This post is taken from a comment I made on a post by Will Rahal on George Rahal's blog: whitemagicanditsexposure.blogspot.com.
1. In the bull market (2003-2007), it seems that LEIs peaked some time in 2004 and the Coincident Indicators in May 2006. The market peaked in late 2007. If we expect a similar lag this time, and assume that LEIs peaked in May 2010, we would expect a market top around 2013.
2. Also, it seems that the ISM index basically plateaued from mid 2005 -late 2007, a 2.5 - 3 year period.
3. The third year of a presidential election is rarely down. Since 1961 it has always been up. November 2010 will start the third year. (http://bigpicture.typepad.com/comments/2006/06/4_year_presiden.html)
4. The BSE is about to make new highs. The daily chart looks bullish to me.
5. Interest rates are low and may stay low for while. The Fed (especially Bernanke and Yellen who have been vocal about it) is determined to keep monetary policy as easy as possible. Where will all this money go? It's going into asset and equity markets, particularly in Asia. Listen to Dr. Marc Faber's very recent interview here making a case for global commodity inflation. He also speaks about equity and asset prices in a fiat monetary regime where interest rates will not go up. http://tinyurl.com/3x6b8eo With that, I submit that if commodities double, the S&P cannot halve (based upon market capitalization of the oil and commodity firms). Thus, SPX 500 seems out of the question.
6. The housing market is bottoming. Mr. Rahal (senior's) work regarding number of housing starts seems to me to back this up.
7. However, TLT (10-year bond) is priced at the same level as it was in March 2009. This is a huge negative divergence with the equity markets. Why are bonds priced for DEPRESSION in spite of the fact that interest rates at 0%?? Finally, percent wise bonds rates have been going up a LOT less than equities, in the most recent move up (SPX 1010-1095). The MACD divergence in the daily charts of the ten-year bond is telling and bullish, but it is a smaller divergence than that seen in the SPX. Rally we must, but top we will. Bonds may be, in the longer-term, indicating a negative, NOT positive, divergence with equities -- negative for equities, that is.
In the long run, I am still leaning toward the theory that we stay range bound in equity markets the ST (900- 1170) and at some point start a new big leg up in Commodities that holds up the stock market. I could be all wrong about the LT scenario. We could get deflation, and the Commodity supercycle may have been over in 2008. But I am quite confident that the bull wave will continue for the ST (next 1 month or so).
I will try to go long BGU tomorrow for a target of just under $50.00.
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