Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Crosscurrents & Miracles

Stock-Markets / Dow Theory Mar 22, 2008 - 06:23 AM GMT

By: Tim_Wood

Stock-Markets Best Financial Markets Analysis ArticleWith the close one week ago on March 14, 2008 , the equity markets were literally sitting on the edge of the abyss. The short-term T-bill rate had collapsed to just over 1% while the Discount rate was sitting at 3.5%. My Fed model suggested that another healthy cut was imminent and with the spread between the 3-month T-bill rate and the Discount rate at over 2% the Fed was forced to take action. On Sunday night, March 16, 2008, as the overseas markets opened they began to plummet, making it obvious that we were indeed sitting on the edge of the abyss. In a surprise, or should I say desperate, meeting on Sunday night the Fed cut .25% and on Monday the equity markets initially sold off sharply, but then recovered and closed the day marginally positive. On Tuesday the Fed cut the Discount rate another .75% and the Dow Jones Industrials closed up 420 points.

As I have said over and over again, history tells us that the Fed simply follows the path of the short-term credit markets and these rate cutes do not ultimately matter. It is the perception that has been spun by the propaganda machine that “Daddy”, the Fed, is going to make everything alright by cutting rates. This is complete and total bunk. History clearly shows that rate cutting and rate hiking cycles are independent cyclical events from the cycles in the equity markets. Sometimes these cycles converge in a manner in which there appears to be a relationship of lower interest rates equating to higher equity prices. This is just not true and the most recent example of this occurred surrounding the decline out of the 2000 top. From the time the Fed began to cut in January 2001 the Industrials ultimately fell over 3,400 points in spite of the fact that they cut the Discount rate from 7.50% to 2.75% during this time frame.

In regard to the current rate cutting cycle, my Fed model first turned negative in June 2007. In August the short-term credit markets began collapsing and as a result “Daddy” was forced to begin cutting rates once again. At the same time the equity markets began to get hit and the spin was that the Fed was cutting the rates in response to the falling equity markets. Bologna! Since June, the Discount rate has been lowered from 6.25% to 2.50% and since their October high the Industrials have dropped a total some 2,400 points. So again, rate cuts aren't exactly helping the situation, yet people continue to believe that Daddy is in control of the situation and that he is going to make everything Okay. In the first chart below you can see that since the 2007 top the S&P has dropped 20% in spite of the fact that the Discount rate has dropped from 6.25% to 2.50%.

So, as I look back in history it is undeniable that cutting interest rates will not stop the equity markets from sliding when they are in a declining cycle. It is however interesting to note that as the markets were sitting on the edge of the abyss and began approaching the January 22 nd lows, Daddy announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities. On Sunday night there was an emergency rate cut of .25% and again on Tuesday another .75% rate cut followed. On Thursday Daddy loaned $28.8 billion to large U.S. securities firms under a program that was announced on Sunday night. This was reported to be the first such extension of credit to non-banks since the 1930's. This last week Daddy also made available $30 billion to JP Morgan for the bailout/buyout of Bear Stearns. As a result, there has been what I term an “engineered” double bottom by these unprecedented events. The question now is, “Will this bottom hold and have we seen the 4-year cycle low?”

From a Dow theory perspective we now have a non-confirmation in place as is noted in red. This non-confirmation does serve as a possible warning that the trend could be trying to change. However, until such confirmation actually occurs, the existing bearish Primary Trend that was confirmed on November 21 st will officially remain intact.

From a cyclical perspective, which has absolutely nothing to do with Dow theory, the move into the extended 4-year cycle low remains on track, at least so far anyway. Anything is possible and perhaps the Fed has engineered a bottom that could last a while. In the end it won't hold and they continue to only make matters worse. From my seat, the key guide is my intermediate-term Cycle Turn Indicator. This indicator is designed to identify important intermediate-term trend changes. This indicator identified the 1929 top and the crash that followed as well as the top of the 1930 rebound and the beginning of the decline into the 1932 low. It also called the 1987 top beautifully.

In the last article reported here I stated that the market was holding on by the skin of its teeth and that has indeed proven to be the case. As the markets approached the January 22 nd lows this past week the Cycle Turn Indicators suggested that the low would hold. This has since proven correct. The question now is for how long. If the Cycle Turn Indicator called these other major declines, then odds are it will signal any major decline in the present.

Until such time we are operating in an environment with many cross currents. The existing Dow theory primary trend is bearish, yet the Fed is fighting the situation tooth and nail. We also have a Dow theory non-confirmation and the backdrop surrounding the unwinding of this extended 4-year cycle. The best key I have found to navigate this financial minefield is the intermediate-term Cycle Turn Indicator, which has proven itself time and time again. More detailed information on the statistics surrounding equities, commodities and the Cycle Turn Indicator are available through a subscription to Cycles News & Views. Please visit for details.

By Tim Wood

© 2008 Cycles News & Views; All Rights Reserved
Tim Wood specialises in Dow Theory and Cycles Analysis - Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator as well as coverage on the Dow theory, other price quantification methods and all the statistical data surrounding the 4-year cycle, then please visit for more details. A subscription includes access to the monthly issues of Cycles News & Views covering the stock market, the dollar, bonds and gold. I also cover other areas of interest at important turn points such as gasoline, oil, silver, the XAU and recently I have even covered corn. I also provide updates 3 times a week plus additional weekend updates on the Cycle Turn Indicator on most all areas of concern. I also give specific expectations for turn points of the short, intermediate and longer-term cycles based on historical quantification.

Tim Wood Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in