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Beware the Ides of March

S&P500 and the Ides of March

If this past week's decline is a fake out, and this major stock market top decides to come at higher levels and tarry a bit more, there is an interesting Fibonacci relationship that could occur in about two weeks. If the S&P 500 rises to 1,357 on a closing basis, about 13 points above Friday February 18th's close, and tops on March 12th, 2011, it would mean wave C-up (see chart on page 14), the rally from July 2nd, 2010 through prospective March 12th, 2011, would be a Fibonacci phi 61.8 percent of the wave A rally from March 9th, 2009 through April 23rd, 2010 in terms of both price and time. This is a powerful Fibonacci relationship, so if a top does not occur now, it could come by early March 2011.

Further, if a turn occurs on March 12th, 2011, it would mean the time for waves B down (From April 23rd, 2010 through July 2nd, 2010) plus the time for wave C-up in total would end up being a Fibonacci 78.6 percent (square root of phi, of 61.8 percent) of the time wave A-up took. Further, at a price rise in the S&P 500 to 1,368, it would mean the price rise of waves B plus wave C would equal the price rise of wave A. And the obvious relationship is the middle wave for the Bear Market that started in October 2007 would be precisely two years almost to the day, waves A + B + C starting on March 9th and finishing on March 12th two years later. At S&P 1,374, the retrace wave (B) up would be a Fibonacci 78.6 percent of the decline from wave (A) down, that is, the rally from March 2009 through 1,374 would be 78.6 percent of the decline from the October 9th, 2007 top through the March 9th, 2009 bottom. All of the above are on a closing price basis. What makes these relationships particularly interesting is that typically the stock market makes some of its most significant trend turns during the month of March each year. The chart above shows this March turn phenomenon. The point is, another rise in the S&P 500 of up to 30 points above February 18th's highs +/- and another 15 days +/- would actually strengthen the Fibonacci relationships of the three major waves of the rally from March 2009 within the Bear Market from October 2007, and put an exclamation point on the potential importance of the developing top.

Dow Jones Industrials Beginning of the Year Price Declines
From 2000 through 2010

  High Price Low Price  
Year High Price Date Low Price Date Price Decline % Decline
2000 11908.5 1/14/2000 9611.75 3/8/2000 2296.75 19.29%
2001 11224.41 1/4/2001 9047.56 3/22/2001 2176.85 19.39%
2002 10341.87 1/4/2002 9443.32 1/30/2002 898.55 8.69%
2003 8896.09 1/13/2003 7397.31 3/12/2003 1498.78 16.85%
2004 10794.95 2/19/2004 9975.86 3/24/2004 819.09 7.59%
2005 10895.1 12/23/2004 9961.52 4/18/2005 933.58 8.57%
2006 11099.15 1/11/2006 10607.36 1/23/2006 491.79 4.43%
2007 12845.76 2/20/2007 11926.79 3/14/2007 918.97 7.15%
2008 13850.92 12/1/2007 11508.74 1/22/2008 2342.18 16.91%
2009 9175.19 1/6/2009 6440.08 3/9/2009 2735.11 29.81%
2010 10729.89 1/19/2010 9835.09 2/5/2010 894.80 8.33%
2011 ? ? ? ? ? ?

The above schedule shows an incredible history of repeated stock market behavior over the past eleven years, where the Dow Industrials topped and declined anywhere from 4.43 percent to as much as 29.81 percent at the beginning of every single year for eleven years in a row!

Seven of the tops occurred during the month of January, with most of those occurring during the first half of January, and a few in February. Two saw tops in the month immediately preceding January, and continued their declines throughout the beginning of the year 2005 and 2008). Two occurred in February. Seven of the declines lasted almost the entire first quarter of the year.

This is amazing because once again, we have a ton of technical analysis evidence suggesting another beginning of the year top is about to occur in 2011.

Why does this happen? I have no idea. Technical analysis focuses on explaining market moves based upon mass psychology of market participants. Clearly, for some reason, the start of new years comes with a collective psychological negative bias toward prospects for the economy and markets in the new year.

This weekend we share the results of our Conservative Portfolio as of December 31st, 2010. In short, since this portfolio started in October 2006, our portfolio has outperformed the S&P 500 by 35 percent. The portfolio started with $500,000 and has now grown to $633,926, which is $163,175 more than had one invested that $500,000 in the S&P 500. This portfolio was designed to generate safe returns during turbulent times, and has done so.

We posted the portfolio, along with all transactions, market values at December 31st, 2010, strategy and results at the Conservative Portfolio Model button at the left of the home page, available to subscribers who would like to pore over the details.

In an environment where Treasury Bills remain near a yield of zero percent and FDIC insured moneymarket cash remains low at 2.00 percent, for the twelve months ending December 31st, 2010, our conservative portfolio model generated a 6.26 percent return above the market value of the portfolio at the end of 2009. On a mark to market basis, for the first nine months of 2010, our portfolio increased $37,341.75 above the portfolio's market value at the end of last year, 12/31/2009, a 6.26 percent increase.

The Speculative segment of our Conservative Portfolio consists of the trades we conduct in our new Platinum Trading Service. Those trades are presented in real time to Platinum members and are reported as part of the Conservative Portfolio's Speculative segment after the trades have been closed. All other transactions and trades in the Conservative Portfolio are reported to both Regular and Platinum members at the end of each day they are conducted, in the back of our Daily Newsletters and also at the Transactions button under the Conservative Portfolio header at the left of the home page.

We recommend that trial subscribers visit our Glossary button at the left of the home page, as well as our other Guest Articles, especially the article regarding our Primary Trend Indicator, which is a major component of our "key trend-finder" indicator.

 


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"Jesus said to them, "I am the bread of life; he who comes to Me
shall not hunger, and he who believes in Me shall never thirst.
For I have come down from heaven,
For this is the will of My Father, that everyone who beholds
the Son and believes in Him, may have eternal life;
and I Myself will raise him up on the last day."

John 6: 35, 38, 40

 

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