Leaders Index 12-28-18

The market traded in a fairly tight range yesterday. A late rally attempt failed and the major averages finished little changed. The COMPQ was higher by .08% while the NDX was lower by .05%. The SPX lost .12%. All the major averages closed low in their intraday trading ranges, a sign of weakness. Volume was lower across the board, which is to be expected before a holiday weekend. Leading stocks were pretty much unchanged as well with the leaders index higher by .07%. It closed in about the middle of its trading range and volume was lower and below average. The market seems to be trying to stage something of a rally attempt now. The decline in the weekly Coppock is slowing and the A’s minus E’s turned positive yesterday. We will have to see if there is a follow through in the next week or so and if there is how well it is confirmed. Right now is the time of year where everyone gives their forecasts for next year. Most are little more than opinions, some educated some not. My forecast is the same as every other year, I don’t know. I like to use the three road scenario developed by my friend Ian Woodward. If the market is going in a bullish direction and the high road occurs then what should it look like, what should happen. If there is a bear case and the low road should develop, what should the market do. The middle road is basically a flat market. Write these down and then watch what happens. Let the market tell you which road it will take. As readers of my updates know I have been saying that this cycle has been elongated by low interest rates and QE. That appears to be changing now. It is pretty clear at this point that we are in a long overdue bear market. This is a good thing. Bear markets clear the way for new cycles and new bull markets. What is important now, and what we can’t know in advance, is how bad this bear will be. There are two main types of bear markets. The first is the standard bear that declines 20% to about 30% in total. These are fairly common and occur every few years. The second is what I call a bone cruncher. This is the type of bear we saw in 2000 to 2002 and 2007 to 2009. Also the 1973 to 1974 bear qualifies. These bone crunchers only occur in secular bear markets and can decline 50% or even 60%. They will grind you into dust if you do not protect yourself. You really don’t know in advance which type it will be, you have to let them play out. The scenario in the past can be a guide to what may happen in the coming year. The monthly Coppock is the primary signal of a new cyclical bull market. Signals come years apart and right now the indicator is fast falling toward the negative level where it can give a signal. The market doesn’t have to fall much farther to set up a signal, but it does have to stay at about current levels or lower for a couple of months for the indicator to go below zero. I think that there will be a signal next year, but the timing of the signal will depend on the severity of the bear market. It usually plays out like this. The weekly Coppock will get to very low levels in the minus 45 to 60 range. It is minus 25.75 now. In a correction the weekly Coppock usually doesn’t get much below where it is now. There are many follow through days in bear markets and most fail pretty quickly. Some can produce tradable rallies if they are well confirmed by the three confirming indicators. When the weekly Coppock is at these very low levels there will be a follow through. This will be confirmed by a turnaround in the weekly Coppock as well as confirmation from the Eureka indicator and the %E’s being in the proper range. There will also be a good number of attractive set ups in individual high quality growth stocks. These will produce breakouts that work and produce gains. At this point we are not sure yea if this is a successful bear market rally or an important bottom. The monthly Coppock will then start to curl, indicating that a major bottom may be in place. In a short time the monthly Coppock will then turn up, signaling that this real and that a new cyclical bull market is under way. The first two years, especially the first year of a new bull market are the best times in the cycle. The largest gains are made in this time frame and experienced canslim operators can make significant profits. Forecasts are just opinions and as always you have to watch what the market is doing to really tell you how to operate, but it is looking more and more like this scenario is playing out. The timing will depend on how deep the current bear market gets. I do believe that we will get a new cyclical bull start next year. I don’t know when It will start as that will depend on which type of bear market this turns into. As always you have to watch the market and let it tell you what it is going to do. There will be no update on Monday. I hope everyone has a great new year’s weekend and that next year will be very profitable. Jerry