Monday, February 3, 2014

Real Dow Jones Industrial Average Elliott Wave Count

Upon opening up a newspaper, or logging on to Yahoo Finance, one will find a quote for the Major Indexes  (Dow Jones Industrial Average, S&P 500, and Nasdaq). However, what most people do not understand is that these measures are not true measures of stock prices. They are nominal values only, which means they are not adjusted for inflation, or, put another way, they are not adjusted for FED currency debasement. The most honest measure of stock prices out there, is the Dow Jones Industrial Average priced in Gold. Gold's history as money goes back thousands of years, and it's not going away any time soon. Indeed, the United States was using Gold as its official money for quite a long time before the Federal Reserve system was established. Had society continued to value stocks and other assets in terms of Gold, we would be seeing a very different picture in the newspaper today. Instead, because of the massive credit inflation scheme of the past 100 years, and especially since Nixon completed severed the U.S. Dollar's link to Gold in 1971, and more recenlty since 2000, when the true bull market in valuations ended, people collectively have been valuing assets in terms of inflated Dollars, distorting the true valuation of companies' balance sheets, and thus their stock prices. What would the stock market look like today if we had stayed on honest money? Please see below a chart of the Dow Jones Industrial Average priced in ounces of Gold, with Elliott Wave labeling:

Should this Elliott Wave count be correct, the next leg of the bear market in real terms is upon us. The "Bull Market" from 2002-2007, was actually just a bear market rally, and hardly a bounce in the real valuation of stock prices, and quantitative evidence supports the notion that 2009 marked the first leg down of the Grand Supercycle Bear Market that began in 2000. As such, the real value of stock prices, illustrated here by the Dow priced in ounces of gold, has had the largest rally since the high in 1999. This suggests a bottom of significance was made in 2009. However, it was not THE major bottom, but rather just a intermediate term low, separating the first leg of the bear market from the second. Historically, secular bear market bottoms have occurred with the Dow/Gold ratio between 1:1 and 2:1. Because this bear market is of Grand Supercycle degree, I would expect the first Supercycle low to occur with a Dow/Gold ratio below 1:1. This means, at the ultimate secular bear market bottom sometime this decade, an ounce of Gold should be worth more than the Dow Jones Industrial Average.

Quarterly RSI 5 respecting downtrend line

         This chart speaks for itself:

Friday, January 24, 2014

Market Update: March 2009 in Reverse

Back in March 2009, when markets worldwide were bottoming after the most severe bear market since the 1930's, we had some of the lowest sentiment readings on record. The DSI, daily sentiment index, which polls futures traders, printed a reading of only 2% bulls. Fear was dominant, and articles calling for Dow 5,000 were not hard to come by. Now, let's fast forward almost five years, to January 2014. The U.S. stock market is registering new all-time highs, and it feels like 1999 all over again. The question is some technicians minds is: Is this a new bull market, or just a continuation of the old one? From my standpoint, the answer is, neither. Although virtually nobody believes this anymore, I am still calling this a bear market rally. Many people are probably scratching their heads wondering how one can be calling an almost 60 month advance that brought the market to a new all-time high a bear market rally. The answer lies in a number important factors, but perhaps the most important distinction is the failure of the market to reach new highs in terms of purchasing power. Back in 1999, if one examined the Dow Jones Industrial Average, the most well known measure of stock prices, it was making new all-time highs in terms of just about every commodity. Now, however, these measures are failing to do so, even with commodities in a bear market.

Dow purchasing power in terms of Real Money (Gold):

                                 Dow purchasing power in terms of Oil:

Dow purchasing power in terms of Copper:

As is clearly evident from the charts above of the Dow Jones Industrial Average priced in various industrial commodities, the actual purchasing power of the stock market has been in a persistent downtrend since 1999. The only measure that has held up since 1999/2000 is the nominal Dow. Further, the only reason it has held up has been massive inflation, which has decimated the value of the U.S. Dollar, through a massive credit inflation scheme that has been going on since the inception of the Federal Reserve in 1913. However, it is my sincere belief that even in nominal terms, the stock market will experience a dramatic collapse, as the value of dollar-denominated credits, worldwide, trend lower. Please find below an updated chart of the Dow Jones Industrial Average in nominal terms. 

Although the upper trendline of the monthly broadening top on an arithmetic scale has been broken, the market is respecting the upper trendline on a logarithmic scale.Because logarithmic scale represents relative percentage movements, rather than on an absolute basis, longer term moves are best illustrated in this form.

Now examine the same chart close up to today's prices:

                                         Big Picture Elliott Wave Count:   

                                        Cycle wave b internal wave structure:

  If my long-term analysis is correct, cycle wave c down is next, and it's going to be accompanied by severe deflation across the board. It will truly be one for the record books.

Wednesday, December 4, 2013

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.