By: Todd Wheatley
(c) IQ-2k   03-05-15

Despite some short lived corrections the stock market, as expressed by the Dow Jones Industrial Average, has climbed steadily for the past three years. Solid performance, in other words, that came about by economic growth and strong employment gains. In fact employment gains exceeded 200,000 per month in 2014 which boosted consumer confidence along with the major market indexes.

Yet despite the good news people with longer attention spans remember that not so long ago the market tanked and the Great Recession dominated the news. Certainly there is reason for caution, but a great many would say that life is good and the financial crisis is all but gone. At least TODAY. So what about tomorrow? What about the FUTURE? Are good times really here to stay?

Current geopolitics gives pause for a rosy outlook. Then again the amount of trouble in 2014 with the rise of ISIS, another Israeli Blockade War, and the Russian annex of Crimea did nothing to stop the bulls in the United States. So given that perspective only the worse kind of trouble will bring caution to investors ... and then maybe.

Even the highly contentious political rancor seen here over the past several years has done little to slow the bulls. On the plus side shale oil and gas production in the United States has played a big role in the economic recovery. And while the crude oil price crash cooled that bed of cash most economic indicators are still pointing green. Moreover given the relative insignificance of outside actors to move markets there exists more up side potential. Or perhaps NOT?!

Again, current events indicate that times are NOT good, but the present psychology says, "damn the torpedoes, full steam ahead". Which does not seem prudent. Still the real trick is knowing when to jump ship and as I have written before the "buy & hold" strategy is outmoded. Plainly said SELL while the market still has up "potential" and take profits like the big guys.

----- PART - II -----

Without a solid correction right now or in the near future the market could have a very sharp sell off. Still we are not in a typical BUBBLE. The pattern looks more like the period from 1963 to 1966 where the Vietnam War and civil unrest took a big chunk out of the market after a three year run up. So like the 1960s just as the Dow Jones hit a new record high the specter of war. On the 3rd the Iraqi army went on a major offensive against the ISIS militants (aka the self-proclaimed Islamic State). In addition the U.S. Supreme Court began hearing arguments over the latest challenge to the Affordable Care Act (aka ACA - Obamacare) which could bring about a great deal of unrest should they rule in favor of the plaintiffs.

Then with several incidents of police shooting unarmed African Americans and the wars in Iraq and Syria the comparisons to the 1960s are mounting. These historical PATTERNS help predict the stock market as a secondary method to running the data. Though most patterns should be considered obsolete given the total number and variety of stocks in the market that did not exist as soon as thirty years ago. Nevertheless simple patterns will always remain like steep rises and sharp falls. Steady rises, continuous falls, or the ever present rollercoaster. Consequently we should consider a bit of history starting with the unbelievable market performance following World War II.

During that time a steady slow rise in the early 1950s brought the Dow Jones Industrial Average back to it's 1929 pre-crash level (381) and doubled in value from 1953 to 1960. After that the volatility in the 1960s created broad market corrections, but a steady upward trend. The 1970s, on the other hand, brought great volatility, but zero long-term gain. Since then the age of the BUBBLE MARKET has given us steep rises, sharp falls, and a destructive market psychology that craves fast money. But losing 25% and more as happened in 1987, 2000, and 2008 creates too much risk for small investors. Retirees, in particular, often find it difficult to wait even for a partial recovery. Large investors, on the other hand, reap the gains through liquidity and vast market connections.

Speaking of bubbles we have revisited the Dot Com crash. Today (03-01-15) after nearly 15 years the NASDAQ crossed the 5000 point threshold and looks to revisit it's year 2000 pre-crash high (5,048). Also today the DOW reached yet another record high. Obviously this TREND cannot go on forever as a great many often assume, but what will happen? What PATTERN will emerge? The 50s, 60s, 70s, or the bubble age?! Lest we never forget 1929!


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