Its time once more to see what insight George Lindsay's market techniques can give us into the likely trends of stock prices in 2007. My 2006 forecast can be found here. The forecasts for 2003, 2004, and 2005 can be found by following the links in the right hand column of this blog.
Summary: The first quarter of 2007 is likely to be bullish, the second quarter basically flat or slightly bearish, and the second half of the year bearish. The high in the Dow for 2007 should be near the 13,000 level and the high in the S&P 500 near 1500. The low in the second half should find the Dow near 10,700 and the S&P near 1200. The second half low will prove to be a very important buying opportunity. A renewed bullish trend should subsequently carry the market upward during 2008 and 2009.
The 20 Year Cycle: The last six repetitions of the 20 year cycle have seen three bear market years (1987, 1907, 1887), two bull market years (1967, 1927), and one flat year (1947). Given that the market's bias has been upward during this 120 year period I conclude that 2007 should have at least a slightly bearish tinge. Of course the most tempting analogy is 1987 which had a top in April, a low in May, the year's high in August, and the intraday crash low in October. The year 1967 was a bullish one, but it had a significant high in May, a low in June, the year's high in September and a low in November. Using these two examples we would expect highs in April-May and August-September and lows in May-June and October-November. I think the October -November low will prove to be the end of a drop of 20% or so from the year's high.
The 4 Year Cycle: It looks like the 4 year cycle has missed a beat since the ideal low was due in October 2006. When this happens I like to look for a three year cycle emergence. Here we have lows in October 1998, September 2001 and October 2004. The next low is due in October 2007. I might also add that the fact that the 4 year cycle missed a beat is evidence that even longer term cycles have turned strongly upward. This is one factor which I believe will limit the extent of any drop this year.
Lindsay's 15 and 12 Year Time Periods: One of George Lindsay's most important forecasting tools was the 12 year 8 month period from major highs to major lows and the 15 year 3 months time period from major lows to major highs. The 15 year period measured from the 1990 bear market low predicted a high for January 2006. This time period can occasionally stretch to 16 years, 3 months which indentifies January 2007 as a potential top. The 12 year 8 month period measured from the Januay 1994 top predicted a low for October 2006. This period can stretch to 13 years 5 months which would predict a low for June 2007.
I think that Lindsay's long time periods will be less useful this year, but they do at least reinforce the general pattern of a high during the first part of the year and a low during the second part.
Basic Advances and Declines: On the first chart above this post I have illustrated my current hypothesis of the market's position within two distinct sets of what Lindsay' called basic advances and declines. These are fixed periods measured in calendar days which historically crop up again and again when measuring the lengths of bull and bear markets. One of Lindsay's forecasting principles was that short basic advances are followed by long ones and vice versa. He also liked to say that "everything comes out even at important highs and lows". By this he meant that while there may be different sequences developing simultaneously they wind up agreeing about terminal points which are important tops and bottoms.
The next simple point of agreement I see is for a May 17, 2007 end to two simultaneous basic advances. This normally would be the bull market top.
Three Peaks and a Domed House: The second chart above this post illustrates what I think is the Dows current position within a Lindsay Domed House formation. I have been following this formation for quite a while. You can find my comments by following this link to my George Lindsay posts.
I think the Dow is putting in point 20 of the domed house. If so the peak of the domed house still lies ahead of us and will probably occur in late March as predicted by the 7 month 10 day measurement from point 14. However, the basic advances I have been following predict a bull market high for May 17. I am not sure how this conflict will be resolved. One possiblity is illustrated on the Domed House chart above. But it is also possible that the 7 month 10 day period will time point 21 instead of point 23. In any case this domed house is well along in its development and new highs in the Dow will not be far from its ultimate peak.