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Citi: "The Market Will Form A 'Terminal' High"

Tyler Durden's picture




 

Stepping back from the trees to survey the forest (from the Moon perhaps) often provides some clarifying picture-paints-a-thousand-words view of the world. This is exactly what Citi's Rick Lorusso has done and while he called for a correction back in March which was followed by a 10.9% drop in the Dow, he was disappointed and is looking for a far greater adjustment - no matter how many times he hears about negative sentiment and QE and soft-landings. Starting from a truly long-term yearly chart of the Dow Jones Industrial Average, Lorusso conjures wave patterns, Fibonnacci, and cycles as he rotates down to monthly and daily charts to conclude that his charts "suggest the potential for a very significant high this year," in the July/August period, summarizing that Citi is "anticipating that the market will form a terminal high." - even more so on a rally from here as he warns "beware of new highs" so bulls be careful what you wish for.

 

Citi Prime Finance: Dow Jones: Beware of New Highs

We heard recently on the radio that investor desire for risk is now lower than anytime since the first quarter of 2009 when the equity market put into place a multi-year low. Sentiment is conspicuously negative and continues to be impacted by the continuous litany of “news” from Europe and more recently disappointing U.S. employment data. We are technical however so against this apparent negative back drop we thought it was timely to take a look at the market. In our last visit (S&P 500: Ripe for a Correction, March 8, 2012) we were anticipating a correction. We were early but April-May did deliver a 10.9% pullback which for the equity market was a fairly standard move. We were frankly expecting a far greater adjustment but that was not to be.

1. Dow Jones Industrial Average - Yearly Chart

Our attention today starts with a truly long term chart, an annual of the Dow Jones Industrial Average starting from early 1900’s. The magnitude of the price range necessitates a log scale. The first and most conspicuous feature we see immediately is a 13–year broadening top or as we have come to refer to it, a 5-point reversal pattern. Our pattern is more qualified however than a classic broadening top and consists at minimum of 5 significant turns. The highs, points 5, 3 and 1 are at progressively higher levels and are separated by two reactions, points 2 and 4 with point 4 lower than point 2. What is missing on the chart is a new all-time high on the Dow above 14198.1, the former point 3 high. Is it possible that could occur against the back drop we have described ? Based on a history of the stock market, certainly. If that in fact produces a dramatic shift in sentiment to the bull side, the market will then become exceedingly vulnerable to completing the foregoing 13-year pattern.

But there are some other notable factors which appear on this yearly chart which are distinctly time-oriented. In 2012, the Dow has the potential of completing the largest Fibonacci golden section we have ever seen for any market. The first point of this section is the 1932 low, and the second is the end of the a 16-17 year sideways market which ended at the 1982 low. Additionally, 2012 has the potential to complete two 40-year equal swing measurements in time which we have illustrated across the bottom of the chart.

2. Dow Jones Industrial Average - Monthly Chart

On our second chart (above), also a monthly, we are illustrating a simple repetitive 5-year period from October to October. It is more than interesting that the month of October, every 5 years has proven significant, delivering 4 very important lows and the all-time high. Another iteration is due this year.

3. Dow Jones Industrial Average - Daily Chart


 Charts 3, 4, 5 and 6 detail for the Dow a loosely defined pattern of price behavior which for the lack of a better description we shall consider as a transition. Predominantly, prices are choppy and often range bound and ultimately will form a relevant high or low. The point at which the pattern ends begins a fairly directional price move which we have indicated with a heavy blue line. What is interesting is the fact that the 12 transition patterns require roughly the same amount of time.

4. Dow Jones Industrial Average - Daily Chart

 

5. Dow Jones Industrial Average - Daily Chart

 

6. Dow Jones Industrial Average - Daily Chart

They range from 81 to 92 trading sessions and average 86.5 days. The median value is 87 days. Our last chart (chart 7 below) today is the current daily Dow chart. Here we annotated a couple of transition possibilities the first of which would terminate near July 20. There is another possibility around August 6. Other technical tools should be available to help confirm or deny a possible termination point in either of these two time frames.

7. Dow Jones Industrial Average - Daily Chart


In conclusion, our long term charts suggest the potential for a very significant high this year. Our immediate near term focus is on the late July/early August period but there are also reasons to be keying on October.

 

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Thu, 07/12/2012 - 17:20 | 2611152 fonzannoon
fonzannoon's picture

Jim Grant was on CNBC before. He was bullish equities and did not mention gold. Everything is upside down.

Thu, 07/12/2012 - 17:23 | 2611162 Popo
Popo's picture

Is a "terminal high" in the stock market going to be sort of like the "permanent high plateau" in real-estate prices that we were promised?

Thu, 07/12/2012 - 17:34 | 2611178 AlaricBalth
AlaricBalth's picture

Citi must need to liquidate some equity positions for the third quarter to set aside and offset anticipated litigation costs due to Libor manipulation. Pump and dump on a massive scale.

Thu, 07/12/2012 - 18:07 | 2611247 Pinto Currency
Pinto Currency's picture

 

As currency collapses, equities launch to the moon.

The high may be terminal if the dollar is collapsing (thanks to Citi and the JP Morgue)

Thu, 07/12/2012 - 18:14 | 2611259 fonzannoon
fonzannoon's picture

can a currency collapse as it rises against other currencies?

Thu, 07/12/2012 - 18:33 | 2611291 ACP
ACP's picture

If you throw a feather and a golf ball off a cliff, it will appear to the golf ball that the feather is rising.

Thu, 07/12/2012 - 18:39 | 2611297 12ToothAssassin
12ToothAssassin's picture

Will this 'terminal high' possibly coincide with the "no selling, only buying" rule?

Thu, 07/12/2012 - 21:21 | 2611667 optimator
optimator's picture

No, but the 'net will be down, and the little guy will get busy signals on his phone while the big guys get out of Dodge.

Thu, 07/12/2012 - 21:34 | 2611694 Pinto Currency
Pinto Currency's picture

 

Maybe Citi means that the Fed has injected Bath Salts into the veins of the economy and the market is experiencing a terminal high.

Well the Fed has.  A bubble economy that the Fed creates and crashes from too much debt and speculation needs to have the medium of exchange whipped around.

As destructive an institution as one can imagine.

 

Thu, 07/12/2012 - 21:30 | 2611687 WmMcK
WmMcK's picture

And don't forget, a pound of feathers weighs more than a pound of gold.

Fri, 07/13/2012 - 06:52 | 2612124 twotraps
twotraps's picture

No shit, merrygoround of who makes the next bearish call.

Thu, 07/12/2012 - 17:44 | 2611193 ACP
ACP's picture

Terminal high as in overdose and death.

A multi-year cycle always ends with a retest before taking a giant shit.

Thu, 07/12/2012 - 18:57 | 2611338 DosZap
DosZap's picture

Time for the SHEEP shearing, very soon.

Thu, 07/12/2012 - 21:19 | 2611665 optimator
optimator's picture

And they always do it sooner than expected, election year or no 'cause it doesn't matter to them who gets in (unless it's Ron Paul of course).  But they took care of that.

Thu, 07/12/2012 - 17:41 | 2611202 Rainman
Rainman's picture

The multinationals will ignore the strong dollar and report record earnings anyway. Voodoo accounting will never run out of tricks... earnings are whatever they want them to be.

Thu, 07/12/2012 - 19:02 | 2611342 Soul Train
Soul Train's picture

gee whizz, does that mean no more QE or twist and shout, since there's going to be a terminal high???

No need anymore for all this Fed hopium $$$ ?

How would that smart Citi boy respond to that, I wonder.

 

 

Thu, 07/12/2012 - 20:43 | 2611600 J 457
J 457's picture

Where will all the newly printed money be parked. If in equities instead of bonds then I could see the DOW breaching 14k this year.

Thu, 07/12/2012 - 23:29 | 2611860 I should be working
I should be working's picture

Or perhaps the "permanent high plateau" of the 1929 stock market.

Sucks when a "permanent high plateau" isn't so permanent.

Thu, 07/12/2012 - 17:23 | 2611163 aleph0
aleph0's picture

 

 

Maybe he knows Bernanke's next move ? ... $1,000,000 bailouts, this time for every man , woman and child in the USA.
DJIA 100K ? ... easy .... Everybody will need to buy new PCs ... 128 bit !

Thu, 07/12/2012 - 17:28 | 2611172 slaughterer
slaughterer's picture

Janjuah, Grant, Robo, now this technician from Citi--all calling for a significant near-term high soon.  Uh.  Very paradoxical call given the mainstream gloom about 2Q earnings.  We will see tomorrow with Jamie doing his dance.  

Thu, 07/12/2012 - 19:00 | 2611344 vast-dom
vast-dom's picture

Yes and I have Jinjauh's SP chart right here that shows 1k then 800.....what is going on? He did not show any terminal highs in his charts. oh well. something is rotting up this motherfucker.

Fri, 07/13/2012 - 03:25 | 2612061 fx
fx's picture

Ah, the Elliott-wave-vodoo at work again. when was the last time that the Elliott-wave artist of all Elliott-wave artists, Bob Prechter, "predicted" exactly the same? Oh wait, he does it once every quarter anyway.

Thu, 07/12/2012 - 17:29 | 2611176 Plymster
Plymster's picture

Bear capitulation?

Thu, 07/12/2012 - 17:22 | 2611157 Poetic injustice
Poetic injustice's picture

More like "Terminal ill" and then "Terminal dead".

Thu, 07/12/2012 - 17:27 | 2611170 Darkness
Darkness's picture

Wait, but didn't Jim Cramer say to go short gold and long financials?

Thu, 07/12/2012 - 17:32 | 2611181 q99x2
q99x2's picture

BTFD

Thu, 07/12/2012 - 17:34 | 2611183 Skip Danger
Skip Danger's picture
'Terminal' High"

That's been my view for months:

http://www.youtube.com/watch?v=ka8jTINjMhs

Thu, 07/12/2012 - 17:37 | 2611195 Debtless
Debtless's picture

He's high.

Thu, 07/12/2012 - 17:43 | 2611204 cherry picker
cherry picker's picture

How much does the guy who did this get paid?

These are like astrology or Tarot card reading charts.  What happened to business fundamentals, profit, revenues, stuff like that or the impact of new markets/products or of manufacturing and services moving on or off shore?

My grandmother could do a better job and she is dead.

Thu, 07/12/2012 - 18:14 | 2611261 mjk0259
mjk0259's picture

Yes, total BS. Interest rates can hardly go down any more though and since most stocks are selling for 16 times earning, this is probably near the top. If people could get 5% in a CD again, not many would go into stocks.

 

Thu, 07/12/2012 - 18:54 | 2611329 zero19451945
zero19451945's picture

If I could get 2-3% in CDs, I would pay zero attention to this. 

 

The Fed forces everyone to be a speculator while suppressing natural market signals. 

Thu, 07/12/2012 - 20:47 | 2611608 J 457
J 457's picture

And think what will happen if MM goes negative like some EU countries.  Will the money buy 10yr Treasuries at 1.46% or equities with 4-5% annual yields.  Could go either way.

Thu, 07/12/2012 - 17:42 | 2611206 mayhem
mayhem's picture

Oh yea, plenty of buyers for that

Thu, 07/12/2012 - 17:45 | 2611214 TrainWreck1
TrainWreck1's picture

[insert very bad words here] Citi

Thu, 07/12/2012 - 18:01 | 2611242 Mr_Wonderful
Mr_Wonderful's picture

Bear in mind  the higher capital gains tax rate coming in the new year. This will create increasing pressure to sell for the rest of the year and thus increasingly desperate pump and dump whores in the finiancial industry and bubblevision.

Thu, 07/12/2012 - 18:07 | 2611246 deepsouthdoug
deepsouthdoug's picture

The July high is already in - and it wasn't that significant.

Look out below!

Thu, 07/12/2012 - 22:23 | 2611767 The Monkey
The Monkey's picture

It's a stretch to consider a scenario where the S&P hits new highs on falling profits and evidence inventories are starting to build involuntarily.

The other problem: the bulls never left the building. Negative sentiment has already burned off.

Anything is possible though, so vast amounts of dry powder are good. Don't get greedy or overconfident with any shorts just yet.

Thu, 07/12/2012 - 18:07 | 2611248 midgetrannyporn
midgetrannyporn's picture

C doesn't know jack squat about anything.

Thu, 07/12/2012 - 18:54 | 2611328 kito
kito's picture

+1....id rather take advice from a tarot card reader.....bank analysts and weathermen....both paid despite the wrong forecasts...................

Thu, 07/12/2012 - 18:07 | 2611249 Lost Wages
Lost Wages's picture

Print me some stock certificates so I can roll some joints! This is gonna be a party!

Thu, 07/12/2012 - 18:08 | 2611251 reader2010
reader2010's picture

Sex, lies and videotapes.

Thu, 07/12/2012 - 18:13 | 2611258 A Lunatic
A Lunatic's picture

Who's driving this choom wagon anyway?

Thu, 07/12/2012 - 18:16 | 2611267 SheepDog-One
SheepDog-One's picture

Citi tryin to find muppets to dump to! 'New high' so over 13,500 then? Im not bettin on it....but hey go for it Im just sitting back watching anyway.

Thu, 07/12/2012 - 18:17 | 2611270 sessinpo
sessinpo's picture

Already predicted June 8. Market crash later this year.( 2507489)

Military buildup occurring in Persian Gulf without much attention.  Things are afoot.

Thu, 07/12/2012 - 18:24 | 2611277 Dr. Engali
Dr. Engali's picture

The stock market already made a terminal high. It's just hanging on lif support until the final plug is pulled.

Thu, 07/12/2012 - 19:17 | 2611384 SheepDog-One
SheepDog-One's picture

Yep.

Thu, 07/12/2012 - 18:26 | 2611282 HaroldWang
HaroldWang's picture

Seems like everyone is talking bullish like it's the contrarian view again. Not contrarian when everyone is thinking the same.

Thu, 07/12/2012 - 18:27 | 2611284 Cheyenne
Cheyenne's picture

"terminal high," eh?

sounds a lot like irving fisher's 1929 call for a pernanent plateau. 

Thu, 07/12/2012 - 19:00 | 2611343 DosZap
DosZap's picture

"terminal high," eh?

Sounds like if go with it, your DEAD.

Bath Salts anyone?.

Thu, 07/12/2012 - 18:44 | 2611306 GS-DickinDaMuppets
GS-DickinDaMuppets's picture

The market (DOW), may indeed go slightly higher from here into mid-September.  After that, going into the November 6 election - LOOK OUT BELOW!  KA_ BOOOOOM!  Dow ~1000.

I could be wrong, though.  I thought I was once before, but was not.

 

GS-DickinDaMuppets

Thu, 07/12/2012 - 18:50 | 2611322 chump666
chump666's picture

Citi is kicking ass with analysis at the moment.

But...we are due for a crash, could be August/Sept.  If July rallies end month.  June 20th high is the current resistance and now we are sitting in a trading range.  The HFT inspired melt-up up, with the momo long being cut at the end of last session will be the norm for a little while.  Asia sets the selling/buying trend.

 

Thu, 07/12/2012 - 19:09 | 2611363 BandGap
BandGap's picture

It happens tomorrow.

Thu, 07/12/2012 - 19:12 | 2611373 exartizo
exartizo's picture

Ummm.... No.

 

 

Thu, 07/12/2012 - 19:16 | 2611383 doc_in_the_house
doc_in_the_house's picture

charts = hocus pocus.. they are a great tool for

predicting the PAST...NOT the FUTURE...

i short covered my spx futures short positions of 1370, 1360 today @ 1326-1328...patiently waiting in cash for 1350+ to re-short...and hold til 1100ish before QE3 announcement.

Thu, 07/12/2012 - 20:17 | 2611544 luna_man
luna_man's picture

"doc_in_the_house"...charts=hocus pocus..

To this day, it's a FACT, some are making money reading those "charts"!...It's a matter of how you decipher!...

 

You won't need J.C. telling you what's good and bad

Thu, 07/12/2012 - 20:51 | 2611618 J 457
J 457's picture

Barring some big surprise I think your correct.  We see a healthy correction in next 30-45 days, maybe by mid August, and then off to the races for Sept thru election day.  Fiscal cliff, tax cut extentions etc.. all could all cause the spring board.

Thu, 07/12/2012 - 19:27 | 2611409 ThunderingTurd
ThunderingTurd's picture

Market is leaking.  Simple as that.  Newer lows hit each day followed by a stupid bounce.  New lows...stupid bounce.  New lows...stupid bounce.  New lows...new lows...new lows...Ben, where's the stupid bounce?

Thu, 07/12/2012 - 20:07 | 2611517 Father Lucifer
Father Lucifer's picture

Looks like a fuckin' cycle high top is in already. Baffle 'em with bullshit Citi.

Thu, 07/12/2012 - 20:42 | 2611598 proLiberty
proLiberty's picture

“… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.”
- HES, November 10, 1929

“The end of the decline of the Stock Market will probably not be long, only a few more days at most.”
- Irving Fisher, Professor of Economics at Yale University, November 14, 1929

“I see nothing in the present situation that is either menacing or warrants pessimism… I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.”
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929


Thu, 07/12/2012 - 21:01 | 2611635 devo
devo's picture

To be fair, Melon didn't say spring of which year..

Thu, 07/12/2012 - 21:00 | 2611630 devo
devo's picture

Ooh reverse psychology shills. Haven't seen that one before! /sarc

Thu, 07/12/2012 - 21:56 | 2611733 Beam Me Up
Beam Me Up's picture

Hey -don't knock Mellon - When Hoover came to him and said "what are we gonna do?" , Mellon said not a damn thing.  "They got themselves into this mess, let them get themselves out". Kinda sounds like Ron Paul to me.

Fri, 07/13/2012 - 03:24 | 2612062 realtick
realtick's picture

We already know what the headline says. The question is where will the terminal low be?

http://chartistfriendfrompittsburgh.blogspot.com/2012/07/djia-666.html

Do NOT follow this link or you will be banned from the site!