Wednesday, February 29, 2012

U.S. Dollar set for takeoff

The U.S. Dollar is set to move higher. Depending upon whether or not THE top of the bear market rally that started in March 2009 has been seen, this move will either be moderate or explosive to the upside. If we are indeed topping now, which is a very real possibility, then the U.S. Dollar index should take out its 2009 high of 89.62 in short order, and the SPX its 2009 low of 667. Regardless of whether or not this is THE top of the bear market rally or whether we have one more move up coming after a pullback, the top is getting close and when it is put in, these parameters for both the U.S. Dollar and the SPX will apply.

Tuesday, February 21, 2012

DOW hits 13,000, Transports not confirming....and a financial freight train heading this way

The DOW crossed the all-important psychological barrier of 13,000 today. This is sure to get people even more bullish than they are now, which is already at euphoric levels. This juncture reminds me of mid-to late 2007, when the S&P 500 made a new all-time high, exceeding the peak of 2000 at 1553 by a mere  1.48 percent. Except this time, the market has not yet made a new all-time high and yet Bloomberg TV this afternoon features the headline "Hedge Fund managers gaga for Google." If that is not a contrarian indicator, I don't know what is. Meanwhile, we have a very important non-confirmation going on, and that is between the Dow Jones Industrial Average and the Dow Jones Transportation Average. Those familiar with Dow Theory understand that these non-confirmation, until and unless cured, are NOT  to be taken lightly, and coupled with sentiment at optimistic extremes, and waning upside momentum, the top of the entire rally from March 2009 looks to be getting close. Also of note, Ralph Nelson Elliott, in his original writings, noted in "R.N. Elliott's Masterworks", projected the top of the Grand Supercycle Bull Market in 2012. Well, here we are in 2012 with the market still at extreme historical levels. This would allow the market to make another new all-time high before finally starting the big crash. But people should not be counting on that happening. When this market tops and turns down its going to catch a lot of people off guard. There is a freight train coming towards the financial system and it will stop for nothing. It is Imperative that people get out of the way before the train comes into town. And the more Ben and company meddle  in the markets, the worse it is going to be. They have already thrown everything but the kitchen sink at the problem, and it has not solved ANYTHING. It has, however, helped to inflate these markets to unimaginable heights and the fallout from that will be MUCH worse than 2008. When this market tops out, it is going to get ugly fast. I am warning, Do not try to time the top, get out of dodge now and move to maximum safety. This means the safest possible cash equivalents in the safest possible institutions. This market is running on fumes and when the gas runs out its not going to be pretty.

Wednesday, February 15, 2012

A blowoff top in AAPL

Back in the late 1990's and early 2000's, when Steve Jobs, CEO of Apple, was brought back to the company after having been removed some years earlier, nobody believed in the company, and everybody knew why AAPL stock was not the thing to own. Of course in retrospect, it was a great buy. Well, now after Jobs turned the company around, everybody knows why AAPL IS the stock to own. As usual, the fundamentals are going to fool people into doing the wrong thing (buying Apple stock). AAPL has simply gone parabolic, and is in a fifth wave up from its 1997 low. As you can see, each rise (wave) slope has gotten steeper and steeper. This is not sustainable and AAPL is topping out on a long-term basis. Once the bear market in AAPL begins, as per the guidelines of  Elliott Wave Principle that state that support after a 5 wave advance lies at the 4th wave low,  my ultimate downside target for AAPL is AT LEAST the 2008 low at 78.20, and likely lower than that due to deflationary forces about to hit the markets. It is quite possible AAPL will do a "throwover" of the upper trendline of the wedge in a final burst up in a 5th wave of Primary wave 5, before reversing hard and heading back towards the fourth wave low.

Monday, February 13, 2012

Bear Market Rallies and B wave psychology

Bear Markets unfold in 3 waves. Most commonly labeled A-B-C. Whenever a supercycle is completed, a crash unfolds. This is the "A" wave of the bear market. It is usually a very sharp drop in a short amount of time (in this case, 17 months from October 2007-March 2009). Then, a B wave bear market rally unfolds, that serves to unwind the oscillators and relieve oversold conditions. This is often associated with a temporary recovery in economic activity. But perhaps the most important element here is the psychology of B wave bear market rallies. At the "A" wave low in March 2009, pessimism was dominant, with most thinking we were headed into deflation and  economic depression and thoughts about the end of the world. A bear market counter-trend rally then unfolds, called a "B" wave, and serves to correct the decline that just unfolded. By the time a B wave is over, most economists and financial professionals are convinced that the worst is over and good times are back. Then, the final, and most devastating, portion of a supercycle bear market unfolds, the "C wave" that drops significantly below the "A wave" low. I believe we are facing something similar to 1929-1932, and this time period can be compared to April of 1930, at the top of the "B wave" during that bear market. Economists have credited the FED with saving the economy, and most investors are convinced that we are in a new bull market. This is the nature of B waves. They fool everyone into thinking the worst is over. The goal of bear markets is to make the most number of people lose the most amount of money, Bull and Bear alike. I would say that has certainly been true of this bear market, as the bulls took it on the chin in 2008, and the bears have all but given up trying to short as the market has gone higher and higher since March 2009. However, even amidst this tremendous 100%+ rally we have seen, it is still just a wave B bear market rally, with wave C still to come. This deflationary wave should be MUCH worse than 2008. Historical precedent for this type of move can be found in the 1929-1932 bear market, shown below:


As can be seen, the B wave bear market rally retraced part of the initial decline from the 1929 top. The C wave then carried the market down to MUCH lower lows, and by the time the bear market was over the market had lost 89% of its value. I believe we are in for a similar decline, and my target remains the same of below 800 on the DOW.  The sentiment currently out there is certainly consistent with the top of a bear market rally, with some sentiment exceeding extremes seen at the all-time high in October 2007. Many who were calling it a bear market rally before have given up and turned bullish. The same thing happened by the top of the B wave in April 1930. The difference this time is that everything is bigger. The bubble is bigger, the upward retracement is bigger, and the lies are bigger. Ultimately, the decline should be bigger as well. This kind of environment is why it is important to NOT listen to the talking heads on CNBC and stay safe in the safest possible cash equivalents. The collapse of our debt-money system is dead ahead, and by the bottom the bear market nobody will even think about buying stocks, but of course that is the time when attractive valuations show up in the market and that is the time to buy. But its IMPERATIVE that people remain safe during this time. The C wave is out there, should be much worse than 2008, and likely worse in percentage terms than 1929-1932. This time everything has been magnified. The debt bubble is bigger, and the central planners have done even more to try to prop the system up. It will not work, and their efforts will only serve to make matters worse. I believe we are very close to the top of this B wave bear market rally. The C wave is next, and its NOT going to be pretty.

Thursday, February 9, 2012

Risk and Return way out of balance....

In modern Finance, one is supposed to be compensated for risk. The higher risk one takes, the higher return should be generated...this has been historically true, but certainly not today with one investment. That is the investment of loaning the bank your money. Interest Rates are near zero, and the risk of loaning the bank your money is IMMENSE. Interest rates would have to be much, much higher to justify the current level of risk in the system. One might say, "But I don't loan the bank my money, I deposit it." But that assumption is false. Whenever anyone makes a deposit at the bank, because of our debt-money system, it is a loan which the bank in turn leverages hundreds of times over and lends out, or, in recent history, gambling it and additional free money from the FED in derivatives markets. Despite what all the pundits and "financial gurus" say, the banks are NOT a safe place to keep your money, and the FDIC will NOT be able to handle the coming system-wide banking collapse.The FDIC can handle so many banks at once, but certainly not the whole system at once...and to that point the collapse of the global banking system should be quite swift. As the onset of the depression draws near, people need to act now. DO NOT listen to the Media, telling you this is a "recovery". It is not. It was a temporary respite from an ongoing depression, and a depression that is about to make itself known in a big way. As soon the the bear market rally in risk assets ends, the real collapse starts. That is why people have to take action  NOW. This does NOT MEAN keeping your money in Gold and Silver as "safe havens", they are risk assets as well and will be sold to generate cash to pay off the massive amount of debt worldwide. The Dollar will rally as the global banking system collapses. This means either opening a Swiss Bank Account for those with large sums of money, or, for most, opening up an account with and buying short-term t-bills only, as well as keeping physical greenback cash on hand. This is one of the last chances to preserve capital...time is running out fast.

A classic Breakdown and Backtest of trendline resistance

In Technical Analysis, whenever support is broken, it is usually backtested. With all the hype of a "new bull market", from a technical point of view the entire rally from 2009 has served its purpose: to backtest long-term resistance. The market broke cleanly below this trendline in 2008 and is simply backtesting it. Isn't it hard to believe? Talk of a "new normal", and "double dip, no double dip" is all very, very wrong. This is the wrong mindset. We are in a slowly developing depression, that has been developing since 2000. We have been edging towards the end of the cliff, and are about to fall off it. A breach of the March 2009 lows should be in short order, once we get the proper cyclical setup as identified by Tim Wood.

Now notice the same chart up close on a daily timeframe, and how close the DOW is to its long-term resistance line: