It was a week of encouragement, a week where Cyber-Monday numbers were decent. It was a whole week without serious indigestion from Europe and the jobs number was +120K. Additionally, the stock market followed up its big turkey with a feast not seen since March 2009. Welcome to Santa’s version of 2011. Perhaps we won’t get delayed European indigestion this week.
Our hypothesis for months has been no European disaster in 2011. Our other hypothesis is bears just don’t have the conviction overall. As markets turned up, consider it a victory of sorts.
The big official U number dipped below 9%. Of course that number reflects a smaller work force but at least we were not subjected to any Congressional spectacles for a few days. If life gets out of the way, the stock market can do very nicely, thank you very much. We don’t live in an ideal world but if we did, this is a market that really prefers to go up. Now that it’s December, I thought we depart from the usual and take a look at what could happen in 2012. As a stock market historian I’m keenly interested in the 1932 and 1980 sequences most of all.
This economic mess has been going on for 4 years. We may have hit the bottom in the winter of 08 and I think we double dipped in October no matter what the government tells you. The beginning of this economic sequence began in July 2007 when the Russell peaked and real estate agents noticed someone flipped the switch on their once in a lifetime flurry of deals. The Great Depression was from about September 1929 to roughly July 1932. Why July 1932? First of all that was the grand bottom of the market. I wasn’t there but I did bit of reading on the subject and that’s about the time the country realized they were going to rid themselves of Herbert Hoover and a new optimism for the future began to take root as the country leaned on Franklin Delano Roosevelt. Of course he didn’t take office until 1933 but the market was already off the low, signaling a long term change is social mood.
A new President can do that for crowd psychology. The 2 best examples I can give you are Roosevelt and Reagan. This was the week that Newt Gingrich rocketed into the lead for his party and unless he messes it up it appears he has what the American people are looking for. At least those who consider themselves moderate. Republican money (and probably Wall Street money) has not committed to any of those other Republican candidates. Lets not kid ourselves, Mr. Obama is very unpopular and could very well be a one term man if the opposition could only get their act together.
This week Gingrich discussed why he is the man for the job. He explained how as a junior Congressman for the opposition party he worked with his colleagues and Speaker of the House Tip O’Neill in a Democrat controlled House to get bipartisan support to push through lots of Reagan programs. He explained how he partnered with Bill Clinton to get Republican support to go along with lots of Clinton programs. He’s the only one of the whole bunch who knows how to get Congress to come together. The most understated problem facing social mood right here is the debt ceiling spectacle and the Super Committee failure. While Europe takes center stage it’s the lack of leadership at this crucial time that saps confidence more than anything. Newt’s problem is he’s not a Tea Party guy; he’s already being attacked by Ron Paul.
Gingrich is an old style conservative and in this environment should be considered a centrist who could be very popular to both sides of the aisle and really the only one of the bunch who knows what he’s doing. I think he would be an outstanding opposition candidate. Last week was incredibly pivotal as this is a candidate who can flip the long term mass psychology from negative to positive. Long term readers of this column may remember the week Obama was elected I told you there was enough good feeling across the landscape that it could flip social mood out of the crash mode we were in at the time. It didn’t happen overnight but within a few months the oil tanker did reverse course in March 09. If all we have to fear is fear itself, a new voice in the mix can change the dynamic.
At important points in history there was Hoover and Roosevelt. There was Reagan and Jimmy Carter. All I’m saying is that I’d like to see a debate between Gingrich and Obama. Remember, the 1960 election was decided on a televised debate between Nixon and Kennedy. Newt does look good right now but when push comes to shove will he really be as good as Reagan and Kennedy were when they were in the Great Debate?
At the end of the day, the next year in politics is probably going to be as pivotal as the races in 1932 and 1980. Nobody can predict what will happen. We’ve already seen a sea change here in Arizona. This is the most extreme conservative state in the country and they threw out Russell Pearce, the state senator responsible for the controversial immigration bill now sitting before the Supreme Court. Americans want leadership and they don’t want extreme politics. I think ALL of the debate is going to point the country in a new direction. I also think that the outcome has the potential to bring us to the cusp of a grand new secular bull market.
Given the current state of affairs and projecting a year ahead, this is how it looks right now.
Next page: Market scenarios
One of 3 things is going to happen. Obama wins and doesn’t learn his lesson. If that happens we stay stuck in this 70’s style market for a few more years. Obama wins and he does learn his lesson. If America puts in a more moderate style Congress which throws some of the bums out and it inspires confidence it could set off a new cycle bull. Or Obama loses to a candidate who captures the imagination of the American people and America takes to that leader the way it once did for Reagan and Roosevelt. Then I think you’d see a new secular bull market.
What I’m trying to tell you is I think the country is going to start recovering from the panic of 2008 by the end of 2012. By the way, with the birth of the nation in 1776 the 08-09 bottoming process was in the 233 (Fibonacci) year of the republic. With 2012 looming, we close the big 236 year window next year and likely pull away from the crisis point.
There was a big shift in sentiment because we went from the worst turkey week since 1932 to one of the best stock market weeks ever. Is it a coincidence that Gingrich went to the top of his leaderboard in the same time frame? If nothing else the rally got us away from the October bottom and it did so without even having an exact test. That’s bullish by itself.
So it was a phenomenal week. But by Friday we hit a sell the news event with the jobs number. The near term was slightly tilted in favor of bears. Friday was the kind of day where bears gained 3 steps and gave 2 back. This week should be rocky. I suspect the early part of the week should have turbulence. But this is the time of year for stocks to rally. If there is a problem with this market and now I only see one, it’s the fact that China is not participating to any extent. We’ll have to keep our eye on that. It’s now squarely in a 261 day window so anything can happen. Finally, the CRB chart is holding that big brown line we discussed last week.
Sunday night was bullish and the NQ broke its near term micro channel. That’s also bullish but no confirmation of a low yet and a turn back up. We could very easily retest Friday’s low or take it out and then turn back up. It might get rocky here but I’ve seen enough to believe we’ve started the Santa rally to the end of the year.
Click chart to enlarge
Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.
Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.