GDP Report May Drive a Sideways Market

A word on where this market could go this week: sideways. The Q3 GDP report is expected Thurs. Consensus is for around a 3% rise, the first rise since the Greater Recession started in Q407. Christina Romer of the President’s Council of Economic Advisors discussed how the Stimulus pushed up GDP in Q2 by 2-3% and should push Q3 up by 3-4% and into positive territory. I have previously shown an alternative analysis that the impact was less than this, but no matter; that analysis and her comments both come to the same conclusion: we are at Peak Stimulus right now, and the impact will be smaller going forward, down to negligible by next summer and a drag by end of next year.

Given peak stimulus right now, the key is whether the private sector is showing signs of life beyond government life support. This report should give some insight into that. Hence the market may stay in a spiky range through the report, and then bifurcate, meaning pick the direction for the next few months.

The wave structure is complex. It has broken as a double zigzag since the July bottom, and now may be breaking into a third corrective period, an ending triangle. When a complex correction goes into its third corrective structure, it often ends in a sideways move in the form of a triangle. While triangles are called the penultimate wave, typically in the second to last position (waves 4 or B), they also tend to be the last wave in a complex correction. I suppose this could also be termed an ending diagonal or a Neely terminal; if it emerges it suggests the corrective wave is over and we bifurcate down.

This chart from Prechter’s wave tutorial is illustrative (you may have to be a Club EWI member to see the tutorial).

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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