We don't know and neither do they.

Kaboom

Stepan N. Stool, PH&D November 18, 2000

Thinking about the "C" word ? Dr. Stool thinks the risk of a "crash", is high and growing.  

In analyzing charts, Dr. Stool tries to adjust periodicities of moving averages and oscillators to the dominant short term cycles. If the indicators' periods are in synch with the typical full span of the market's short term cyclicality, that will give you a clearer view of the intermediate and bigger cycles which limit and govern shorter term movements. 

Most conventional oscillators are set to a period representing a short term half-cycle time span. They give a good view of the short term cycle, but can be skewed by noise (event driven counter-trend market behavior). They also give a false perspective in markets where the intermediate and longer term cycles are trending strongly in one direction or another. This is why, in strong bull moves, oscillators can stay overbought for long periods, and vice versa. 

It's also a reason why positive oscillator divergences frequently fail in downtrends -- which is the kind of environment we are in now. What looks like "churning" is in reality a short term up phase within a down phase of longer term cycles. The oscillators reflect the uptrend in shorter term cycles, but do not give the whole picture. 

If the slope of a longer intermediate cycle is negative enough, then the direction of the up phase of the short term cycle contained within the intermediate band, is going to be tilted in the direction of the governing intermediate cycle. In some cases, a short term cycle up phase will have a negative slope. It is traveling "up" in the context of the larger cycle wave band, but in real terms it is going lower.

Dr. Stool thinks, that if he's reading the squigglies correctly, that this is what has been happening since the October lows. That looked like an intermediate low, with prices first bounding upward, but then limited by the downtrending edgeband of the bigger cycle. The market is not yet in the down phase of the cycle, but prices are being forced lower by bigger cyclical forces, even secular forces. 

When the shorter time cycles turn lower, and get in synch with the bigger secular-cyclical forces, the ingredients will be in place for a very powerful move to the downside. When?

The capital spending bubble is a disaster waiting to happen for the financial sector. The first rumblings are in the air, and the big boys, try as they might, are not going to be able to keep their finger in the dike much longer. Watch the financials. 

The Republicans, who are ugly as sin to begin with, are about to get uglier as manual vote counts proceed. They will trot out the Big Lie - Fraud in the hand recount. This is going to deeply shake the public's confidence. Uncertainty and controversy will continue to mushroom. No matter what the Florida Supreme Court decides, we are headed for big trouble over the next couple of weeks and months. This coincides with a very weak period cyclically. Remember that the last great bear market (72-74) came during a period of political crisis.

So how long will it be before the big boys throw in the towel? Maybe we'll get one more feeble two day rally off this Nasdaq 2,900-3,000 support level, then, KABOOM!