Long-Term stock market pattern, oscillator divergences point to immense market risk

I have illustrated here before the long-term broadening top chart pattern that appears to be taking shape in the Dow Jones Industrial Average. On Friday, November 29, 2013, the index hit the upper trendline connecting the 2000 and 2007 highs, briefly spiked over it, and then reversed back below it. This, along with long term oscillator divergences in the market, are warning of a major market top. One must understand, however, that divergences by themselves do not guarantee the timing of a market top. At times, markets will stay persistently in a trend, even with divergences. These divergences often grow as the trend matures, but price eventually gives way and the trend reverses. That being said, there is immense market risk here and it is time to get safe. Additionally, we have a potentially completed double-zigzag correction up from the March 2009 low, as well as a very small degree five wave impulse down from the top, suggesting a trend change to the downside.This does not by any means guarantee a long term market top is in place. But, if one is in place, it would start with a small five wave impulse down such as the market has just traced out. Again, if anyone is having trouble understanding what financial safety means, please do not hesitate to e-mail me.

 

 

Divergences between risk assets warn of impending deflationary collapse

We are seeing large divergences between risk assets that have all been moving together since the March 2009 low. When the stock market bottomed in March 2009, commodities and other foreign markets bottomed at the same time. Since then, we have seen a tremendous reflation in all of these asset prices. But, since May 2011, we have seen a divergence between commodities and stocks, that only continues to grow as the stock market makes new highs while commodities do not. Back in the 1970's, during the inflationary secular bear market, all one had to do was own precious metals or commodities as a hedge against stagflation (high inflation and slow growth economy). Those who think the same is true now are mistaken. Stocks and commodities are both moving together as a function of liquidity in a deflationary secular bear market. The failure of commodities to move above their May 2011 highs while stocks continue higher, and the now over 2-year old gold and silver bear markets, are warning that all is not well and this liquidity-induced reflation is on its last legs.

 One by one, these risk assets are collapsing under the pressure of too much leverage. Stocks are the last holdout, and when they top out, with margin debt currently at all-time highs, the financial house of cards is set to implode on itself in a VERY swift manner. Once the proper setup is confirmed, the secular bear market will resume and things will get ugly. Stay tuned to my interviews at Cycles News and Views, which are posted on this blog, for the latest on markets. Meanwhile, the divergences are growing by the day and continue to get worse as this overextended move from March 2009 continues to pull more and more into the trap. I am warning, get out of all risk assets and move to cash before it's too late. Again, if anyone is unsure of what to do, please e-mail me. This is no time to be lackadaisical and complacent, but that is exactly what many are doing. They think Janet Yellen will keep markets afloat forever with QE and other central bank magic. This is a result of linear thinking that is a natural human tendency. Despite what many believe, QE will not continue forever and nor will this bear market rally. And, I believe we are getting very close to a very significant top in the market. We are going to get AT LEAST a sharp correction in the market. The market may attempt one more new high after this upcoming downtrend, but I would not count on it. The key will be whether the market impulses down in 5 waves, or moves lower in a corrective fashion. If we get a clear 5 wave impulse lower, the bear market rally is over. If the move down is corrective in nature and then moves above the previous high, the market will continue to uptrend into the final top of this bear market rally.

A little reminder about how our wonderful banking system works

What a Scam!

November 1, 2013 Interview with Tim Wood and Elliott Prechter

In this Friday, November 1, 2013 interview we have the honor of speaking with a new guest, Elliott Prechter. Elliott is the son of Robert Prechter, CEO of Elliott Wave International. Elliott also works for EWI and provides some excellent insight in this interview.

Click Here to Listen

Boston Red Sox win 2013 World Series: Bad Omen for Stocks?

On the evening of Wednesday, October 30, 2013, the Boston Red Sox beat the St. Louis Cardinals 6-1 in their first home game world series championship win since 1918. The other two times the Red Sox have won the World Series since 1918, 2004 and 2007, they were traveling and didn't get to enjoy the win at their own Fenway Park. Now in 2013, they have even more to celebrate than the prior two instances they won the World Series Championship. While Fenway Park is celebrating, could this win be a sign of a major impending top in the stock market?


Please click here for an article on the big win by the Boston Red Sox


The Socionomics Institute, the sister company of Elliott Wave International, found that baseball is a "bull market sport". They found that baseball ticket sales, and thus it's popularity, rise during times when the stock market, are rising, and fall at times when the stock market is falling. From a contrarian standpoint, we know that market tops are always met with good news; be it more central bank intervention, the "stabilization" of the European Banking System through bank recapitalizations, or any other piece of news that would be viewed by most as positive. Well, here in the Fall of 2013, we have historical good news on a bull market sport. It would appear that this is just one of many contrary indicators that the stock market may be at or near a very significant top. Time will tell, but from an Elliott Wave perspective, with the market having met the minimum requirements for the end of a double zigzag upward correction from the 2009 low, this historic win by the Boston Red Sox may very well have marked top tick for the bear market rally that began in March 2009.

October 25, 2013 Interview with Tim Wood and Bill Still

In this interview, we had the privilege of having a very special guest, Bill Still. I have posted on this blog before about Bill. Mr. Still is an writer, director and monetary reformist. He understands the fundamental problem with the system: the fact that all of our money is based on an interest-bearing debt. Until we as a nation realize this essential fact, and get down to the roots of the problem, nothing will change. There is a revolution coming to this country, and around the world, when we all finally wake up to this scam that has plagued the world monetary system for 100 years. It is my pleasure to welcome Bill Still.

            Click Here to Listen

Market Update

Minor wave 4 has played out as expected, as an expanded flat. However, what has transpired is a variation of an expanded flat called a running flat (see Elliott Wave Principle, p.48). Now, what happens next is key. We have a Dow Theory non-confirmation in place, where the Dow Transports have made a new high, and the Industrials have not confirmed. This sets the market up to trigger a Dow Theory Bearish Primary Trend Change, if we get a move of both averages below the previous secondary low point. Although the last secondary low points are up for debate. A close below the June 2013 lows in the Industrials and the Transports should seal the deal on a Dow Theory bearish primary trend change. The corresponding levels to watch, on a closing basis, are 14,659.56 on the Industrials, and 5,990.79 on the Transports. It will then be the move up out of the next secondary low point, that will either re-confirm the current non-confirmation, or negate it. A close on the Industrials above 15,676.94 will negate the current Dow Theory non-confirmation.

Dow Jones Transportation Average:

Dow Jones Industrial Average:

Now, from an Elliott Wave perspective, should the current non-confirmation hold, meaning the Industrials do not move above 15,676.94 on a closing basis, it could be indicative of a fifth wave truncation (failure), where the fifth wave fails to move above the high of the third wave. Now, this is where it gets a bit tricky. The intraday high of minor wave 3 is 15,542.40, but the closing high is 15,409.39. On Tuesday, October 22, 2013, the Industrials closed at 15,467.66, above the May 22, 2013 minor wave 3 high at 15,409.39. R.N. Elliott used closing prices, so on a closing basis, using this wave count, minor wave 5 has moved above the high of minor wave 3. On an intraday basis, however, it has failed to do so.

There is also another potential alternate count I am considering which suggests the August 28, 2013 low of 14,760.41 marked the end of minor wave 4, and the move to 15,709.58 on September 18, 2013 marked the high of minor wave 5, intermediate wave (C), primary wave Y, cycle wave b, and thus the bear market rally itself. Please see illustration below:

Due to the new high on the S&P 500, I favor the below count. The only aspect of this count that is less than ideal is the fact that a running flat is normally indicative of underlying strength in the larger trend, and thus would not favor a fifth wave truncation. But, nothing is written in stone that says the fifth wave has to truncate, or that it can't. We just have to let the market show it's hand and show us which one of these counts is correct, if either of them. Remember, Elliott Wave Analysis is all about probabilities, not certainties.



                          

In summary. This bear market rally that started in March 2009 is getting very aged and thus extreme caution is warranted for the violent reversal and the start of cycle wave c down, the most destructive leg of the bear market to date, and the final decline in this supercycle wave (a) bear market.