Best Ways to Maximize Increased Market Volatility

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GENERAL CYCLES: World and Political Notes

• This is the year of false optimism, which happens every 12 years and the means markets may go up on good news until reality returns.
• Obama's positive cycle that propelled him into the White House ends around the beginning of spring 2009. His cycles become filled with challenges for at least the next two years. We are not sure what form these challenges will take but the free ride may soon be ending.
• There is an unusual peace-and-prosperity cycle that kicks in from about Jan. 29 until late May. That may help the peace process in the Middle East and it also should create a good feeling that may lead to an increase in buying. Because of other messy cycles in February, it may not be felt until late February.
• The messiest time of the year in the first quarter is Jan. 26-Feb. 16 and this may lead to escalation in the Middle East or other unexpected events that will hurt the stock market and the dollar.
• In general, economic cycles are a bit more positive from late February until the middle of July and negative until mid-November. The time window around Nov. 15-25 looks particularly messy.

STOCK MARKET: At the beginning of 2008, we predicted a drop to S & P 1000 and a fall of 33% on the stock market into the first few weeks of October. The market eventually fell 46% and the downside is not complete as suggested by patterns. Let's look at an overview of the stock market into next year before we look at other best trades.

FIRST QUARTER: Cycles highs are due the week of Jan. 18-23 before the market starts a 3-4 week correction into at least Feb. 8 if not as late as Feb. 13. Out minimum cycle high target for the S & P futures is 994-1007 into the week of Jan. 18-23 but if the trade gets optimistic, a move to 1085 is possible. From a pattern perspective if the market does not congest or turn back soon, the chances of new lows in February are unlikely and that might only mean a secondary low developing toward only 775 on the S & P but we will recalculate once the market tops and starts lower.

YEARLY OUTLOOK: Overall for the year we are inclined to think that if nothing happens significantly in late January and February that stocks may be generally higher into July 9-13 and then generally lower into Nov. 9-15.

Until we get more price data, it's difficult to estimate the July high and we will feel better doing it from the February low, which could be all the way down to 775 if political and economic inputs are bad. The chances of taking out the 2008 lows in stock market are rather slim unless the stock market stops rallying and congests under 950, and then we would only see a new low to 700 in February. But if that does not happen, we doubt it will happen the rest of the year. The 1083-1085 area is first resistance for a rebound. Earlier we had talked about the year of false optimism and that in combination with a peace-and-prosperity cycle from Feb. 13 into May 29 may allow people to feel good even if stats take longer to turn around.

ECONOMIC REALITY: The recession will not go away that quickly and we think late 2009 there will be stronger indications of it. John Kenneth Galbraith thought the recession could last three years, which would put its end at Dec. 2010. We think much sooner is possible. But the stock market is often a buy six months before a recession ends so come February, that might be happening. There are a few major shoes left to fall, namely consumer credit with credit cards and more bank failures. This is a particularly bad year for banks and we wonder how many bullets the FED has left. Housing will not pick up for a long time and there is an 18.5-year cycle affecting it with 9.25 months down and 9.25 months up. Maybe by 2015-16, housing may start accelerating but hyperinflation for the dollar may have the same effect during 2011-12. Biggest hope for housing will be an inflation cycle from trillions of dollars of borrowing and printing money and that may be 2011-12. Unemployment may easily hit 8.5%-9% by the end of 2009 but we should not be throwing out comparisons to the Great Depression for 2009. This is just a very bad recession. Global warming is the biggest concern as if natural disasters increase the next five years, and they should, it will bankrupt the insurance industry in 2012 and cause untold budget deficits due to helping troubled areas. We expect hyperinflation to start in March 2011 and then the dollar will fall dramatically into late 2012 and cause a major U.S. and world crisis with the possibility that the dollar will become worthless. Remember Germany in the late 1920's?

ENERGY COMPLEX: Crude and products have temporarily put in a cycle low on the weekly chart. We cannot rule out another low if crude goes to 3000 after hitting 5254 or 5450 and if that did happen it might be until late January. Some cycles suggest that the energy complex will be higher into late March and early April and that may interfere with what we are seeing other markets. In an ideal world we would like to see the new low to 30.00 on crude into late January and early February and that would coincide with a dollar high. The Middle East war may continue to prop it up artificially. We are skeptical that Syria or Iran will come to the aid of Hamas and the Israelis are stubborn and are not likely to stop until they complete their goal. Our cycle work suggests that if things do escalate, it might be in February.

HEATING OIL: We have learned from experience that once these markets start turning, you have to avoid the countertrend. Minimum upward target is 162.85 and a cycle highs is due into Jan. 12-13. If the move up is complete, it could turn out that the week of Jan. 30 is a cycle low that could go to 112 or 104 as supplies are there. We have been thinking that spring would be a major new low for heat but we will see what develops into late January and early February first. If the complex goes back up, gasoline will be the one to play to the early February low if it does not invert.

US DOLLAR: The trend is up in the U.S. dollar into Feb. 2011 but there will be all kinds of swings this year. At publication, the dollar is right on the edge and needs to rally above 8300 to confirm higher at least until the week of Jan. 11 but more probably until the week of Jan. 30. We have been expecting at least 8445 but we are open to higher dollars. The dollar looks lower in February and March and it might go to a max. of 7800 or 7500 depending on how high it gets into late January. That could be followed by a rally to 9500 or 10000 into spring or even as late as July. Once the T-note bubble bursts, I expect that the dollar will benefit, and there are some signs of that happening. Once the first 5 waves up is complete toward 9500 to 10000 then after a 3-wave pullback, possibly into November, we should see a 3rd-wave high that should be 2111 points from the pullback.

FOREIGN CURRENCIES: There are a lot of mixed signals and cross currents so we may end up changing this forecast. At the moment, Euro looks like a buy from the third or fourth week of January into the third week of February. We think upside is limited to 155 and downside to 124. The yen is due for a cycle low the week of Jan. 5-9 and should hold the 105.85-106.50 region. Weekly chart patterns a minimum of suggest a low to 10695. Upward patterns this year point to at least 125.50 but current fundamentals do not support that. Weekly stochastics are turning lower but that could be a fake-out. Major monthly chart cycles are due into the week of April 3 and if the week of Jan. 9 is a low we could get a continuous move up. The cluster around the dollar and other foreign currencies into Jan 30-Feb. 6 could also cause a turn. The British pound is currently projecting the 121.88 region probably into July with rallies not likely to take out 162.50-165.50 into late February if that turns into a cycle high. We think cycle highs are due at the end of February but we will need the BP to hold 140-1 into the week of Jan. 9 and turn up sharply to hold onto that view.

METALS: Platinum is the leader in the complex and it issued a buy signal the week of Oct. 24 and gold actually followed. Platinum is now issuing a weekly chart cycle high signal around Jan. 5-9 and looks lower into the week of Feb. 20. Gold signals by themselves suggest higher prices in January but there are some mixed signals. If the bullish patterns win we may see 950 and then a drop in gold into late February. Silver could also follow platinum but it could also hold up into the week of Feb. 1-6. If it does, it could go to at least 1253. If energy prices temporarily top out in the middle of January, metals may kick in to the downside.

T-NOTES: One can make a case that a multiple-year T-bond rally since 1981 has completed and that we are moving toward higher rates for a long time. Everyone is expecting the interest bubble to burst and some signs at publication suggest that it has or it will double top and do a slight new high. Linear cycles suggest that we should be short T-notes into February and not consider a countertrend buy until the week of March 1. Keep up with our daily service on entries and updates. The most important turns of the quarter are the week of Feb. 13, which could be a cycle high in conjunction with a low on stocks and then the week of April 10-17 for a cycle low. We will have to watch January closely to see if we get a double top or new high toward 129.29 or 130.16. The 119.26-120.00 region is the first place T-notes should go even in a secondary high situation, as a 4th wave is due and daily stochastics are clearly on the sell side.

For the past 21 years, Barry Rosen has been in the business of advising clients on market timing using modern adaptations to certain ancient cycles. His company Fortucast Market Timing Inc. publishes daily and intraday reports on over 20 futures markets, and mutual fund indices/ETFs using Gann, Elliott wave and five cyclical models. Barry recently predicted the July 15 low on the S & P to the day, hitting the price within .75 ticks--and in fact has been forecasting a major break in the stock market of about 33% since January. Timer Digest ranked the Fortucast Alternative Investment Newsletter 6th in long-term timers over the years and 5th for Top Ten Timers between March 2007 and March 2008.

Mr. Rosen is registered with the NFA and the CFTC as a Commodity Trading Advisor (CTA). Fortucast uses proprietary cyclical timing models to filter out false indicators. His opinions on the markets are his own and do not necessarily represent the view of FutureSource. For more information about Mr. Rosen or his company, please visit his company's website: www.fortucast.com.

Sign up to get complimentary updates to Barry Rosen's 2009 Market Outlook , including long-term trends and best trades of the year, for 14 financial markets as they set up. You will also receive information on how to get other complimentary reports from this author, including his coverage of agricultural markets and mutual funds/ETFs. Don't miss out, sign up for these timely updates today.