Every now and again we must remember what drives the stock Market. Its not the Fed POMO (well maybe a little) its not the end of the world in 2012, its not the great collapse from super cycle mega wave 5 taking the Dow to 400 (come on Prechter, the only chance of that is a nuke exchange, not that its not possible, but ridiculously unlikely and not something you want to plan for).
It’s just the stock Market.
If the Dow Jones were 2000 years old we would see the same patterns over and over. Sideways consolidation, then irrational exuberance, then sideways consolidation. A repetitive structure as humans do the same dumb things over and over (myself included).
Take a look at this chart. We move sideways for 20 years in a long consolidation period. Sideways market action is sometimes called a bracketing market. It occurs when the crowd is exhausted and unsure. We may be in the middle of one of these 20 year periods right now.
You know when something frightening happens to you, maybe you just had a near miss with that idiot driving his Ferrari 120mph toward you and he crosses in to your lane only to swerve back at the last nanosecond, you need to calm down, collect your thoughts, maybe pull over and catch your breath.
After people get scared they have to regroup, collect their thoughts, make sure all is safe and then when things look stable they venture ahead and start to take risk. It looks like this 20 years process is a time to catch your breath and we are smack dab in the middle of it.
Lots of technicians look at cycles however I think they don’t take into consideration the mood of the crowed when considering cycles. That’s why cycles are not consistent over long periods. They are only consistent during the period in which people’s behavior is consistent. It makes sense; if conditions are the same you get a consistent cycle. When conditions change you get a different cycle. Occasionally you get that rouge wave that catches the ones not expecting it off guard.
Expect the unexpected and you will recognize opportunity before most others.
In the end, if we havent put in a top, we should make one more high going in to February before we retrace 50-62% of this rally.
