Customer Reviews

The Fourth Mega-Market, Now Through 2011

5 star:		(7)
4 star:		(6)
3 star:		(0)
2 star:		(2)
1 star:		(9)

 

 

Technicians are those who look at a stock's history of prices and volumes to estimate what will happen to price in the future. Mr. Acampora is the chief technical analyst at Prudential Securities, and extends beyond the normal limits of technical analysis to predict the future for the current bull market.

Using analogies to three earlier markets, he argues that the peak of the market should probably be above 20,000 on the Dow Jones Industrial Average and that peak should occur between now and 2011. Notice that at current levels, this could be as little as 6-7 percent annual compound gains.

He argues that the current market is being driven by a combination of peace, low interest rates, low inflation, and technological innovation. He points to 1877-1891 (the age of railroads and industrial expansion), 1921-1929 (the age of cars and radio), and 1949-1966 (the age of television, computers, and copiers) as similar periods.

A critical part of his argument is that the current bull market started in 1994 (rather than 1982, as many would argue). His argument is based on the cold war not ending until the late 1980s. If the bull market actually stared in 1982, then we have little additional gain to expect.

A weakness in his argument is that the advance-decline line should be strong now, but it has been fading for a long time. Another weakness is in insisting that stock prices are not high now. The average p/e is enormous compared to earlier markets (his counterarguments is that most stocks are trading at 12 times earnings).

You can read the counterarguments to his thesis (and his responses) in chapter 9.

Many Wall Street professionals will tell you that technical analysis is about as good as going to your local palm reader. People who believe in an efficient market think that technical analysis is a waste of time. On the other hand, Mr. Acampora has been right more often than not in the last 10 years in forecasting the bull market. You should decide for yourself. Many top professionals now use fundamental and technical analysis (but, of course, most of them fail to beat the market averages).

If you don't know anything about technical analysis, you will find a brief, simple explanation in chapter 2.

One of the most interesting parts of the book is a comparison of the characteristics of the overall market since 1994 to the three earlier markets. The sizes of the drops in the market are similar, but the speed of the drops is much faster now. On the other hand, the speed of the drops is similar to the 1920s. I couldn't help but wonder if the end of the current bull market may also be like 1929. Certainly, the drop in Internet stocks has been similar.

I came away unconvinced by the argument here. I just don't think that the future repeats the past that closely. Here are some examples of things that are different now: the rate of technological change and impact is much faster and broader; inflation is low in the U.S. but not in many other places; the dollar could easily fall if foreigners decide to stop propping it up by buying U.S. securities to recycle the trade deficit; and there are many shortages (such as of trained engineers) that could greatly increase the rate of inflation.

Nevertheless, I thought that the book was worth 4 stars just for making these data available about comparable markets so that we can each think about them, and draw our own conclusions.

After you have read and evaluated this book, I suggest you think about other places where history has not proven to be a very good predictor . . . and where it has. Then consider whether the stock market is likely to be more like the former . . . or the latter. Good luck with your investments in any event!

I read a lot of investment material and this is the first time I have heard of the concept of a "mega-market". Mr. Acampora provides interesting comparisons to prior mega-markets with very brief lessons in technical analysis. He has made a boring subject interesting and uses a lot of personal examples. I think it takes guts to go out on a limb to highlight a phenomenon and to have in print that you predict that this bull market will run through 2011. This is even more corageous considering he finished this book during the present market turmoil. I don't find this to be vanity but more of a desire to share his knowledge with others. You are not going to learn all the details of technical analysis, but reading his book gave me the confidence to contiue investing in this bear market.

I thoroughly enjoyed this book. It was written in layman's terms and I walked away with SOMETHING TO KNOW--todays bull market is very similar to at least 3 previous post-war periods and is likely to continue. SOMETHING TO BELIEVE--the future has never looked better and if technical analysis is used properly to identify risk and opportunity I will continue to enjoy this bull market for years to come. SOMETHING TO DO--its time to review all of my portfolios to be sure that my stocks based on Ralph's thesis are 4th Mega Market compliant. He predicted Dow 7000, Dow 10,000 and now a sustained run through 2011, let the good times roll. Thanks Ralph.

Peace is bullish. The 1980s were characterized by double digit inflation. Inflation is a stock price killer. Inflation cost individuals thousands of jobs. The prime rate reached 21.5%, at the same time US bonds became a terrific investment, the dollar climbed, consumer spending increased, LBO increased as opportunist bought undervalued companies with small cash and heavy financing. By 1987 the DOW hit 2,700, a 300% increase in five years then Iran bombed an Iraqi oil tanker and the DOW fell 508 points, 23%, in one day. A stealth bear market had emerged with 70% of the stock issues losing 20% of their value. However, the 50 day moving average had moved above the 200 day moving average, a buy signal; interest rates were coming down; by 1995, the DOW was experiencing a 900 point breakaway lead by IBM; technology was ushered in combating inefficient practices; Bull signals were strong: 96-DOW 5,778, 97-DOW 8020, 98-DOW 7539 (Transportation remained flat), 00-DOW 11,722 (Dot com); Ten bull rallies were very profitable yielding 24.5% gains on the average of 4 ½ months with the worst sell off in 98 with a lose of -20.8%. GE looked good. GE had adapted and turned their focus too new technologies maintain a three prong domain focus of appliances, heavy industry, and finance. Jack Welch cut costs eliminating one hundred GE businesses cutting out coal mining, oil refining, and housewares; cut 40 of the workforce; changed the domain focus to advanced medical devices, improved productivity, and new technologies that benefited the consumer and increased profit margins. 1995, a Bank Bailout by the IMF saved the economy. Mexico had a huge trade deficit and as the deficit balloon so did the borrowing. The over extension of credit devalued the Mexican currency; as the Mexican currency devalued money moved out of the country; the Mexican bond market nearly collapsed and credit vaporized and loan defaults escalated; the IMF infused $35 billion in loans to save the failing Mexican economy.

A bull market needs peace. The results of a peace dividend are decreased spending. However, today, the war on terrorism has increased government spending and enlarged the national debt. The peace dividend reduces government debt. Today, war has moved the national surplus into a national debt. Military spending is predict to increase funding paychecks for 450,000 military personnel, 136 military installations in NATO countries, investments into new weapon technology, and rebuilding of decimated countries, after military conflicts. The peace dividend expands global trade and allows manifests itself in efficient free trade markets that operate on principles of supply and demand. Today, the WTO espouses free trade but interferes in the operations of trade through regulation that artificially create demand. The WTO weakness is its belief that it is smarter than the free market. The peace dividend lead too the fall of communism as military industrial competition, dollar hegemony, and economic pressures forced communism out of business. Today, American jobs are being outsourced to foreign countries, a bet that the dollar will demise. The net affect of job redistribution has been a rise of capitalism in China, Japan, S Korea, South East Asia, and India. Peace dividend encourages employees to work beyond retirement leaving 401k investment untampered. Welfare programs are expensive: Social security unreliability and Medicare insufficient funding and coverage threaten the old, as rising medical costs hamper need medicine and treatment.

Trade axioms are as follows: 1. War is inflationary 2. Peace is deflationary 3. War is unproductive 4. Peace is productive 5. War is a time of fear and despair 6. Peace is a time of hope and prosperity. Investors fear losses but gain confidence when profits start to flow and eventual succumb to greed. Skittish buyers come back into the game buying conservative stocks: solid earnings and secure dividends. Bears become complacent, experience concern, and capitulate. Your fortune is measured by how well your stock price has fared. Phase I-the stock price is pronounced neutral, phase II-price is in an upward trend, phase III-price reverts from strong upward bias towards neutral price range swings, and phase IV-price breaks down. A/D technical indicators tell the investor when the majority of the stocks fail to confirm the strength of the leading blue chip stocks, market leadership is said to be too narrow. The author does admit that A/D can not predict a sudden change in the price and further reinforces that after a peak sudden price drops will happen.

The fourth Mega trend started in 1994 based on the A/D line and the 50/200 moving average. PE ratios are low. Over 1,100 large cap companies had PE ratios less than 20. If you take technology stocks out of the entire group the PE ratio falls to 12.1, a number below the mean of 15/17. The 4th Mega Trend experienced 24% growth over 4 ½ months, the 3rd Mega Trend experienced 38.6% growth over 16 months, the 2nd Mega Trend experienced 18% growth over 3 ½ months, and the 1st Mega trend experience 40% growth over 16 moths. Between July 1998 and Sep 1998, the DOW dropped -20.8%
Prediction 1, the DOW will hit 13,725.60 by 2009, Prediction 2, the Dow will hit 21,545.58 by 2003 (oops), and Prediction 3, the Dow will hit 22,354.67 by 2011. 2006 is expected to be a bad year for the DOW. The author must be betting on rising Oil profits and new technology too support the bull and new militarism will produce peace and the expanding production/taxes will support the interest payments on national debt.

Ralph Acampora is an outstanding technical analysis for Prudential Securities. He is probably most famous for his 1995 forecast that the Dow Jones Industrial Average (DJIA) would hit 7,000 within a few years. Back then the DJIA was in the low 4,000 range and this was a bold forecast at a time when many considered the stock market overvalued. Acampora nailed both the target and the timeframe.

Unfortunately, anybody in the public eye as much as a stock market prognositcator is bound to be wrong many times, and sometimes at important junctures. Acampora was negative on the stock market at the key bottom early in October 1998 (though to be fair, he was presciently bearish 2 months earlier when stocks had been soaring). Although he reversed course and was bullish during the bubble era, he did miss the bottom and some of the "lift-off" rally. And judging by the book, it appears his Big Picture view was wrong in 2000, though whether or not he moved to the sidelines in his daily Prudential commentaries during 2000-2002 is something I am not privvy to.

Of course, Acampora's book predicts that the DJIA could hit 20,000 by 2011. At the time of publication, this was a seemingly big number but one which only implied about 7% compounded returns. Five years later, at about the same DJIA level, we are now looking at a more attractive 12% annual return IF we can hit Mr. Acampora's stock target (actually, 14% if we use the specific 22,000 DJIA level he foresees). It remains to be seen if that can happen.

The book itself is easily readable for anybody who is not fluent in stock market terminology. Acampora is at his best when he talks about past mega-bull markets and discusses the key individuals, stocks, and sectors that made up those eras. His discussions of the bull markets of the 1920's and 1960's are very informative and give you a flavor for the similarities and differences to today.

Focusing on certain stocks at certain times -- railroads, steel and oil in the late 1800's; RCA in the 1920's; IBM and LTV and Xerox in the 1960's -- Acampora gives you a good overview of the characters of previous bull markets. By focusing on the length and extent of previous bull markets, as well as what type of sectors outperformed and by how much, Acampora is able to come up with similar projections for today. Of course, the fact that technology and related sectors had already made percentage gains similar to or exceeding previous sectors that led earlier bull markets might account for the fact that the book was published more or less at the top of the 2000 bull market.

Acampora defines a mega-market as one which lasts at least 8 and up to 17 years, with a move of 300-500%. Since he used 1994 as his starting point, it's understandable why he thought the overall stock market and DJIA had both some point upside as well as time left when the book was published. I would note, however, that as a long-term cycle observer Acampora must certainly be aware that there have been past periods -- approximating 15-20 years (1929-1954, 1966-1982) -- when the stock market was essentially flat.

If the DJIA is destined to "burn off" excess valuations in sympathy with the U.S. correcting domestic imbalances, then it's quite possible that we are one-third of the way through a period where the major indices make little progress, even though some sectors prosper. Needless to say, most investors don't want to think that the market might have another 10 years of treading water before we can see the kinds of moves we saw in the 1980's and 1990's.

I think the best thing about Acampora's book is that it will give you a sense of how long market moves can last and how much money you can make in a REASONABLE amount of time. Anybody who makes 3,200% in the S&P Computer sector during the 1949-66 bull market, or who makes 1,800% in Technology stocks during the 1994-2000 run, doesn't want to lose it all or a good portion of the gains in the ensuing bear market. Investors have to understand that they need to "take some off the table" and reduce exposure.

In the parlance of Wall Street, "Bulls make money, Bears make money, but Pigs get slaughtered." If nothing else, Acampora's book will enable you to make some money as a bull or a bear, and avoid becoming a broken piggy.

I'm considering buying this as a reminder of how wrong professionals like Ralph can be.

Some of the other reviews here are funny. "I think it takes guts ....to have in print that you predict that this bull market will run through 2011."

"Best known for his correct 1995 prediction that within three years the market would hit 7000"

If he'd predicted it would hit 7000 again in 2009 I'd really be impressed.

This book is a wonderful foundation for basic technical analysis. Students of the subject should have this book in their library. Ralph Acampora covers it all. I've already signed up for his next class.

Acampora writes a thoughtful and very interesting analysis of the footprints of historic "mega-markets." The idea of correlating prolonged periods of peace and prosperity to usually prolonged periods of surging stock prices is facinating. I also was intriqued by his analysis of life changing advances which seem to accompany these kinds of markets(i.e. advent of railways, automobiles, and now information technology...very good reading

After reading this book I can say that Ralph has shown me, an average guy, the inner workings of the market, and how history repeats itself. I would recommend this book to anyone and everyone who wants a knowledge of basic technical analysis.

Unlike several current books about the stock market that I've read, Mr. Acampora chooses not to make incredible Dow predictions but rather presents an excellent historical and technical argument for investor optimism. He explains the social and technology backdrop of prior robust market eras and shows the reader why everything is in place for a grand future. Bear markets and the periodic deflation of speculation are a natural occurence in the course of a bull mega-market. If anything, this book will build your confidence as a long term investor and support a committment to stay in the market during the current severe stock correction. Mr. Acampora addresses the current market and puts it in a historical context and that I found very informative. The book is very well written and I have no doubt this is due to the collaboration with Michael D'Antonio who put his Pulitzer Prize winning writing skills to work here. You don't have to learn much technical analysis to enjoy this book. Mr. Acampora makes a solid and easily understood case for it but, in my mind, his inate integrity, sense of history, and long experience find an intuitive expression through that venue. At first I was going to rate this book a 4 but after some thought upgraded to a 5 because the book's understated style truely provides a thoughtful and informative experience that will benefit the investor. Highly recommended.