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Predicting the ‘When?’ & ‘How Far?’ of the Next Market Decline

user profile picture charleshughsmith Jun 21, 2012
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Executive Summary

  • Technical analysis offers methods for identifying long-term trend changes
  • Introducing the Coppock Curve
  • Why the Coppock Curve indicates a coming decline in the equities markets
  • If correct, it may take 8-15 months to hit the bottom of the decline before a recovery begins
  • Global markets are likely to all go down together, making finding "safe havens" more challenging

If you have not yet read Part I: When Will Reality Intrude and the Stock Market Hit Bottom?, available free to all readers, please click here to read it first.

In Part I, we explored the correlation between the stock market and the real economy (tenuous in times of massive intervention) and the probability that the economy’s next trough lies between 10 and 30 weeks in the future.  We then looked to Japan’s Nikkei stock market index as a guide to equities’ performance in eras dominated by debt and deleveraging, and found that the Nikkei’s history suggests a bottom in U.S. stocks could be as far as a year away, in mid-2013.  This aligns with the possibility that the real economy hits a recessionary bottom in late 2012 and the stock market finally reflects that weakness six months later in mid-2013.

As we look at other evidence supporting a significant decline in stocks, we must keep Part I’s caveats firmly in mind:

  1. It’s possible that equities could rise to previous highs or even reach new highs in the near term, despite the recessionary stagnation of real incomes and growth, as stocks tend to be “lagging indicators” of recession.

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Top Comment

Charles, I am always complimentary to you because you are well prepared and thrilling to read. The charts are very compelling. Thank you for this.
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Anonymous Author by rje
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