May 3, 2013 Interview with Tim Wood

Another discussion between myself and Tim Wood regarding the extreme bullish sentiment in the markets, as well as a dire warning to investors. We are in a secular bear market bigger than any in U.S. Stock Market History. The worst is NOT over, and once we get the proper setup in place, the entire house of cards will come collapsing down. We hope you are listening.

The Interview can be found by clicking here

The True Bull Market Top

With the new all-time highs in the Dow and S&P, most are either calling this a new bull market or, by contrast, some analysts who are very bearish are calling this the end of the old bull market that still has not completed. I had originally thought the Bull Market actually ended in 2007, with the peak in the Housing and Commodity Bubbles. However, given the new all-time highs in equity indices, and the clear 5 waves down at Intermediate degree from October 2007- March 2009, I have really begun to rethink the phasing of this bear market. When one steps back and reviews the history of the past 13-years since March 2000 the Real Bull Market top, there is a potential pattern developing within this Grand Supercycle Bear Market. To review: In the first quarter of 2000, when the NASDAQ bubble burst and the technology indexes fell 78%, a low was created in October 2002. From that point, even after the greatest credit inflation in the history of man, society went through yet another credit bubble, this time concentrated in Housing, that kept nominal stock prices at inflated levels until October 2007, after which point the whole house of cards began to collapse, resulting in a 54% stock market decline and the greatest contraction in the overall supply of money and credit since the great depression. When the market bottomed in March 2009, at first it seemed like a bear market rally to most, but as the market has pressed higher, it has convinced more and more people that the rally is for real, that his is a new bull market, or, to the few perma-bears out there, that the old bull market never really ended. Looking at the wave structure, we may have uncovered a potential fractal pattern playing out for the entirety of Grand Supercycle wave IV. That is, an expanded flat fractal. Expanded
flat's within expanded flats. Please see my chart below. This would suggest that rather than the approximate 100-year bear market unfolding as a triangle, it would unfold as a series of expanded flats. First, from 2000-2009 at Primary Degree. Then from 2009 until whenever this b-wave rally finally concludes at Cycle degree, and then, after cycle wave c concludes, it would suggest yet another flat or expanded flat for supercycle wave (b). A supercycle wave (c) crash, sometime later in the century, would then finally end the bear market. At this stage, this is purely a hypothetical scenario. For now, we are focusing on an end to cycle wave b, and the beginning of cycle wave c. Let me make one thing clear. This rally from 2009 is a liquidity based rally based on inflation of the money supply through government borrowing. It is a phony, bear market rally that will be completely unwound and reversed once we get the proper setup in place. It will then be the extent and wave structure of the ensuing wave down that should give us clues as to the long-run prognosis. My first target is the lower trend-line connecting the 2002 and 2009 lows, perhaps for Primary wave 1 down. In the 2007-2009 decline , the market traced out 5 waves down of Intermediate Degree. This time, If my wave count is correct, the market will trace 5 waves down of Primary Degree. This next leg down is going to be bigger, swifter, and much more devastating than any leg down since the bear market began in 2000. This market is running on fumes and the fallout will NOT be pretty. The only safe place to store one's wealth will likely be physical, cash notes. Now is the time to prepare, not when the crisis hits. I am warning, when the market tops it's going to get real ugly, real fast. Now is the time to prepare.

Potential Bear Market Scenario

Below I show a potential bear market scenario. We have a potential Expanded Flat Fractal playing out. With time and price relationships suggesting the majority, if not all, of the price gains for this bear market rally that started in March 2009 behind us, things could get very ugly, very fast. My bear market low target is based on the fact that every investment mania in history has ended below it's starting point. With this investment mania being bigger and more complex than any in the history of man, driven by financial pyramid schemes and instruments not even fathomable to most just 30 years ago, and now unprecedented effort by world central banks to keep nominal prices masking the truth, the ultimate resolution is going to be a sight to behold.

A Potential Symmetric Rally

March 28, 2013
12:13 P.M. EDT

This market has the potential to top in a manner symmetric in price to the last decline from 2000-2002 and rally from 2002-2007. Assuming the bear market started in 2000 (more on this potential new development in another post), the rally from March 2009 would top at 14,589.26 on the Dow Jones Industrial Average if the rally retraced 1.538 times the previous decline. However, because we are assuming the bear market started in 2000, we are taking the top from the orthodox top in 2000 rather than 2007.  The first expanded flat Primary wave B extended approximately 1.538 times the length of Primary wave A down from 2000-2002. Applying this relationship again in cycle degree (taking the move from the orthodox top at 11,750.28 to the cycle wave a bottom at 6469.95) now would give us a nominal DOW target  of 14,589.26. The reason I decided to post this is because the high as I am writing is 14,585.10. If in fact this relationship were to play out again, the entire rally from 2009 would top right now. I am by no means certain of this relationship, but given the fact that the market has basically met this relationship today, March 28, 2013, I thought I would present this possibility.

Update April 2, 2013 1:18 P.M. EDT:

Applying this same relationship to the S&P 500 Cash index, we arrive at a level of 1579.10. Although we have exceeded the ideal level on the Dow Jones Industrial Average, we will give it a bit of room as we await this uptrend from November 2012 to top. The S&P Cash index is currently trading at 1572.

A Terminal Rally

We have a clear 5 waves up from the November 2012 low.  Therefore, the market is setting up for at least a correction, if not a resumption of the larger bear market. The ending diagonal pattern previously posted has been negated due to the fact that the third wave as labeled was the shortest, which is a rule breaker in Elliott Wave terms. The Elliott Wave count is a bit muddled here, but anyway you look at it, we have corrective waves up from the 2009 low, which imply, even after new-all time highs have been achieved, this is still one large bear market rally, which, when complete, will lead to a decline below the March 2009 lows in a 4-year cycle low. That being said, the divergences currently present are less than ideal for a 4-year cycle top. The rally from November has been quite strong and has managed to trigger a Dow Theory Bullish Primary Trend Change, which, after the previous bearish primary trend change had been in place for 5 months, is quite significant. However, as we saw in the Summer and Fall of 2011, not all Dow Theory Trend Changes are equal. When everybody and their brother were calling for a bear market, we had not gotten the cyclical setup we needed to cap this rally. Tim Wood was literally the only analyst I knew of that specifically called for a move above the May 2011 highs. We must look at the statistics, Elliott Wave picture, and momentum data to determine if a longer term top is likely. Once we get the proper setup in place, and a completed Elliott Wave structure, this market will be set to resume the larger bear market. Although the Elliott Wave picture is unclear on an intermediate-term basis, I believe I may have uncovered the reason why this Grand Supercycle top is taking so long. More on this in a subsequent post. For now, our focus is on this rally from November 2012, which is in its final stages. Additionally, one can clearly see a rising wedge form the February low. This is indicative of a terminal move. Therefore, a top is just around the corner and we will have to examine the nature and extent of this coming move down. If it is corrective, that would suggest a move to new highs after a period of retracement from near these levels. If the move is 5 waves, impulsive, it would suggest a completed uptrend off the 2009 lows and a resumption of the larger bear market.

 

Divergences everywhere, Elliott Wave Pattern, and record complacency and bullishness portend swift decline

With the textbook throw-over after an ending diagonal pattern having completed, record bullishness,  the patterns in the U.S. Dollar, Commodities, and precious metals, the situation could not be more dangerous and deflationary.

First, the U.S. Dollar. The U.S. Dollar index bottomed in March 2008 at 70.70, and, even with all the central bank inflation,  has not  even taken out that low. And, the Dollar index now has in place a massive divergence with equities since the Spring of 2011.

 

Next, Commodities topped in the Spring of 2011 commensurate with the bottom in the U.S. Dollar, and have been diverging with equities ever since.

All of these divergences are big warning signals, which, when combined with record bullish sentiment, a VIX that looks ready to explode to the upside (has already begun), and the longer-term phasing in equities with a cycle wave b wave labeling, portend a massive deflationary move in a cycle wave c down to complete supercycle wave (a) down of the Grand Supercycle Bear Market.

Further, I want to address one more thing. Many people say that there is a big decline coming, but it will be in real terms only,and won't be in terms of "worthless U.S. Dollars" becasuse "Helicopter Ben" will just keep printing money. It's not that simple. The FED is NOT "printing money". They are adding reserves to the banking system, and it takes a willing populace to  borrow and spend those Dollars (velocity) and willing investors to take the money and speculate with it. With speculation at unheard of levels already, and with social mood about to reverse dramatically from a decade-plus long topping process, the outcome should be a stock market decline of greater than 90% in nominal terms. For more on this discussion, please listen to the interview I conducted with two other gentleman on Friday, February 15, 2013, which can be found in my post below.

Frank DeBaere

I would like to introduce Frank DeBaere. Mr. DeBaere is a resident of Belgium and an extremely intelligent individual. In our interview conducted between Frank, Tim Wood and Myself on February 15, 2013, we discuss the highly fragile nature of the global banking system. Specifically, Frank gives us a first-hand perspective on the european banking system that is as much of a Ponzi Scheme and house of cards as the rest of the global financial system. Stay tuned for more highly informative and thought-provoking interviews.

Click Here to Listen to Frank DeBaere, Tim Wood, and myself discuss the state of the markets