Saturday, January 19, 2013

Decennial Cycle and Presidential Cycle in 2013

Michael Riesner and Marc Müller: Technical Outlook 2013 - Since 1900 the US market has marked an important long-term bottom in the first 4 years of EACH decade, without exception (see table of Lance Roberts at left) ... The last major low in the S&P 500 we saw in March 2009, which obviously belongs to the last decade. So either we see in the current decade the first failure of this pattern in more than 100 years or we will see another bear market and subsequent bottom in the next 2 years, which would then fit to both, the presidential and the decennial cycle. In this context it is very interesting that if we combine both cycles and look into the past, we are getting again a consistent picture of having a high probability for seeing a new bear market in the next 24 months. Since 1941 we had 7 presidential election cycles where the post-election and mid-term year fell into the first 4 years of a decade. In 5 out of 7 cycles (72% probability) we saw significant bear markets and more importantly, they were among the most painful bear markets of the last century! 
Conclusion: Our preferred scenario for 2013 is that we see an important March top in equities, followed by a distributive summer top building phase before seeing significant weakness from a potential August top developing into Q4. ... From a potential top of around 1550 to 1570 we could see the market correcting to 1180/1100. From a secular perspective this potential new bear market could bring us a very important long-term low for equities in 2014.