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Fellow Fools,

You have no doubt heard about the "historic" buying opportunity the market is giving us right now.  Well I have news for you: this buying opportunity is going to get even better.  How much better?  Well, according to my research, the S&P should be trading around 650 in a year's time.

I know that sounds crazy, and crazy predictions deserve explanations.  I'd love to give you the rundown here, but the Motley Fool does not allow pictures in our blogs, and my explanation requires a few charts.  To that end, I have created a blog post on Wordpress for your viewing pleasure:

http://shouldertap.wordpress.com/2011/11/07/the-big-picture/

Given this backdrop, what should we do?  Go all cash?  Bonds?  Gold?

It's hard to say, really.  Crashes and recessions have this habit of separating the men from the boys, and companies that buck the trend in a downturn are never obvious outside of hindsight.

Personally, I'm going to stick with companies that have already proven themselves in the last two crashes.  Here are three of them: Coca-Cola (KO), Altria (MO), and Waste Management (WM).

In the Dot-Com bust, the market lost 50% from March 2000 to October 2002.  During that time span KO was up 0.16%, MO up 97.81%, and WM up 68.2%.

In the 2008 Financial Crisis, the market lost 58% from October 2007 to March 2009.  During that time span KO, MO, and WM fell 25.59%, 22.03%, and 26% (respectively).

Here's to market beating returns the third time around . . .

*Note: Above performance figures do not include dividends 

 

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Ick.  That slow stochastic is pretty damning.  What is its time period, if you know? 

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well, I hope the market doesn't crash anytime soon, but you may be right. Look at Weekly MACD, everytime it crossed -25 for the S&P in the last 10 years was a market crash. After it went below in september it has rallied, like it did in 2008. I hope not to see a repeat of the 2008 chart anytime soon.

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Getting out when the monthly MACD went negative wouldv saved you from both of the last 2, but that MACD is still positive...

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Who said you can't post pictures?

Image and video hosting by TinyPic" target="_self">Chart

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@ikkyu2: It's the monthly 20/10 stochastic, and yeah, es no bueno.

@blesto: Wow, didn't realize The Fool allowed explicit HTML.  Will try to remember that for future posts.

@shamapant: True, the October advance kept the MACD afloat, and there's a slim chance it may last, so score one for the optimists.  But other technical indicators are looking bleak.  And to be an armchair economist for a moment, I wish Europe all the best but I really don't see where the money is going to come from.

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Prometheus - awesome technical analysis, I hope you post updates as the market progresses.

I've basically come to the same conclusions that you have but I generally use feel and contrary indicators as opposed to technical analysis.

The one nitpick I have is that I don't think the market will crash just yet. In fact I think it can rally to around 1350 pretty easily. 

First off, while Europe will surely fail it isn't going to fall apart just yet. The ECB will illegally print to bail-out Italy. Short covering in the Euro and dollar sales (high speculation in the dollar still) should be enough to drive this sucker higher.

Market sentiment is slightly bullish but I generally see a wall of worry (rational worry, but still). I think the market gets more overbought before a sell-off.

And my favorite contrary indicator - NYSE short interest.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/10/NYSE%20SI.jpg

 Still quite a bit to go. When short-covering cycles start (as you've noted these are what drive bear market rallies), they tend to continue until all weak hands have covered.

Anyway, I'm waiting until around 1350 to initiate shorts in momentum stocks and cyclical-dependent companies. 

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Ok I am looking at chart #4.  When the little squiggly green line ultimately went below the line marked 20, that drop had a corresponding drop by the S&P.  Except that little squiggly green line is nowhere near that bottom line.  So in the end you are simply guessing it will drop down there.  Of course it could also blip back up.  Time will tell.

Was seeing these predictions back in 2009 where people would prognosticate that the S&P line would crash and retest the March lows. Yet it didn't.

I would like to hear a fundamental macro reason for this next crash to 650, because I don't see it.  Hell I just came back from shopping at the mall today and it was packed.

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 awall

http://blogs.reuters.com/james-saft/2011/11/01/why-arent-americans-still-saving/#comments

It is exactly because the malls are full that we know that this ramp up of the economy is temporary. 

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Or not.  I think businesses are purposefully holding back, but many still have solid balance sheets.  I held back in 2009 and 2010, but this year I decided to spend on things I needed, like a new car and clothes.  I have invested in equities that gave me way better income stream than CDs. They are still put there for the buying.  Just ignore the daily noise.

But to suggest that somehow that little green squiggly line in #4s' chart is destined to crash below the 20 mark is merely one person's guess.  Time will tell. Namely is the chart following or projecting trends.  I say following.  We shall see.  I am in yield as I said since the first blog I ever made here (my timing just sucked by a year heheh).  I am in PM stuff (love sndxf - basically legalized loansharking), and energy.

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There are two types of investors.

The ones that don't know what the market is going to "do next." and the ones that don't know, that they don't know, what the market is going to do next. 

To suggest that the next major move from the s&p 500 is a fall to 650, when earnings are at an all time high and rising, tells me more about the original poster than the "market." 

 

 

 

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@Franky: I will definitely continue to follow this and post updates both here and on my Wordpress blog.  It's interesting that you mention the 1350 level.  That's a well defined resistance level as you are no doubt aware, but I would quickly close your shorts if the market is able to hold above that level.  Because that would validate a gigantic "cup with handle" pattern on the weekly chart, which would set the S&P up for a clear shot at 2025 (at least).

@awall: I'm not following you.  By my count, chart#4 is the chart labeled "2008 Financial Crisis", and there are no green lines on it.  Are you perhaps referring to the red line on that chart, or maybe the very first chart (which is the only one that has a green wavy/squiggly line on it)?  As for your request for fundamental analysis, I will discuss that on my blog either late this week or early next week (though I am loath to start off Turkey Week with such bad news).

@dave: You might want to read between the lines on those earnings.  A lot of Q3 earnings conference calls offered lower guidance for next year.

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I was referring to the very first chart which is reprinted in comment #4 above.  A further review concerns your blue lines.  The prior 2 lagged after a decline started, which would indicate it merely follows the market.  Your projected 3rd blue line really is touching at a point after a rebound from a drop, something the other 2 didn't.

In the end all I can trust is the fact that the market sold off after the dot.com bubble and the housing bubble, which the scholastic tracking line would quite naturally follow.  For your suggestion that another crash is coming, there would need to be a catalyst comparable to the prior 2 bubbles.  The chart in and of itself really isn't helpful. Now if the European meltdown gets out of control then that could possibly be that catalyst.   

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Pr0- 

We both know damn well that you did not listen, in their individual entirety, to the webcasted 2011 third quarter conference calls of McDonalds, Harley Davidson, Pfizer, General Electric and Dow Chemical. 

I did.

Why? Because this is what long term equity investors DO. 

Call me crazy, but some of us actually ask the basic question "so how's business?" before we form an opinion. Thus, not only did each of these companies guide UP, and not down. Not only did I "read between the lines", but....wait for it.... I know how to think for myself! Which is something you cannot do without a "chart."

By now, it should be obvious to the intelligent reader that You, Sir, are just another amatuer speculating with his money.  

Good luck. You're going to need it 

  

 

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Good luck to daveandrae if you're investing in GE, HOG and or DOW. Way to pick dogs.

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The ones that don't know what the market is going to "do next." and the ones that don't know, that they don't know, what the market is going to do next. To suggest that the next major move from the s&p 500 is a fall to 650, when earnings are at an all time high and rising, tells me more about the original poster than the "market." >

Think you pretty well nailed it dave.

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Just a fyi, poster has been wrong.  Guess there is a reason why he is <20.

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