

For generations, “Don’t fight the Fed” has been a mantra beaten into market neophytes by Wall Street grizzled veterans.

But how many panics since 1929 has the Fed actually fomented?

In 1929, the Fed warned about excess speculation and tightened until the market listened… and then remained tight, probably gun-shy of starting another buying frenzy.

Today, we have a mirror image playing out. The Fed perpetuated 2019’s rally with the Powell Pivot.

Now it appears to be planning what stimulus to use to fight the next recession.

In an address to the American Economic Association on Saturday as to an assessment of the Fed’s ability to fight the next recession, former Fed Chair Bernanke stated, “Quantitative easing and forward guidance can provide the equivalent of about 3 additional percentage points of short-term rate cuts.” He warned the Fed AGAINST ruling out the possibility of pushing short-term interest rates below zero.

“Forward guidance” is jawboning… which has worked when markets ‘believe’ there is room for the Central Bank to lower rates.

Jawboning assumes that the Fed promotes a promise not to raise rates from zero until inflation reaches 2%.

Of course, they could always change that target if a recession appears on the horizon.

Enter gold.

1) It may seem paradoxical, but I think this is one of the factors of the recent rise in gold, despite some signs of lackluster growth.

2) Gold is responding to the talk about negative interest rates in the world reserve currency, the dollar.

Not surprisingly, the talk of whether the Fed has effective tools to fight the next recession comes on the heels of the longest recovery in U.S. history.

However, as Danielle DiMartino Booth says, “The lower interest rates forced to spur spending and inflation expectations, the higher the saving rate, the lower inflation expectations and the lower the spending.

That’s why they call it “pushing on a string.”

Yet, Fed Governor Williams states, “There are many stages of grief experienced by economists and policy makers who’ve been forced over years to… accept downward trend in interest rates.”

Just as Fed policy caused damage in the years from 1929 on with being too tight, now they are causing damage by keeping rates too low for too long at the expense of genocide on the savers.

Most are missing the move in gold because they don’t see inflation.

However, what really drives big gold bulls is crisis in faith in government.

The Fed’s de facto monetization of debt is fueling and the prospect for negative interest rates in the US is fueling a new six year highs in the precious metals.

If you have not been positioned in the precious metal miners for this latest surge as our subscribers have been, I invite you to check out our report.

Conclusion. I don’t know what is more terrifying — former Fed Chair Bernanke counseling for negative interest rates or the complacency on The Street regarding such counsel.

Is 2020 the year of Fight the Fed?