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.

Tim Wood Interviews John Grant 10/18/2013

Click Here to Listen

An Elliott Wave Projection and Warning

In a previous post I updated my preferred Elliott Wave count for the Dow Jones Industrial Average. Below please find an Elliott Wave Projection I have made. Upon completing this expanded flat correction for minor wave 4, we should move up one more time in minor wave 5, to complete intermediate wave (C), primary wave Y, and cycle wave b. Cycle wave c down will then ensue, and it is going to be a sight to behold. I am warning, when this market tops it's going to be a VIOLENT reversal. When cycle wave c down gains momentum, it is going to be absolute financial hell. I hope you are listening, and act now to get safe before it's too late. Please do not hesitate to contact me if you are unsure of what to do.

Japan is Back!

On Wednesday, September 25, 2013, Japanese Prime Minister Shinzo Abe, known for the unprecedented buying of Japanese government bonds by the Bank of Japan (BOJ), rang the closing bell of the New York Stock Exchange (NYSE), with a banner behind him that read "JAPAN is BACK. Invest in JAPAN. This comes after a historic rally in the Nikkei 225 stock index since the October 28, 2008 low of 6,994.90. One didn't see this type of sentiment in association with the low in the Nikkei 225 in October 2008. It was a time of fear and panic. Now everybody knows why the BOJ will be able to hold up the Japanese Economy. This is how markets work. They give everybody all the right reasons to do the wrong thing at each major turn. In my view, this appearance by Japanese Prime Minister Abe is a perfect contrary indicator, and exactly what one should expect to see at the top of a bear market rally. The index topped in its counter-trend rally on May 23, 2013 and this appearance of the Japanese Prime Minister with his optimistic outlook is associated with a lower high in the index, as is the entire rally itself off of the October 2008 low. The Nikkei 225 should continue on to move well below the October 2008 low in its now 24-year bear market.

                                        

Ray Dalio explains how the economic machine works

In this simple, easy to understand illustration by hedge fund manager Ray Dalio, the economic and debt cycles are explained in layman's terms, so that even those just beginning to learn economics can understand how the economy works in a nutshell. One especially important distinction Mr. Dalio makes is the difference between money and credit, and how most of our "money" is actually credit (debt), even though it is referred to as money, as if it were currency. This is a point I have been hammering over and over, and well illustrated by Ray Dalio. Enjoy.

September 20, 2013 Interview with Tim Wood

In this Friday, September 20, 2013 interview we
discuss markets, manipulation, and  the coming deflation.


                                                       Click Here To Listen

Possible 2011 Fractal

We have a possible fractal pattern occurring in the stock market. 2011 saw a top in February, 3 waves down into March, 3 waves up into May, and then a five-wave impulse down to complete the expanded flat correction. We have may the same thing occurring this year, from May to whenever this move down completes. This is only a possibility, and could very well fit into a larger corrective count from 2009. At the bottom of this post I also show a possible Elliott Wave Count from the March 2009 lows, which would be a double zigzag, labeled W-X-Y, with wave X in 2011 being an expanded flat as I show below. This would be a better fit than my previous count of just Primary A-B-C in that it conforms better to the rules and guidelines of  the Elliott Wave Principle. Should this count be correct, it would imply a move down to complete minor wave 4 and then one more uptrend for minor wave 5 of intermediate wave (C) of Primary wave Y and cycle wave b of the supercycle wave (a) bear market.

                                           2011:

                                         2013:


                                 

                                       Elliott Wave Count from March 2009:


                                  

Greg Hunter interviews Karl Denninger

Excellent interview with Karl Denninger of www.market-ticker.org. I concur with everything Mr. Denninger has said here. Once we get the setup to cap this rally, it will really be a sight to behold.

                                                     

Max Keiser interviews Robert Prechter

Excellent interview between Max Keiser of the Keiser Report and Robert Prechter of Elliott Wave International on August 10, 2013. I hope readers of this blog are heeding these warnings. It is not too late to act to get safe.

September 13, 2013 Interview with Tim Wood

Summer is over, and volatility is likely to return in a big way as traders return from vacation. Volatility is also, in my opinion, likely to stay for the rest of this bear market rally, and take off to the upside in a big way when the bear market returns. The state of the markets is extremely dangerous, and I believe we are getting close to the top of this bear market rally, but we are not quite there yet. In this interview, we discuss the big picture with respect to the stock market and economy, and much more. I must also give credit to Bob Prechter and the folks at Elliott Wave International for their incredible insight that has allowed me to view the markets and economy from the perspective that I do.

                                                    Click Here to Listen

Long-term Alternate Elliott Wave Count

Although I believe the balance of the evidence suggests the U.S. Stock Market has been in a bear market since 2000, and therefore 2000 was the orthodox top of the great bull market, as Elliott Wave Analysts, we must always entertain alternatives. That is, that the move down from 2007-2009 was only 3 waves instead of an impulsive 5. If this were the case, it would let 2002 mark the low of Primary Wave 4, and 2007 the end of Primary Wave 5, Cycle wave V and Supercycle wave (V). We would now have an expanded flat from 2007 taking shape, with 3 primary degree waves down from October 2007-March 2009, to complete cycle wave a and 3  primary waves up from 2009, culminating in a final top to this bear market rally, cycle wave b. We would then have 5 Primary waves down to complete cycle wave c and Supercycle Wave (a) of Grand Supercycle Wave IV.

 

A Possible Projection:

Just to reiterate, my Primary long-term Elliott Wave Count (Bull Market top in 2000):

Regardless of which count is correct, the Secular Bull Cycle that began at the 1982 low ended in 2000, no two ways about it. Additionally, 9 years is too short to end that secular cycle. Historically, they last 16-20 years, and given the stretched nature of the 4-year cycles since the 2002 low, I would not be surprised to see this secular cycle last into the early 2020's. The price low, what I believe is Supercycle wave (a), of the secular bear market, will likely arrive this decade, however the secular bear cycle itself will not end until a secondary low is made, similar to 1982.

Tim Wood Interviews John Grant September 6, 2013

Excellent Interview with Tim Wood of Cycles News and Views and John Grant of Grant Financial Group on Friday, September 6, 2013.

                                                       Click Here to Listen

Recent Observations

I have been observing an unprecedented amount of ignorance, giddiness, complacency and downright arrogance with regard to the current position of the market. Market analysts who have maintained their long-term bearish outlook have lost credibility in the eyes of many. But, I can tell you, this "realization" by many that this is a new secular bull market and that the long-term bears were wrong is phony and a result of optimism induced by the extent of the reflation and subsequent rally in equities since March 2009. Those who cannot read through the lines and look at objective data and statistics are setting themselves up for financial disaster.

In particular, market technical analyst Tim Wood of Cycles News and Views, who graciously extends me air time, and works tirelessly doing objective research on the markets, has taken a lot of criticism recently from ignorant people who want to make themselves look smart by calling him and other bears out on the fact that equities are at a new all-time high. Tim has been called names such as a "broken clock". As Tim and I have pointed out, new highs in equities are NOT necessarily indicative of a new secular bull market. The same thing happened in 1973, during Primary wave D in Elliott Wave terms, of a 5 Primary wave (A-B-C-D-E) expanding triangle. Primary wave E down then ensued, to new lows for the bear market. At this particular juncture, it is again a bear market rally, this time Cycle Wave b, and the new all-time highs in nominal terms have convinced many that this is a new secular bull market. Tim and I are constantly shouting from the rooftops, hoping people will put their biases and preconceived notions aside for once and look at objective data. No, Tim Wood does not pay me to do these interviews with him, nor is he paying me to write this piece today. I am writing this because I am personally disgusted with the level of downright arrogance that has come upon many market participants, that take their own insecurity and project it onto someone else who has remained objective all along. Fact is, Tim Wood has said ever since the rally out of the 2009 low began, that yes, we are in a long-term secular bear market, but until we get the proper setup in place to cap the rally, it will continue. We have not once gotten the DNA Marker setup. In fact, Tim went out on a limb to call for a move above the May 2011 highs, after that vicious decline in  the summer/fall of 2011, when many turned extremely bearish. This call was simply based on statistics, and the fact that we had not gotten the proper DNA Markers in place to cap the rally. That's it! It really is not complicated and I highly recommend people resist the urge to listen to so called "analysts" that are just pushing the popular line, and subscribe to Tim Wood's letter to get a truly honest and objective picture of the market. We are warning there is a financial storm coming, and few are listening. I hope readers of this blog will take action before it's too late. We hope you are listening.

Tim Wood's research, as well as our audio interviews, can be found at www.cyclesman.net

We will be starting regular audio interviews in September 2013 so stay tuned.

Tim Wood Interviews Chris Wilson

Click Here to Listen

DOW Weekly Rising Wedge

Below I illustrate the rising wedge form the market has taken since the rally began in 2009, with throw-overs and throw-unders. This volatility simply serves to illustrate the intense emotion in the market. And, the final move up is likely to be another throw-over, before a massive reversal to the downside and a resumption of the larger bear market.

A Major Shift in the Bond Market and Interest Rates

Recent data and evidence suggests, in my opinion, that long-term interest rates have bottomed, after a 31 year bear market, and a new bull market in rates has begun. By the same token, if in fact long-term interest rates have bottomed, a new bear market in bonds has begun. However, while most who agree that rates have bottomed will say this is because of a growing economy or rising inflation expectations, I think it is because of a growing fear of default. This shift in psychology is indicative of the onset of the biggest credit collapse in history. The Bond market, stocks and precious metals have been the last holdouts of this massive credit bubble. Now let's take a quick look at each. Precious Metals topped in April 2011 (Silver) and September 2011 (Gold). Gold has now broken down and confirmed a bear market, while silver has collapsed as well. The last holdout was U.S. Government Bonds, which topped in June 2012 (10-year note). Now, we are starting to see evidence of further stress with the recent bankruptcy of Detroit, Michigan. This is one of the first of the coming massive wave of municipal defaults and bankruptcies. Other notable municipal bankruptcies so far have been Central Falls, Rhode Island and Stockton, California. In reality, most municipalities are bankrupt, even if not officially yet, for the continuation of this debt ponzi scheme requires ever increasing amounts of debt issuance, and if municipalities have trouble issuing new debt, they go bankrupt. Such is the inevitable outcome of the largest ponzi scheme is world history. Back to the U.S. Bond Market. Below please find an Elliott Wave count in interest rates (inverse to bond prices) dating from to the top in rates in 1981 to the low in June 2012. The new Bull Market in rates should continue for decades.

July 26, 2013 Interview with Tim Wood

In this interview, we discuss the herding impulse inherent in human beings,  how this manifests itself in financial markets, the extremely dangerous state of the markets, and much more.

                                                                Click here to listen

The most important turn in U.S. stock market history

Back in 1978, Elliott Wave Principle by A.J. Frost and Robert Prechter, Jr. predicted a mania to occur comprising Cycle Wave V of Supercycle Wave (V) of Grand Supercycle Wave III. Needless to say, this has proven correct. And, It has taken much longer than expected to top. And yet, here we are, thirteen years after the orthodox high in the Dow Jones Industrial Average, with the nominal Dow at all-time highs, complacency everywhere and what could very well be the most important juncture in U.S. stock market history about to come to fruition. In their book, Frost and Prechter forecast,  "...in order to set up the U.S. stock market to experience the greatest crash in its history, which, according to the Wave Principle, is due to follow wave V, investor mass psychology should reach manic proportions, with elements of 1929, 1968 and 1973 all operating together and, at the end, to an even greater extreme." Little did Elliott Wave Practitioners know the extent to which this statement would become true. The length of time the nominal stock market averages have spent levitating the past 13 years after the true high in stocks (Dow/Gold) has been nothing short of astounding considering the loss of real value that has occurred since that time. The implications of such a manic and parabolic rise in the 1980's and 1990's have not changed, and the fact that it has taken so long to top out makes the situation that much more dangerous. While we wait for the market to finally top out in this last and final peak in the decade-plus long topping process, please find below an Elliott Wave Count I consider to be a reasonably high probability. While conditions are again getting ripe for a top, I think the odds favor a moderate pullback for intermediate wave (4) and then one more final high, in intermediate wave (5) of Primary Wave C of cycle wave b to reach (and perhaps throw-over) the upper trendline of the broadening top formation the market has illustrated, on a monthly basis.

June 28, 2013 Interview with Tim Wood

In this interview, we discuss common investor misconceptions and biases, how these can be dangerous, and how to overcome them to improve overall performance. We use Gold as a prime example of how biases  and pre-conceived notions can get one in trouble when trying to discern the direction of a market from the so-called "fundamentals".

                                                       Click here to listen

                                                          

                                                                                              



     

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.

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

Wayne Patton

I would like to Introduce Wayne Patton. Mr. Patton is a Florida-based Asset Protection Attorney. Asset Protection is essentially legal planning that places assets beyond the reach of future creditors. Wayne is extremely knowledgeable about the legal system and can help you safeguard your assets against potentially devastating lawsuits. Given where the financial system is headed, now could not be a more important time to take proactive measures not only to protect the value of your assets, but to protect your hard-earned money from the broken legal system that exists today. Please find below a link to an interview I conducted with Tim Wood and Wayne Patton on January 11, 2013.

Click Here to Listen to the Interview

Historical Extremes being tested once again.....and it's NOT going to end well

It would be reasonable to assume, that the 2007 top marked the end of the great bull market, that originally tried to top in 1999/2000, but, due to extreme leverage and debasement of the U.S. Dollar, markets carried to new highs in nominal terms in 2007, however NOT in real terms. This distinction is important, because the divergence between nominal values (in inflated U.S. Dollars) and real values (adjusted for inflation) signaled the end of the great bull market. However, once again, the powers that be are attempting to keep the great credit bubble inflated, through asset and debt purchases by the Federal Reserve. The markets are at a critical juncture, in that if the Dow Jones Industrial Average closes above the October 2012 closing high of 13,610.15, it will generate a Dow Theory Bullish primary trend change. Should this occur, it would suggest the 4-year cycle is stretching, just like it did in the 2006-2007 time frame, and the large expanding wedge I have illustrated before would be playing out, with a target above the 2007 all-time highs. However, we do have a potential ending diagonal playing out, with an extended minor wave 1 of Intermediate wave (1). This scenario would allow for one more new post-2009 intraday high in the DOW, before finally reversing. Ending diagonals are final moves, and the pattern completion is always follow by a hard reversal in the other direction, in this case down. Technically speaking, the Double Zig-Zag scenario from 2009 is still intact until the DOW takes out 13,661.87 intraday, but this is another possible scenario that could be at play here. The key for this scenario is not to close above DOW 13,610.15. As long as that level holds on a closing basis, this scenario would allow for a new intraday high, immediately followed by a swift intra-day reversal. Things have already been stretched beyond imagination, however if the DOW manages to close above 13,610.15, the 4-year cycle is stretching once again, and, just like 2007, it will end at some point, and the fallout will be much worse than 2008. Meanwhile, our focus is on this potential pattern and the DOW levels cited on a closing basis. As long as 13,610.15 holds on a closing basis, the Dow Theory Bearish Primary Trend Change from August 2011 is still intact, and this market will be set up for a swift move below the March 2009 lows as the inevitable deflationary forces take hold and drive the next leg down of this massive bear market into the 4-year cycle low.