The Market is at a Major Top - Again
On a Volatility-Adjusted Basis
by Bob Bronson, Bronson Capital Markets Research. March 8, 2004
During BAAC Supercycle Bear Market Periods -- 1965(6) to 1982, 1928-9 to 1949, and 1881-1896 -- the Kitchin business, stock market and political cycle exhibits left translation. We have pointed out the Kitchin cycle has lengthened from ~40 months to 48 months, which is especially obvious during the past four decades as illustrated in the chart below: Also see footnotes #4, #10 and especially #14. [See]
For example, from the Oct 1998 low to the Mar 2000 high was 17 months, followed by a 30+ month decline. Similarly, we expect the recent 15-month NASDAQ-leading bear market rally will likely be followed by a ~ 33-month decline into an Oct 2006 Supercycle Bear Market low.
Dividing the S&P 500 by the implied volatility index [VIX] creates this indicator prepared by Wally Hertler. Note how volatility adjusting flattens the intermediate term (months) and long term (quarter) high-low swings in the S&P 500, which is very important from a technical valuation point of view.
Volatility adjusting also sharpens tops since volatility, ( in the denominator) is very low at market tops, which are otherwise, on a price-only basis, much flatter or broader - like recently - than are market bottoms.
Volatility adjusting price is one of our many technical, as well as fundamental indicators, that are predictably calling for another major stock market top. And they are cumulatively bearish for the very long term (years).
© 2004 Bob Bronson
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Bob Bronson | Bronson Capital Markets Research | Email
