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Thursday, April 1, 2010

Above the Supercycle Channel Again

I wanted to show you some cool long-term DJIA charts. I have shown these in various forms over the months but here I want to show you an 80 year channel and where the market is in relation to it.

Prophet does a nice job of maintaining the trendline in an accurate position even when you "zoom" in on a section.

So let me start here:
The first chart shows the channel.  This is the proposed Supercycle (V) channel in Grand Supercycle [III]. I left the labeling off so I can zoom in on various spots and show how this trendline has interacted with the market.











The next chart shows where the market broke over this channel and DOW 5000 in November 1996. In theory, this channel should have "contained" the wave patterns and Supercycle (V) could have ended very well at this level. But social mood at the peak of a 220-250+ year Grand Supercycle advance demanded more. So we entered a major phase of "asset mania" and started to leverage our lives up in an effort for ever-increasing "wants" and higher standards of living. We fully transformed into a financially-driven asset economy based on the velocity of money and flipping assets more than producing real wealth.  We borrowed with reckless abandon. We speculated on everything from NASDAQ stocks to Beanie Babies.











The next chart shows the 2002-2003 lows that went down to test the top of the channel. It bounced off.  The consumer ramped up borrowing into overdrive. Asset mania was shifting gears until the 2007 peak.  Pretty sure this was a cycle b wave.  Pricing the DJIA in real money (gold) shows a continuous drop from the year 2000 peak.  The "uneasy" economic advance from 2003-2007 was on shaky ground. And people sensed it. Social mood was turning again downward.

The next chart shows the heart of the panic crash took the DOW slicing right through this channel line.

The January 2010 peak is next. Challenging this upper channel line, it was unable to move above and the market dropped 10%.

Finally, where we are now: The DJIA has regained above the old supercycle channel!  Even though consumers and corporations are shrinking credit and paying off debt, the government has more than made up for it. Total US credit debt has again reached a new high!

And here the market sits. Above the Supercyle channel once again. Its amazing I had drawn this channel over a month ago and left it alone. You can see prices then interacted with it as I had drawn it many weeks past.

Yes asset mania has not yet run its course. A comic book just sold for $1.5M. Amazing.

When the debt bombs blow finally, there can be no other move above this channel.  I rather look for a move to the lower channel of the Supercycle and a deep overshoot underneath it as much as it had overshot it.  That takes the DJIA well under 5K.
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