Ruy Lopez

For purposes of simplicity, this thread focusses on US stock markets, the Dow Ind'ls in particular, in an attempt to intimate the economic future. If you cannot agree with the conclusions and the manner they were arrived at, at least understand the methodology used.

US stock markets account for 68% of total world stock trading value. Also in 1999 and 2000, the total dollar value of US stock markets was $23 trillion per year or 2.5 times the entire US GDP of 9 trillion. Now it is about 1.7 times or $15 trillion annual value.(reduced by lower stock prices but not by volume--thus the mania still exists). Whatever happens to US stock markets will certainly impact the US and world economy greatly.

Long-term picture--two 30-year waves

--1945 to1974 (29 yrs) low of 110 Dow points; high of 995 in 1968 and low of 557 in 1974.

--1974 to 2006?? (31 yrs.) low of 557; high of about 11600(yr. 2000); and low in 2006? of (-----)?

The following log chart shows the point . It's the second chart which is in log scale.

http://www.lowrisk.com/djia100year.htm

I am saying that the present 3.5 yr bear market is the result of the downmove of the 1974-2006 30-yr wave. This current downmove phase would be much more severe that the 1945-74 wave because the present one is also the downwave phase of the 60-yr K-long wave.

Our present era is comparable to the 1929-1945 and 1876-1890 eras which were depression and panic years. One K-long wave of 50 to 60 years consists of two distinct stock market waves of 30 years each.

The medium term

My guess of a traumatic market bottom in 2006 (around October) is based on very exact 4 and 8 yr market periodicities. These 8-yr waves bottomed in 1974, 1982, 1990 and 1998. The next one is on 2006. Exactly in the middle of these 8-yr waves are pronounced bottoms every 4 years(the US presidential cycle). You can check this out here.

http://www.the-privateer.com/chart/dow-long.html

The following link also shows the smaller and smaller waves that compose the long-term 30-yr wave.

http://www.sharelynx.net/Markets/Cha...wIndWeekly.htm

Here you can spot the 1998 as well as the 2002 low 4 years later. Both of these years held at the Dow zone of 7300-7500. If you examine the last chart further, you will note the annual cycles that bottom around Sept or Oct. of every year from 1998 to 2002.

We thus have a situation where both the 4-yr and 8-yr waves are scheduled for a confluence of bottoms on Oct. 2006. And don't forget that the very strong 30-yr wave also marks bottom in 2006.

Year 2003 is the first full year in the current 4-yr wave (Oct. 2002- Oct. 2006). It should demonstrate some strength or recovery because a wave, by definition, should have an upswing followed by a downswing. From Oct. 2002, the Dow does show an upmove but what a feeble rally. This particular annual cycle (2002-2003) is now on its 8th month. It's running out of steam and would soon fall to its low by Oct. this year. If the 7300-7500 support zone breaksdown, there will be a sharp plunge.

By Oct. 2006, the Dow could either be at 1700 or 3800. That much is clear. This shock would shrink considerably consumer spending and corporate investment. and there is nothing anyone can do about it.

Mike S.

The most amazing thing about this current little rally is how much it has been powered by companies that are complete failures or are way overpriced. After the dot com and telecom busts everyone was saying how much investors have learned about profitability and cash flow but look at many of the regulars at the top of the volume lists of the NYSE and NASDAQ and what they have done this past year:

NASDAQ NOTABLES

Yahoo: http://finance.yahoo.com/q?s=YHOO&d=t
Where is the future profit going to come from to justify it's 112 p/e ratio? There are many companies with much better balance sheets in industries that are much harder to break into than the internet, and yet this is still a darling amongst the so-called "experts". It's price has more than doubled over the past half year or so and is doomed to fall again when people realize there is still not enough money there at that price.

Amazon: http://finance.yahoo.com/q?s=AMZN&d=t
This is company that has never shown any signs of being able to turn a profit and yet buyers have caused this one to double in the past year as well. Amazon increased their revenues this year by swallowing a bunch of their customers shipping charges but that obviously causes bigger losses. Cash and assets have dwindled under this unsustainable plan and yet investors pump a quarter billion dollars a day into this stock ignoring everything but revenue. Unbelievable!

The Rest of the NASDAQ top 25: http://finance.yahoo.com/mnvl?e=o
Other than Nextel and Microsoft there isn't a single stock with a P/E less than 30 and half of the stocks on the list have posted massive losses in the trailing twelve months. If the volumes on these were high because of sell offs I could understand it but these are the stocks pushing the market up in it's current "rally"!

NYSE notables

Lucent: http://finance.yahoo.com/q?s=LU&d=t
This is the top volume stock on the NYSE with an earnings per share of -3.44 versus a price of 2.44 and yet it has more than doubled in the past 6+ months. What are people thinking?

AOL Time Warner: http://finance.yahoo.com/q?s=AOL&d=t
This is the second top volume stock on the NYSE with an earnings per share of -9.92. It's cash and equivalents have gone from $2,349 million to $886 million in the past two quarters, at that rate bankruptcy can't be too far away yet it's price isn't down that much on the year and has been rising steadily since February.

General Motors: http://finance.yahoo.com/q?s=GM&d=t
GM is the most amazing company on the list with an excellent P/E Ratio of 6.12(!), strong dividend, a product you can understand and that you know people buy, and a long history. Well, you might say this must be a very popular investment given the recent upward trend of so many other unprofitable dogs. Nope it has lost half of it's value in the past year. Investors are actually taking money out of proven winners and putting them into proven losers in a pattern that can only spell disaster. Note that Chrysler also has very similar numbers to GM and has also lost almost half of it's value this year.

The Rest of the NYSE top 25:http://finance.yahoo.com/mnvl?e=nq
There are a fair number of solid companies on this list as 12 of the 25 are currently profitable and affordable versus 12 that are BIG losers and 1 break even. The most remarkable thing is only 1 of the good companies (GENENTECH Inc.) has posted any sort of noticible gains this year, most of them are in fact down. If the worst companies are the one rewarded the most in this environment then the good companies that actually produce something and employ a lot of people will not be able to compete as well as they should against foreign competition. This is bad for everyone eventually.

I really am perplexed at America's love affair with tech stocks, even after the tech bubble burst they still love them. My opinion is that tech is shit. People will never, ever spend more on their cell phones, internet connections and software than they do on their houses, cars, food, clothing and furniture. If investor money was solidly in favour of companies that actually produced goods and employed people the American economy would be in much better shape right now.

Ruy Lopez

Yahoo: http://finance.yahoo.com/q?s=YHOO&d=t
Where is the future profit going to come from to justify it's 112 p/e ratio? There are many companies with much better balance sheets in industries that are much harder to break into than the internet, and yet this is still a darling amongst the so-called "experts". It's price has more than doubled over the past half year or so and is doomed to fall again when people realize there is still not enough money there at that price.

I did a little digging on Yahoo Inc. and will try to answer your point from "a technical analyst or chartist" viewpoint. I suppose this reply would also apply to many if not all the examples you mentioned. Mike S. analyzed the equity from a "fundamentalist's" approach (company value and earnings). I'm a technician and we should reach similar conclusions if we did our work properly.

That Yahoo bounced back from $10 last Oct.2002 to $28 at present is normal stock behaviour considering that the stock crashed from $260 in year 2000. If its PE ratio is currently 112, then the bear market for Yahoo is not over. It will plunge again to below $10 by 2006? or until its PE is around 10 times. See Yahoo Chart below.

http://www.wsrn.com/apps/charts/index.xpl?s=YHOO&data=G

The stock crashed to $10 for the first time on Sept. 2001, bounced back to around $20 in a one-year bearish wave (rising time is shorter than falling time), fell back to $10 again on Oct.2002 and is now at $28.

The reason the bounce from Oct.2002 surpassed $20 is the new 4-yr cycle which should impart some strength since it is a longer duration wave than an annual cycle or wave. Anyway its upward target is only around $30. After bumping this price I expect the stock to retreat all the way until Oct. 2003. This stock is probably destined to drop to $5 or less if there are no radical improvements in its business in the next 3 years.

Mike S. I'm scheduled to go to Halifax by July and will probably stop by Vancouver. Where in BC are you? We can have a cup of coffee/dinner/or a game of chess. I'll show you my manually prepared stock charts that I used in trading here in Manila. You can compliment your fundamental approach with charts. I find charts easier to use; it's less work and more indicative of timing.

Edited; Mike S. you can reply by pm or e-mail if you wish your location kept out.