How to Interpret Consecutive Directional Changes

QUESTION: Martin – how should consecutive “Directional Change” indicators be interpreted?

Regards,

DR

ANSWER: Normally this type of pattern produces just a sideways churning back and forth. This is why in the Euro there has been nothing to write about. It is just a deflationary contraction. The dollar rose sharply between 1980 and 1985 also 1929-1932. Whatever the currency is during an economic decline will rise in purchasing power as people sell assets and need cash.

Flight-To-Quality

What we are facing on this cycle is highly unusual and it is why it has become so confusing. The traditional flight to quality is you run from PRIVATE assets into cash/government bonds (PUBLIC). However, what do you do when it is government that is collapsing? You will have no choice but to run to PRIVATE assets. This is why we are seeing real estate rise and equities.

The models have targeted 2014 for a reaction high in the Euro. That appears to be lining up with the EU elections and people are starting to become more violent. That is the distinction between pre-2014 protests and post.

We are expanding the Forecasting Arrays to include more models. This will include different types of volatility so you can see when to expect over-night moves versus intraday.