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--- In gannsghost@xxxxxxxxxxxxxxx, "topos8" <topos8@xxxx> wrote:
This seems to be a good time to update the bond and stock forecasts I
made in early January and to say a few words about crude oil.
My square of nine calculations tell me that crude oil is at a long
term top. The market shows very strong resistance in the $41-42
range and I think that prices will start a bear market very soon.
Ultimately I expect to see crude drop to $16 over the next couple of
years. I might add that this forecast would also seem to suggest that
the turmoil in Iraq has seen its worst days and things are likely to
improve from here.
The cash market in both the long bond and the 10 year notes
established new high yields today for the upswing in yield that began
last June. I still think that the long bond yield will make it up to
roughly 6.00% sometime during the second half of this year but that
should end the bear market in bonds. At that time the futures will
probably be trading near 98. I expect the bear market low to occur a
month or two after the fed starts jacking up short term rates. I
think the interest rate markets will be quite confusing over the next
18 months because the yield curve will flatten considerably. Long
bond yields will probably drop on average during 2005 while the yield
on 3 month and 2 year paper will rise during the same period. Still,
I stand by my forecast that the long bond will yield 3.50% or so
sometime in 2008.
Over the shorter term I would like to point out a close similarity
between the 1986-1987 period in bonds and the 2003-2004 period. In
1986 the bonds made a long term top in April at 105 and dropped to 76
by October of 1987. But the move was not in a straight line. First
there was a fast 6 week drop from 105 to 90, then a rally from June
1986 through March 1987 from 90 to 102. After that the market dropped
sharpy to 88 in May 1987, rallied only a month to 94 and then dropped
to its final low at 76 in October 1987. The pattern is very similar
to what we have seen since the June 2003 peak. For this reason and
because my square of nine calculations agree I would expect a 4-8
week rally in the bonds and notes from current levels (103-16 bonds
and 108-00 notes). I don't think this will carry the bonds up much
more than 6 points.
I think it quite likely that the S&P's made a low at 1076 on Tuesday.
If I am wrong about this the worst I see on the downside is 1060. My
working hypothesis is that the market in March established the first
of the three peaks of Lindsay's three peaks-domed house formation
(see my January forecast for more details). The rally to the second
peak is probably already underway and I expect the top of this rally
to occur in the 1190-1250 zone sometime in July or August. A third
peak is likely but it may well be a lower than this second peak. The
break which will develop after the market's peak this summer will
probably carry prices back down to 1050.
Carl
--- End forwarded message ---
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