Author: Michael Douville
Walter Zimmermann of United-Icap is considered one of the top Technical Analysts in the World. In early November, it was my honor to discuss his work and his views of the current Technical Environment. Walter does not care for “Opinions” as everyone internally has a bias. Rather, he allows the Market to speak for itself through “Price Action” employing tools such as Elliot Wave Analysis, Candlesticks, Sentiment, Momentum, and Chart Pattern to forecast future “Price Action”
Walter Zimmermann’s work shows an ominous “Rising Wedge” for the Dow Jones Industrials; the largest he has ever seen. This Wedge is formed by three increasingly dangerous Bubbles, The Dot Com Bubble, the Credit Bubble, and now what Walter is calling the” Central Bank Bubble” all strung together in a huge Peaking” pattern! He feels the Stock Market has been “Goosed” unnaturally by the Federal Reserve and is, in his opinion, not sustainable. Further, the Market will be in “Trouble” if it breaks it’s long term trend line which is 17,665. This is an important level and if violated, exiting the Market may be advisable!! He views the sidelines as an entirely valid position during a Bear Market in Equities.
Walter fully expects a Bounce after the election which he believes has the potential to make a final nominal new high, but does not expect the Dow to rise much above the 19,000 level. This point may represent a tremendous “Sell” opportunity for Investors; he also sees a huge potential downside risk. The 17,665 level is critical! One does not need to be invested at all times and he suggests cash or very short term Treasuries.
Walter’s work has also identified further risk to the Bond Market. The extremely aggressive Central Banks will have to yield at some point; at some time there will be no more FREE MONEY! Money will come at a cost and Bonds will return to higher interest rates. At that point, the gigantic, inflated Bond Bubble will burst. It will be Bad News for the Stock Market, great news for the US Dollar, but both Bonds and Equities will suffer badly. The additional risk at this point in the Market is the Bond Bubble, inflated by Quantitative Easing will not have a “Soft” landing, but have a “Hard” landing which will create another Financial Crisis; potentially spilling over into the general economy. Meanwhile, The Federal Reserve is attempting to walk a tightrope having to return to a real interest rate marketplace without the repercussions of bursting the Bond Bubble; a seemingly impossible task!
Mr Zimmermann’s technical Analysis also extends to the Commodity Market where he recognized the bottoming of the 15 year Cycle in 2001, creating profits for his clients. The 15 year cycle repeats the pattern again and again back beyond the Civil War. This consistent commodity Cycle should have bottomed in 2016, but the 16 year US Dollar cycle has not yet peaked causing a delay and distortion which may not reconcile until July of 2017. This overlap of cycles could cause Commodities such as Oil to spike to the downside one more time.
A favorite index of Walter’s is the Dow Jones Industrials divided by the Continuous Commodity Index. Charting this index reveals a potentially massive Head and Shoulders top suggesting not only that Commodities will outperform Equities, but also indicates turmoil. The market is rapidly approaching this Historic extreme of Paper Assets over Physical Assets, should the Head and Shoulders be confirmed, it will signal a significant decline in Paper Assets. To compound the issue, the peaking of the US Dollar due in July of 2017, could again force such real assets such as Oil to new marginal lows creating a major buying opportunity in Oil, Copper, Iron Ore, etc.
As I am a working Real Estate Broker in Scottsdale, Arizona, Walter and I discussed the 18 year Real Estate cycle which should not top until 2023/2024. We are both in agreement that the Real Estate cycle has bottomed and is heading up. However, a correction may be imminent; it should be a correction within an ongoing Bull Market and may also represent a buying opportunity. My thoughts are to re-allocate funds from the aging and peaking Stock and Bond market to conservative single family rentals in strong growth markets with consistent cash flow. As the cycles shift to favoring Real Assets and the basic building supplies that comprise homes start to rise in the new 7.5 year appreciating portion of the Commodity Cycle, this rise will also impact favorably the price of Real Estate.
In conclusion, Walter believes that one can no longer be a complacent Equity Bull or a complacent Commodity Bear. These are not Buy and Hold times, those days are long gone. Additionally, one must be on guard for another major leg up in the US Dollar which will cause very difficult times for the Stock and Bond markets. The ending of one cycle and the beginning of another can cause significant change. These, potentially, will be very challenging times that can last 2-3 years, but probably not beyond 2020. It is time to be conservative, it is time to be aware, it is time to be prepared!
Author: Michael Douville
Mr. Douville has been in the Real Estate Business since 1974, over 41 years. He started his career during the 1974 recession in the Southwest suburbs of Chicago, where he experienced an inflationary period followed by the crash.
In 1981, having experienced enough cold and snow, he and his wife of now almost 36 years moved to beautiful Scottsdale, Arizona. For the last 34 years, Mr. Douville has advised clients, coached Basketball at the YMCA and Boys and Girls Club, participated in innumerable Boy Scout outings, and played Golf three times.
From 1982 through the early 1990’s, the Douville’s executed their well-thought-out business plan to accumulate income producing single family homes; the strategy has now been published. Michael currently represents and consults with investors for Acquisition, Wealth Management, and Asset Preservation while overseeing a portfolio of investment properties.
Michael has traveled with his family extensively within Australia and New Zealand, has journeyed on numerous occasions to the South Pacific, Europe, Mexico, Canada and the Caribbean, and of course throughout the US.