July 3, 2008

Technical observations of RossClark@shaw.ca

Three of the greatest bull markets of the past century in the US have been followed by quite similar market action, labeled Secular Bear Markets. They are most readily identified when the market is deflated by the CPI or priced in real money, i.e. gold. The Dow Industrials is now at its lowest level since August 1995 when priced in gold. When viewed in Canadian Dollars it is at the second lowest daily closing since January 1998 and in Euros it is at the lows of 2003.

The action following the secular high has followed a set pattern:

• An important recovery high (10/12/07) occurs 392 to 404 weeks following the secular high (01/14/00).
• A decline of 55 or more days.
• A 9-week rally back up through the 20 & 50 week averages, challenging the 20-week Bollinger band (05/16/08).
• An outside down reversal week (05/23/08).
• A 20% decline from the recovery highs within six weeks after the outside down reversal (07/04/08).
• Although sentiment readings are not available from the previous secular tops we are currently achieving levels seen around the lows of 1998, 2001 and 2002.

Looking ahead we can anticipate resistance at the 20-week exponential moving average (seen in the 1937 example). In both 1937 and 1973 the next important low was seen at weeks 15 & 16 from the outside down reversal. The target weeks for this year become August 29th and September 5th.

One of the other major ingredients in the secular pattern is the dramatic advance in commodity prices.

	Crude Oil	Copper	Wheat	Corn
1929 to 1938	+500%	+300%	+180%	+500%
1966 to 1974	+300%	+250%	+490%	+260%
2000 to 2008	+1200%	+560%	+420%	+290%