A significant day. 19/5/10

I think the decisive nature of today's move obviates the probability (but not the possiblity) that we're in a bear trap. (Remember the head-and-shoulders pattern last year which had every technical analyst and their dog short?)

So - we're now left with the usual conundrum:

1. Support has been broken decisively which should mean further downside in the near future.

2. The market is grossly oversold, so it should bounce.

If you go with No.1 - No.2 will surely make you look like a goose.

Most likely scenario to allow for the two opposing views:

Some consolidation at or near the lows while the oversold condition gets worked off, then further downside. (Its just a scenario.)

I won't be going long this market until I get some solid signals to the upside.

I don't think we'll be seeing that for a long time. I now have in the forefront of my mind the scenario I sketched out for the year:

Just as a reminder - here's what I said at the end of 2009:

Decade Trend
Year 0 - Cyclical Peak, Bubble Top (1980, 1990, 2000)
Years 1/2 - Post Bubble Trauma
Years 2-4 - Consolidation and Recovery
Years 5-7 - Speculative Rise and Peak (mid-late 07)
Late 7-8 Collapse into Crisis. Central banks respond by slashing interest rates and opening the monetary flood gates
Year 9 - Cyclical growth
Year 0 - Cyclical Peak, Bubble top (2010?)
Begin again and repeat.

(The bubble top in Year 0 does not necessarily refer to the stock market but a significant asset class. The American stock market may fit the bill this year given its great rise since Mar 09. Chinese real estate is another likely candidate.)

We're also in the second year of the presidential election cycle (a four year cycle). The second year has usually been the worst performer in the cycle. Since 1937, the second year of the presidential cycle has been the worst performer in 14 of the past seventeen cycles. Two of the exceptions occurred in Eisenhower's era, when Year One was the worst performer. The third exception was in Dubya's time, when the fourth year (2008) was the worst performer. In that case, the Decade Cycle took precedence over the Presidential Cycle. Now - the two are in sync.

But - anything can happen on the stock market, and will occur to confound the best laid plans.

I won't be trading/investing, however, on the basis of these past statistics - but on how the stock market progresses (or regresses) from here. At the moment - it doesn't look great. The 10-Year Cycle and the Presidential Cycle appear to be playing out.

Good luck,
Redb