Bear Market to Take Hold in 2013: Expert
A long term bear market is around the corner and will last until 2018, with the Dow losing up to 30 percent of its current value, Kerry Balenthiran, author of “The 17.6 Years Stock Market Cycle”, told CNBC.
“My research identified long term 17.6 year secular bull and bear markets. We’re in a long term bear market. [But] there is a flip-side which is the commodities cycle. When they decline you get a strong bull market in stocks because input stocks go down. But this bear market will continue until 2018 with the Dow at around 10,000,” Balenthiran said.
He added that the rally currently taking place would continue for at least the next three months, but said stocks would start falling in October to November.
(Read More: What Stock Market Rally Needs to Keep Bulls Running)
The idea of market cycles is not new and alternative cycle theories abound, ranging from forecasts on the number of years for a bull/bear market to the more offbeat including the use of lunar cycles to predict the most profitable times for stock market investment.
Balenthiran’s predictions jar with the recent rally which has seen markets around the world post new highs? the Dow Jones Industrial Average posted its first nine-day winning streak since 1996 Wednesday closing up at 1,4455.28 and the S&P 500 was also within striking distance of its all-time closing high on Wednesday at 1,554.52.
Balenthiran looks back over the last 100 years and also identifies mini-cycles within the longer-term ones.
“My cycle has identified bull market cycles of 4.4 years and bear markets are 2.2 years. So 2013 is a low as well as in 2015 and 2018 and then we’ll see a long-term uptrend to 2035 but I see a lot of volatility until 2018,” he added.
He said the low in 2018 would also be a “great opportunity” to buy stocks in anticipation of the longer term move upwards.
However, this bearish view is not shared by all within the financial markets. Swiss bank Sarasin’s chief strategist expects the S&P to break through the 2,000 barrier by 2015 and a Goldman Sachs note earlier this week said London’s blue-chip FTSE100 index would continue to rise to 7,200 within 12 months.
(Read more: S&P at 2,000 by 2015: Strategist)
In earlier trading the FTSE 100 hovered around the 6,500,mark maintaining the momentum which has seen it soar by 10 percent so far this year.
Balenthiran said the break in 2018 would likely be triggered by the commodities sector.
“I’m expecting a peak in gold and commodities in 2015 but when that bubble bursts we get the low in 2015. Then there is a bounce and then a sustained uptrend once input costs go down year-on-year and consumers have more money in their pockets,” he said.
Balenthiran admitted that factors such as inflation and central bank intervention through monetary policy easing can distort the cycle and skew final predictions. “I use the cycle to predict things going forward and I have high conviction in that and time will tell,” saying he couldn’t guarantee any particular outcome “for sure.”
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