Wednesday, January 20, 2016

Update and Outlook on Markets with Important Message

It's official. 2016 has gotten off to the worst start ever. The first week saw the Industrials decline -6.2%. The old Wall Street adage, "as goes January, so goes the year" will likely apply this year. And, 2016 is likely to witness record volatility in markets as the global bear market and deflationary depression accelerates. In my last update, I entertained the possibility of one more new high, but offered a count that had the rally complete in May 2015, at which point the markets almost precisely hit my calculated targets. The piece I wrote back in May 2015 which illustrates my work on these ratios can be found by CLICKING HERE.

On my last post, found by CLICKING HERE, I entertained the slight possibility, in order to remain objective, that the Bull Market from 1974 never ended, and was completing now. That possibility has now been virtually eliminated, as the market has not completed an impulse up from the 2009 lows, bur rather, as I have been alluding to for years, a 3-wave, corrective, bear market rally.

Despite the new all-time high in nominal terms, and indeed in inflation-adjusted terms as well, I remained firm that the entire rally was one giant, corrective structure that was bound to fool market participants into believing a "generational low" was in place in March 2009 and a new bull market had begun. Indeed, this is the goal of any bear market rally. And. this one sure accomplished the goal of fooling the vast majority of market participants and economic commentators into believing the worst was over, and we were recovering from the "great recession".  The tech bubble that burst from 2000-2002 and the resulting 78% decline in the NASDAQ was NOT the end of the bear market. The Financial collapse from 2007-2009 was NOT a "great recession". This was NOT an "economic recovery". Instead, it is just the beginning, in terms of price, of the most severe bear market, financial collapse and economic depression since the founding of the republic in the 1700's. Now that the topping process has lasted so long, and we can say with near certainty the larger bear market that began in 2000 has resumed, and considering the secular deflationary cycle has already been going on for 15 years, this leg of the bear market should be the most breathtaking yet. The imminent crash should be swift, to complete cycle wave c into the final bear market low of the cycle. However, the bottoming process, once the final low in price is in, should take longer than most expect. Just like the topping process took a long time, so should the bottoming process. Perhaps not in terms price itself, (due to the fact that bottoms tend to be more of an event vs. a process, whereas topping action in prices tends to be more of a process), but rather in sentiment. After the third financial collapse of the past 20 years, people are likely to be so put off and opposed to the idea of investing in stocks, that they will advice those in future generations not to go near the stock market. And, the resulting negative mood vibe in society is likely to persist far longer than almost anyone expects, even after stock prices have put in a final bear market low. This persistence of negative mood would serve to counterbalance the unbelievable persistence of optimisms that has accompanied the Grand Supercycle Top in stock prices.  I have covered extensively analysis of the economic and financial situation in recent posts, as well as technical reasons for the internal structure of the rally, so there is no need to go over all of the details again, but to recap, please see below for the internal structure of the rally from 2009, a triple zigzag upward correction, and the projections going forward for the remainder of the bear market.

Short-term, the market is oversold and it is interesting how the market recognized the lower trend line of a parallel channel connecting the tops of the first zig-zag in May 2011 with the May 2015 top:

Longer-term, the market is likely to trace out a series of impulse waves in a giant c wave, until the final bear market low, early-to-mid next decade.Please note these projections are not necessarily drawn to scale.

Now, in the short to intermediate term. Once wave 2 of (3) completes, the decline should turn from orderly, into disorderly. In fact, I would not be surprised to see a substantial market dislocation, and a violation of the 2009 lows in short order.

Notice the series of Head and Shoulders patterns setting up:

2008. Notice the truncation of wave 5 of (1) in 2008, similar to 2015:

Finally, the expected wave structure. This is an ideal approximation, and not an exact prediction of what how the bear market will play out. What is certain, is that absolutely unprecedented volatility is likely to hit global markets, and financial markets will set records for bear market activity.

Gold looks to be setting up for the biggest rally since the 2011 top, but, it will only be a bear market rally, and not a new bull market. Ideally, in order to realign with equities, Gold's rally should occur during Primary waves 1 down and 2 up in equities, then during Primary wave 3 all assets, including bonds, crash together as forced liquidation and margin calls occur and anything and everything is sold to raise cash in order to satisfy debt obligations and conduct daily transactions. Again, this is not necessarily drawn to scale.

Crude Oil has been in a bear market since 2008. Oil has been decimated and is now below the 2009 lows. It is lost 81% of its value since the all-time high. A rally can occur at any time, but the ultimate target is below $20 per barrel.

Commodities have been in a bear market since 2008. The bear market has been brutal as the CRB Index of commodities is now down 67% from the all-time high in 2008 and is now below not only the 2009 lows, but the 1999/2001 lows as well.

Both Commodities and Oil topped in 2008. 2016 represents a Fibonacci 8 years from the high, as well as a Fibonacci 5 years from the counter-trend rally peaks in 2011. This suggests a significant low will occur this year in these markets. However, it is not likely to mark the final bear market low for commodities.  

The housing collapse is NOT over. House prices on average, nationwide, should be down 90% from the top in 2005/2006.

I do not care what any pundit says, this is cold hard data, and it suggests these markets are falling because of demand destruction and deflation, as well as suppliers continuing to produce despite low prices, in order to satisfy debt obligations. Many oil and commodity producers will go bankrupt, and, along with a myriad of other credit problems in Student loans, housing, and auto loans, will once again freeze up credit markets and cause a banking crisis. Stocks have been the last holdout, and they, too, are now collapsing under the weight of too much debt and an ongoing secular bear market.

Finally, the most important part of this all:

Most people are not and should not be traders, and during the bear market period, far more important than return on capital is return of capital. Stay in the safest possible cash or cash equivalents. There is always the risk that governments will try to confiscate cash, but there are alternative cash equivalents that are relatively safe.

If you are reading this blog and unsure of what to do, contact me at the above e-mail address in the upper right hand corner of this blog. I cannot give investment advice as I am not a registered investment advisor, but I can suggest ways to stay safe during the bear market. This bear market is so severe, with such wide and potentially devastating implications, and it is so important that people act NOW to protect their wealth, that I do not charge at all. Simply e-mail me.

Those who act now can prevent personal financial devastation. Bear markets unfold faster than bull markets, and with the baby boomer generation getting ready for retirement, there is no time for political correctness, to "wait it out" like financial advisers will tell you. DO NOT listen to the financial media with their propaganda and the fools they have on, telling you how cheap this market is. The Bear Market has no mercy, will crush anything in it's path, including any portfolio that is not properly positioned for safety.

  It is absolutely imperative that people get safe now before it is too late.

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