Financial Forcast
Sa mchugh ar bearish, kanske dax att ga lang har:).
Mvh usdollar
For those of you with busy schedules, here is an executive recap:
Monday's late rally does not eliminate the triangle wave 4 scenario, in fact it fulfills wave {c} within the triangle. The slope of the converging boundary lines is flatter than the triangle pattern that appeared to be developing Friday, but that actually helps the authenticity of the triangle, rather than diminishing it. Key here is what happens next. Prices can rise another .50 percent, maybe 1 percent tops, and the triangle pattern will maintain its integrity, but that is it. A rise much higher than that tomorrow, will weaken the pattern as the slope lines will become too flat, and a rise above 9,750 will blow it up. Why do we care? Because if in fact this is a triangle wave 4 pattern in process, it means we will see a 2,000 point +/- (in the Industrials), 20 percent stock market crash, wave 5 down, likely to start by the end of this week, taking stocks to new lows for 2008, and for the Bear Market that started in October 2007. If this pattern is developing, as we suspect, then the next move should be wave {d} down to around 8,600 in the Industrials (900 +- in the S&P 500) over the next few days, perhaps starting immediately Tuesday, perhaps starting after a small rise at the open Tuesday. Then a wave {e} bounce would complete the pattern around our coming phi mate turn date, October 23rd +/- a few days. Wave 5 down will conclude the first phase of the Bear Market, Minor degree wave a-down, shown in charts later in this report. The 30 Minute and 15 Minute Full Stochastics suggest a decline is likely by the close Tuesday.
If the triangle scenario is not occurring, then we should see a huge rally continue this week, and last for perhaps months, with the normal occasional corrective declines. That would mean wave a-down completed on October 10th. It would mean wave b-up, the second and only rally phase of the Bear Market that started in October 2007, had started, and would last for several months, into early 2009. Then a catastrophic wave c-down would start in 2009 that would complete the Bear Market and have most people swearing the market will never bounce back. A decline below the October 10th lows, below 7,882, would suggest the triangle scenario is occurring, and this wave b-up bounce will start from much lower prices, likely somewhere in the 6,000's in the Industrials.
The Dow Industrials rose 413.21 Points, closing at 9265.43 Monday, October 20th. NYSE volume fell to 67 percent of its 10 day average. Upside volume was 87 percent, with advancing issues at 84 percent, with upside points at 95 percent. S&P 500 Demand Power rose 14 points to 440, while Supply Pressure fell 18 points to 543, telling us demand was strong, but a large piece of the rise was due to sellers deciding to hold onto stocks, not overwhelming buying interest. The rally came on very low volume, which is more typical of corrective rallies rather than Bull Market action.
Our three Blue Chip key trend-finder indicators (other than the Demand Power/Supply Pressure Indicator) remain on a "sideways" signal Monday. The Plunge Protection Team Risk Indicator fell to positive + 2.35 Monday, remaining on a "sell" signal from October 1st, which is reason for caution here.
The NASDAQ 100 rose 41.04 points Monday, closing at 1,352.76. The Russell 2000 rose 20.41 points Monday, closing at 546.84. The HUI Amex Gold Bugs Index rose 19.09 points Monday, closing at 222.69. December Gold rose to 802.5. Silver rose to 10.02, while Oil rose to 75.61. The Dollar rose to 83.07. Bonds fell half a point to 113^15. The VIX fell 17.36 to 52.97, still high, but fear relaxed.
All systems are go so far for the wave 4 triangle scenario, as stocks have fallen sharply Tuesday. A small Head & Shoulders top pattern has formed over the past 24 hours, with a downside target of around 8,750ish, which would get us to the level where wave {d} down inside the wave 4 triangle should bottom. Wave {d} down will be a three wave {a} down, {b} up, and {c} down. The decline so far Tuesday is likely wave {a} down. This means a small corrective rally, wave {b} up, should show up sometime this afternoon or Wednesday morning. The 15 Minute Full Stochastics allow for a small bounce soon, however the 30 Minute Full Stochastics are indeterminate, not at oversold levels yet. If this triangle pattern is tracking, as we suspect, then we should see wave {d} bottom over the next day or so, and a final wave {e} up finish around our phi mate turn date of October 23rd, +/- a day or so. Then at risk is a plunge.
At 1:00 pm EST, the Industrials are down 260 points at 9,006, the S&P 500 is down 30 at 955, the NASDAQ Composite is down 60 at 1,710, the NDX is down 56 at 1,297, the Trannies are down 74 at 3,799, the HUI is down 17 at 205, and the RUT is down 12 at 535. Gold is down 34 at 768, Silver is down .10 at 9.92, and Oil is down 4 at 70.25.
Tuesday produced a down-up-down sequence which continued the integrity of the triangle wave 4 scenario. The mid-day rally was a bit higher than ideal, but still works as a middle wave for wave {d} down. If this scenario is occurring, ideally we should see a sharp decline over the next day or two to around 8700 +/- in the Industrials, and to 910ish in the S&P 500. We are not getting a lot of guidance from the 30 minute and 15 minute Full Stochastics Tuesday. A sharp break south from the getgo Wednesday would be pretty good confirmation we are headed for another crash-like decline starting by late this week, or early next. A rise above 9,750 would blow up the triangle scenario and suggest that wave a-down from all-time highs October 2007 bottomed on October 10th, and a multi-month rally has started.
While we are intensely focused on this dangerous potential the triangle wave 4 scenario presents, we need to point out that once the subsequent wave 5 completes, perhaps in the 6,000's, a huge dramatic rally will follow, wave b-up. It should last several months and be an excellent opportunity to go long. We just don't know at this point if it started already, on October 10th, or will from much lower levels a few weeks from now. But a rise above 9,750 suggests it has already started and is likely headed for 11,000 to 12,000. A drop below 7,882 suggests we are likely headed for the 6,000's first. So if you are an aggressive trader, one strategy is to wait for a breakout above 9,750 and go long, or a drop below 7,882, and go short. This is not trading advice, just pointing out high probability moves should prices reach certain key levels.
So we watch and wait. Triangles require patience, but once we get a breakout from them, the trading opportunities are huge.
The Dow Industrials fell 231.77 points, closing at 9,033.66 Tuesday, October 21st. NYSE volume was flat at 68 percent of its 10 day average. Downside volume was 80 percent, with declining issues at 70 percent, with downside points at 94 percent. S&P 500 Demand Power fell 8 points to 432, while Supply Pressure rose 3 points to 546, telling us the decline was primarily due to a lack of buyers more than a strong urge to sell. This type of move is typical of what we would expect in a sideways triangle, where moves are due to the lack of buyers for declines and the lack of sellers for rallies.
The Plunge Protection Team Risk Indicator fell to negative -1.19 Tuesday, remaining on a "sell" signal from October 1st, which is reason for caution here.
The NASDAQ 100 fell 69.33 points Tuesday, closing at 1,283.43. Our key trend-finder indicators moved to a new "sideways" signal Tuesday. The Russell 2000 fell 16.19 points Tuesday, closing at 530.65.
The HUI Amex Gold Bugs Index fell 21.49 points Tuesday, closing at 201.20. December Gold fell to 776.4. Silver rose to 10.08, while Oil fell to 70.89. The Dollar rose 1.30 to 84.37. Bonds rose a point and a half to 115^05. The VIX was flat at 53.11, still high.
Wednesday morning's stock market plunge is the third sub-leg within wave {d} down, {c} down, and this symmetrical triangle is really taking shape, its validity enhanced by Wednesday's morning price action. No guarantees, as we strictly are dealing in probabilities, however this means the probability that a stock market crash leg to a final bottom for wave a-down from October 2007's all-time high in the Industrials, a coming wave 5 down, is imminent. If the triangle pattern is in fact occurring, which looks highly probably, it means stocks should bottom intraday around 8,600, then bounce, perhaps to 8,900ish +/-. That small bounce would be the final wave {e} of this triangle. Then we plunge. Tomorrow is our next scheduled phi mate turn date, which +/- a day or so, could represent the end of this triangle pattern. It looks to us as if wave {d} down did in fact already bottom at 8,622, and wave {e} up has started.
Warning: I have seen triangle patterns before where the last two waves, in the case, wave {d} down and {e} up truncate, are abbreviated, meaning if prices drop decisively below where we sit now, 8,600ish, let's say they drop to 8,300ish, it likely means waves {d} and {e} truncated, completed yesterday, and we are now headed to the 6,000's in the Industrials.
The Bullish alternate has not been eliminated, shown in last night's newsletter, but its probability is lower than the triangle crash scenario.
As of 10:45 EST, The Industrials are down 300, off their lows, at 8,733. The S&P 500 is down 31 at 924, the NASDAQ Composite is down 34 at 1,662, the Trannies are down 54 at 3,712, the NDX is down 14 at 1,269, the RUT is down 11 at 519, the HUI is down 17 at 184, acting very much like stocks, Gold is down 20 at 748, Silver is down .38 at 9.70, and Oil is down 4.00 at 68.25.
So far the Master Planners have failed in spades to hyperinflate the economy, as they had to. We have been suggesting a rebate of 5 to 10 years of income taxes is along the lines of what will be needed to pull us from the threshold of a depression. This is why we are seeing the HUI and precious metals falter here. Inflation will have to arrive as a proper bailout, not what they have already done as a "bailout," so the HUI and precious metals will bounce, as the technical set up suggests. But that may occur later, after the hyperinflation injections that are necessary occur. For now, deflation has a firm grip, and governments are too tentative for prevention.
The wave 4 triangle pattern remains in play, in fact Thursday's price action fulfilled almost perfectly the wave {d} decline from the top descending boundary to the bottom rising boundary. Next should be the final wave for this symmetrical triangle, wave {e} up. Here's the thing about this next wave. It can be short, or long, can reach the upper declining boundary and finish there, or truncate, fall short of that boundary, then reverse sharply as wave 5 down begins. The reason we have been so focused on this symmetrical triangle, is that there are very high odds that the direction of prices entering the pattern will be the same direction they leave. In the current case that would be down. Further, this pattern gives us a measurable downside target. That target would be the distance that wave {a} traveled, subtracted from the top of wave {e}, wherever that lands.
This all means if in fact this is a symmetrical triangle wave 4, as we strongly suspect, there will be an approximate 2,000 point crash from the point of wave {e}'s top. That should start within a day or two. We can now estimate that the downside target should be somewhere between 6,700 and 7,100, depending upon how high wave {e} goes. If {e} stops at the upper boundary of the triangle, that would be around 9,000, meaning the crash should take prices down to 7,000ish.
There is a small chance that symmetrical triangles do not act like continuation patterns, but rather act like bottom or top patterns. In this case, it has to be either a continuation pattern which is the crash scenario, or a bottom pattern. We place the odds of it being a continuation pattern at 95 percent, and of it being a bottom pattern at 5 percent. That reflects the odds Thomas Bulkowski suggests in his terrific book, Encyclopedia of Chart Patterns, John Wiley and Sons. He further suggests that the probable downside break is a move of 19 percent. That is pretty close to our measured target.
Key here is which direction prices break from the triangle. A decisive break below the bottom boundary would confirm the worst case scenario, that an approximate 2,000 point plunge is imminent.
A decisive break above the upper declining boundary of the triangle would confirm that it was a rare bottoming pattern, and the alternate Bullish scenario we have been showing, with only a 5 percent probability, has beat the odds and is occurring. A decisive breakout would best be defined as a 3 percent move above or below the upper or lower boundaries.
So if you are conservative, you just get out at the top of wave {e} and stay out. Then enter long once the crash completes. If you are a mildly aggressive trader, you could short once prices drop to new lows, below 7,882, or go long once prices rise above wave {a}'s October 14th top of 9,794. If you are moderately aggressive, you go long with a breakout 3 percent above the declining upper boundary, around 9,300, and go short with a 3 percent breakout below the rising lower boundary, around 8,200. If you are a riverboat gambler, you can set up a short position anytime you choose during the wave {e} rally. Smart traders only risk a maximum of about 2 percent of capital if they love the set-up, and less if they do not. Smart traders ease their way into entry points, perhaps entering in 1/2 percent of capital increments. None of this is trading advice, just laying out the probability risk analysis here.
Wednesday produced the sharp decline wave {d} down needed, and stopped right about where the triangle retained its matching slope, rising and declining boundaries, suggesting wave {d} down is complete. Thursday should see wave {e} up start. It could be a 200 to 500 point bounce. The 30 minute and 15 minute Full Stochastics are oversold, suggesting prices should rise Thursday, in line with the pattern requirements. A rise above 9,750 would blow up the triangle scenario and suggest that wave a-down from all-time highs October 2007 bottomed on October 10th, and a multi-month rally has started.
If we are looking for further guidance as to the odds that this triangle will realize its downside target, and not follow the small 5 percent chance it could represent a bottom, on page 12 we see the triangle pattern evident in the NDX. It is not a symmetrical triangle, but is a descending triangle. Descending triangles are high probability Bearish patterns, which lead to declines. Blue Chips should move in sync with the NDX.
While we are intensely focused on this dangerous potential the triangle wave 4 scenario presents, we need to point out that once the subsequent wave 5 completes, perhaps in the 6,000's, a huge dramatic rally will follow, wave b-up. It should last several months and be an excellent opportunity to go long. We just don't know at this point if it started already, on October 10th, or will from much lower levels a few weeks from now. But a rise above 9,750 suggests it has already started and is likely headed for 11,000 to 12,000. A drop below 7,882 suggests we are likely headed for the 6,000's first.
The Dow Industrials plunged 514.45 points, closing at 8,519.21 Wednesday, October 22nd. NYSE volume was up at 85 percent of its 10 day average. Downside volume was 97 percent, with declining issues at 84 percent, with downside points at 98 percent, another in a series of 90 percent panic selling down days. S&P 500 Demand Power fell 12 points to 420, while Supply Pressure rose 15 points to 561, telling us there was panic selling, with mild PPT intervention. Our three Blue Chip key trend-finder indicators (other than the Demand Power/Supply Pressure Indicator) triggered a "sell" signal Wednesday. The Plunge Protection Team Risk Indicator fell to negative -4.79 Wednesday, remaining on a "sell" signal from October 1st, which is reason for caution here.
The NASDAQ 100 fell 46.34 points Wednesday, closing at 1,237.09. Our key trend-finder indicators remain on a "sideways" signal Wednesday. The Russell 2000 plunged 28.68 points Wednesday, closing at 501.97. The RUT Purchasing Power Indicator fell to positive + 1.88, triggering a new "sell" signal October 22nd.
The HUI Amex Gold Bugs Index fell 32.84 points Wednesday, closing at 168.36, as a failure to reflate this economy takes its toll. December Gold fell to 724.6. Silver fell to 9.40, while Oil fell to 67.50. The Dollar rose 1.25 to 85.62. Bonds rose a half point to 115^28. The VIX rose sharply to 69.65, still high.
The Master Planners have failed to hyperinflate this economy. $13 trillion, one entire year's GDP, has been wiped out so far from stock and housing market losses. $700 billion is the bailout plan, a huge chunk of which has not been used yet, and nothing is earmarked for the continuing source of this mess, the horrid financial position of the American household. This all spells deflation, economic depression, and fundamentally precious metals and the HUI have noticed. Hyperinflation has to happen to fix this mess. If it doesn't the ballgame is over for capitalism, and life as we have known it in this nation for 232 years. Game, set, match.
The Symmetrical Triangle pattern convinces us that there is a 2,000 point move coming, starting now, or at most by early next week. Question is, which direction. We know it will be a fast 2,000 point move in the Industrials because the breakout should be at least equal to the widest leg of the triangle, wave {a} up, which was just over 1,900 points. The textbook on this pattern suggests a 90 percent probability the breakout will be down, a crash. There is a 10 percent probability the breakout will be north, and the huge wave b middle phase of this mega-Bear market will start. One point we have warned subscribers for the past five years, is that shorting can be hazardous when the Plunge Protection Team is on the job. Could the PPT buy the tar out of this market over the next two weeks, triggering a ton of short covering, in order to try and influence the election? Who knows, but that is one scenario that could explain how a 10 percent chance could happen.
If prices are about to breakout below the triangle, then Thursday's price action was at least part of wave {e}'s final move to complete the wave 4 triangle. We show that labeling at the top of page 12. That scenario considers the first wave {a} of {e} up nearly complete. It leaves waves {b} down, and {c} up left to complete on Friday, likely taking the Industrials to the 8,900 to 9,100 area. It is also possible to consider that wave {e} completed intraday Thursday, and that the first small degree wave {i} down, and {ii} up completed Thursday afternoon. If so, it means a crash has started. We show the 10 percent probability Bullish resolution in charts on page 13. Honestly, the move up should be sharper, more vertically sloped than these charts reflect for a Bullish resolution from a triangle.
We can now estimate that the downside target should be somewhere between 6,700 and 7,100, depending upon how high wave {e} goes. If {e} stops at the upper boundary of the triangle, that would be around 9,000, it means the crash should take prices down to 7,000ish. Key here is which direction prices break from the triangle. A decisive break below the bottom boundary would confirm the worst case scenario, that an approximate 2,000 point plunge is imminent. A decisive break above the upper declining boundary of the triangle would confirm that it was a rare bottoming pattern, and the alternate Bullish scenario we have been showing, with only a 5 to 10 percent probability, has beat the odds and is occurring. A decisive breakout would best be defined as a 3 percent move above or below the upper or lower boundaries.
Thursday morning gave us a 276 point rally to its intraday high of 8,795.99, as Greenspan talked, and for a second, markets fantasized that he was still running the Fed, then gave it all back when he professed he was clueless why capitalism was imploding, completing a Head & Shoulders top that started Wednesday. Then prices declined to 8,243, slightly short of the downside target from the pattern, but nearly 200 points from the neckline. Prices then rose into the close. All this price action was building the final wave {e} for triangle wave 4. The 30 Minute Full Stochastics are not giving clear guidance as to price direction Friday, however the 15 minute Full Stochastics suggest prices could decline Friday. A rise above 9,750 would blow up the triangle scenario and suggest that wave a-down from all-time highs October 2007 bottomed on October 10th, and a multi-month rally has started. Interestingly, the NDX hit new lows, below the October 10th lows, Thursday.
The Dow Industrials rose 172.04 points, closing at 8,691.25 Thursday, October 22nd. NYSE volume was up at 100 percent of its 10 day average. Downside volume was 54 percent, with declining issues at 70 percent, with downside points at 54 percent. S&P 500 Demand Power fell 3 points to 417, while Supply Pressure fell 7 points to 554, telling us neither side had strong interest in taking a position, with the rise largely due to a lack of supply rather than a strong urge to buy.
The Demand Power/Supply Pressure indicators generated an enter short position signal September 4th, and remains there Thursday. Thursday's McClellan Oscillator worsened to negative -51.69. The Summation Index worsened to negative -3,810.48. NYSE New Highs rose to 8, with New Lows rising sharply to 849 Thursday. This is interesting, that on a day when the Industrials rose 175 points, nearly a fourth of all stocks on the NYSE hit new 52 week lows. Breadth conditions are worsening, as more and more companies disclose their problems.
The percent of DJIA stocks above their 30 day moving average remained at 0.00. The percent above 10 day rose to 30.00 from 16.67. The percent above 5 day rose to 20.00 from 6.67. The NYSE 10 day average Advance/Decline Line Indicator rose to negative -84.5, remaining on a "sell" signal from September 11th, when it fell below negative - 120.0 threshold necessary for a new "sell." Our three Blue Chip key trend-finder indicators (other than the Demand Power/Supply Pressure Indicator) moved to a "sideways" signal Thursday.
The Plunge Protection Team Risk Indicator fell to negative -7.49 Thursday, remaining on a "sell" signal from October 1st, which is reason for caution here.
The NASDAQ 100 rose 2.07 points Thursday, closing at 1,239.16. The Russell 2000 fell 12.05 points Thursday, closing at 489.92. The HUI Amex Gold Bugs Index fell 8.43 points Thursday, closing at 159.93, as a failure to reflate this economy takes its toll.
December Gold fell to 721.8. Silver rose to 9.64, while Oil rose to 69.02. The Dollar fell 0.39 to 85.23. Bonds rose two points to 117^30. The VIX fell to 69.02, still high.
Overnight, we see international markets are plunging, several averages down 5 percent or more, including Japan's Nikkei 225 (down 6.86 percent), and China's HSI (down 5.5 percent). Australia is down 3 percent as of Midnight, EST.
Stocks staged a minicrash at the open Friday, breaking decisively below the bottom boundary of the sideways wave 4 triangle pattern we have been showing for the past week. This follows the 90 percent probability that a crash downleg of 2,000 points +/- is starting, one day after our scheduled phi mate turn date of October 23rd. So from this seat, it looks as if wave 5 down has started. The textbook suggests this move down should be about the same distance as wave {a} of the triangle was, which is 1,900 points +/-. That suggests a downside target of 6,800ish +/- based upon the top for wave {e} from yesterday. Downside targets do not always get hit, but again we deal with a high probability here. Maybe we lose 400, recover 150, in a series of back and forths lower over the next several weeks, maybe we see a 900 point plunge inside this move, hard to tell how exactly it will occur.
There is powerful support at the October 2002 bottom of 7,197. Right now, prices could see strong support at the 8,000 psychological level, and again at the October 10th intraday low of 7,882. If we break below 7,882, the decline could accelerate. No doubt, the PPT is active here, stopping any slide from gaining momentum. Both the 30 minute and 15 minute Full Stocastics allow for more decline this afternoon. There is a small Head & Shoulders top that has formed in the sideways pause we have seen the middle part of today, suggesting we could see a drop into the close. That pattern is not yet comfirmed.
As of 2:45 pm EST, the Industrials are down 300 points at 8,390, off their lows of 8,187.48 as a consolidation pattern completes. The S&P 500 is down 32 at 875, the NASDAQ Composite is down 51 at 1,553; the NDX is down 38 at 1,201; Trannies are down 96 at 3,461; the RUT is down 20 at 470; the HUI is up 6 at 166; Gold is up 14 at 729; Silver is down o,43 at 9.21; and Oil is down 4 at 63.
The Industrials plunged 423.33 points into the close, finishing Monday down -203.18. Since the wave 4 triangle completed Thursday at 8,691.25, our phi mate turn date, wave 5 down has dropped the Industrials 547 points. The downside target for wave 5 is 6,700ish. However, we want to point out that wave 5 down can abort, truncate before reaching that level, or at least pause here before continuing, perhaps until after the election. Here are several reasons why shorts must pay attention to the possibility of a truncated fifth: First, we have an inter-market Bullish divergence in that several major indices have hit lower lows, new lows below their October 10th low, but the Industrials and S&P 500 have failed to do that, while the NASDAQ Composite, NDX, Russell 2000, and Trannies have. These nonconfirmations are potentially bullish. Second, Patterns in the stock indices that have hit new lows appear to be forming Bullish Declining Wedges. Third, our PPT Indicator, the Plunge Protection Team Indicator, has reached near the level where buy signals are generated, and rallies start. Not there yet, but close. Fourth, with an election only a week away, markets could freeze or rally in anticipation that the winner will produce a fix for the economic mess. Fifth, we can't rule out powerful market intervention by the PPT in order to affect the election. Sixth, the Fed is meeting Wednesday, and an interest rate cut could support the stock market. Seventh, the Industrials are approaching strong support at the psychological 8,000 level, and again at the 7,882 October 10th low. Further powerful support is at the 7,197 October 9th, 2002 low. Wave 4 finished, and a sharp drop has occurred so far for wave 5. In that sense, the pattern has served shorts well. Now we get into greed territory with a minefield of risks in play.
On the Bearish side, we have not seen selling capitulation yet. The futures were down 5 percent Friday, stopping sell orders at the open, then prices bounced until the pros sold stocks late in the day. Monday saw a similar day, 4 percent down in the futures before the open, then a bounce, then the pros sold the market off hard into the close. We are watching for a wave 5 bottom, which would end the first phase of the Bear Market that started in October 2007, wave "a" down. We are watching for the start of a 2,000 to 3,000 point rally wave b, the second phase of the Bear Market, sort of like the eye of a hurricane, calm skies for a short period, maybe 2 to 4 months. Then wave c-down follows.
A break below the October 10th intraday lows of 7,882 in the Industrials and 836 in the S&P 500 at any time over the next few days would likely trigger a capitulation crash event, with panic selling over a few days, and a quick bottom to waves 5 and a. If that doesn't happen, the decline since Thursday could be the first leg of a five leg wave 5 down, the second leg taking markets sideways to up through the election, then the last three waves taking wave 5 down into our November 20th phi mate turn date, bottoming then. That certainly is possible.
I've laid out a lot of scenarios here Monday, because certainty is simply not evident at this time. There are just too many external events nearby to say with strong conviction where prices are headed over the next week. For example, we invaded Syria Monday. What will that lead to? Other events we already mentioned. If you are short from Thursday, sitting with a profit, you may want to think about grabbing profits, or lowering stops to lock in profits, and then sit happily on the sidelines while this week finishes.
This coming weekend, we are going to present how markets typically react when Republicans are elected President versus Democrats. That should prove interesting.
The Dow Industrials plunged 203.18 points, closing at 8,175.77 Monday, October 27th, a new closing low for the Bear Market that started a year ago. NYSE volume was down at 85 percent of its 10 day average. Downside volume was 88 percent, with declining issues at 79 percent, with downside points at 94 percent. S&P 500 Demand Power fell 9 points to 399, while Supply Pressure rose 3 points to 562, telling us fear to buy at this level allowed strong supply pressure to drive prices sharply lower.
The Demand Power/Supply Pressure indicators generated an enter short position signal September 4th, and remains there Monday. Monday's McClellan Oscillator worsened to negative -171.74. The Summation Index worsened to negative -4,103.92. NYSE New Highs fell to 7, with New Lows falling to 748 Monday. Nearly a quarter of all stocks on the NYSE hit new 52 week lows. Conditions remain terrible.
The Plunge Protection Team Risk Indicator fell to negative -15.85 Monday, remaining on a "sell" signal from October 1st, but close to a new buy signal. A drop below negative -16.0 triggers a new "buy" signal.
The NASDAQ 100 fell 32.49 points Monday, closing at 1,169.78, a new low for the NDX. The Russell 2000 fell 22.72 points Monday, closing at 448.40, a new low. The HUI Amex Gold Bugs Index fell 17.11 points Monday, closing at 151.57. We may have to wait until the next administration takes over to see the hyperinflation needed to bounce precious metals and the HUI higher. December Gold rose to 732.6. Silver fell to 9.20, while Oil fell to 62.48. The Dollar rose 0.33 to 86.75, as the Master Planners fail to hyperinflate. Bonds rose half a point to 117^11. The VIX rose sky high to 80.06
There is just too much event risk for shorts at this time, many of those risks mentioned in last night's newsletter. Stocks exploded higher Tuesday, increasing the odds (but not to the point of certainty) that wave a-down has bottomed, a truncated wave 5 down, which sometimes happens, that the first phase of the Bear Market has ended, and wave b-up has started, the second of the three phases of the Bear Market, a multi-month rally that could take the Industrials toward the 12,000 +/- area. If so, that does not mean we go straight up here, as there will be a stair-step move over the next 2 to 4 months. In fact, we would not be surprised by profit taking over the next few days, and a ton of volatility over the next week as events such as the Fed's interest rate decision, and the election occur. Mutual Funds need a huge rally this week as their year end statements close this coming Friday, so window dressing is important for them.
If this is the case, wave 5 down still generated a 547 point drop, so shorts did get an opportunity to profit after the wave 4 triangle completed last Thursday.
Tuesday was a 90 percent up day, which was one of the signs we are looking for to identify when wave b-up starts. On the caution side, we did not get a new "buy" signal in our PPT indicator. A rise above 9,750 would confirm wave b-up has started.
The stock market crash potential scenario has not been eliminated Tuesday, but stocks would have to dive immediately Wednesday for that to be occurring. We show both the bullish and bearish scenarios in several charts tonight. While it is tempting to place the odds for the bullish scenario above 50 percent, based upon Tuesday's amazing rally, if you study the S&P 500 chart at the bottom of page 9, you'll notice that prices were stopped cold by a descending tops trend-line Tuesday. It shows a fascinating pattern that wave 5 down has formed a Descending Bullish Triangle that needs one more sharp decline to complete, that could take the S&P 500 to 750ish. At the bottom of page 12, the NDX sports a similar pattern, adding power to the imminent crash scenario. Strange markets at this time.
The 30 minute, 15 minute, and percent above 5 day indicators all suggest that stocks should decline Wednesday.
The Dow Industrials catapulted 889.35 points, almost 11 percent in one day, closing at 9,065.12 Tuesday, October 28th. NYSE volume was up at 111 percent of its 10 day average. Upside volume was 95 percent, with advancing issues at 79 percent, with upside points at 99 percent. S&P 500 Demand Power rose 30 points to 429, while Supply Pressure fell 18 points to 544, telling us demand was powerful, but about half of it was shorts covering.
The Demand Power/Supply Pressure indicators generated an enter short position signal September 4th, and remains there Tuesday. Tuesday's McClellan Oscillator improved to negative -28.27. The Summation Index worsened to negative -4,132.19. NYSE New Highs fell to 4, with New Lows falling to 701, but still strong, Tuesday. Nearly a quarter of all stocks on the NYSE hit new 52 week lows as the Industrials staged the second highest daily rally ever. Conditions remain terrible.
The percent of DJIA stocks above their 30 day moving average rose to 16.67 from 0.00. The percent above 10 day rose to 76.67 from 6.67. The percent above 5 day rose to 100.00 from 3.33. The NYSE 10 day average Advance/Decline Line Indicator rose to negative -28.27, remaining on a "sell" signal from September 11th, when it fell below negative - 120.0 threshold necessary for a new "sell."
Our three Blue Chip key trend-finder indicators (other than the Demand Power/Supply Pressure Indicator) moved to a "buy" signal Tuesday.
The Plunge Protection Team Risk Indicator rose to negative -15.30 Tuesday, remaining on a "sell" signal. A drop below negative -16.0 triggers a new "buy" signal.
The NASDAQ 100 catapulted 127.79 points Tuesday, closing at 1,297.57. Our key trend-finder indicators triggered a new "buy" signal Tuesday. The Russell 2000 rose 34.15 points Tuesday, closing at 482.55. The RUT Purchasing Power Indicator rose to negative -0.94, triggering a "buy" signal October 28th.
The HUI Amex Gold Bugs Index rose 21.12 points Tuesday, closing at 172.69. Gold's Daily Full Stochastic generated a new buy signal Tuesday. The HUI Amex Gold Bugs Index Daily and Weekly Full Stochastics just generated new buy signals. December Gold rose to 749.4. Silver rose to 9.23, while Oil rose to 65.04. The Dollar fell 0.02 to 86.73. Bonds fell a point to 116^11. The VIX fell to a still high 66.96, as volatility and fear remain.
The Fed cut the Federal Funds Interest Rate by half a percent to 1.00 percent. It was 5.25 percent a year ago. Think about that. It means they can only lower interest rates 100 basis points more, to zero. That's it. Running out of the conventional monetary policy bullets. What this means is what is left is to print and distribute money. Question is, distributed to who? Who is getting that money? Are you okay with it going to Wall Street firms and money center banks, and not to you? Don't get me wrong, the banking system is the delivery system for credit, so it had to be attended to, however the core source of the economic crisis is the devastating condition of the American Household's finances. This disease lurks deep in the microscopic cells of this economy, and will not be cured until money is placed directly in the hands of consumers to get rid of their debts. If consumers get rid of their debts through repayment (and not bankruptcy), then bank and corporate bad assets will become good assets. Shouldn't you be allowed to borrow from the Fed at 1 percent? Think about this. Hyperinflation is coming as this money hits the economy, and you didn't get any of it. None. Yet, your cost of living will go up once again, after this printed money flows through. That concept may sound crazy in such deflationary times, however this will be the future with this course of action. The American Household is being sold a bill of goods that says, hey, be happy, your bank didn't fold up. Keep your debt. Keep your unemployment. You get nothing. You can't pay your bills? You get bankruptcy. This Master Planner tactic will fail, because it does nothing for Households.
Government buying the bad assets of banks and insurance companies is treating the symptom, not the cause. If they took that money and gave it to the Households to pay off their debts, the bad assets would become good assets for banks and insurance companies while also cleansing household balance sheets at the same time, taxpayers getting twice the bang for the buck. Over the next 2 to 4 months markets will rally. New President, lots of hope. Buying the Fed's policy lie. But this Master Plan will fail, and when that becomes apparent next year, the final terrible phase of the Bear Market will kick in, and terrify everyone.
The point: If you are holding stocks, enjoy every second of the coming mini-Bull Market, and raise cash during it. You get another half chance to protect yourself over the next 2 to 4 months. Has the mini-Bull market started yet?
Short-term, here is where we are: Both the Bullish and Bearish scenarios remain alive Wednesday, both implying a huge move around the corner, but in opposite directions, of course. Both are charted later in this report. A rise above 9,750 suggests the Bullish, Minor degree wave b-up rally started Tuesday. The Bearish scenario considers a sideways triangle is in formation, wave 4, and it may not be complete yet. One clue the Bearish scenario is occurring is if prices drop to the 8,400 to 8,500 area, probably Thursday or Friday, then bounce. That would suggest wave {c} up completed Wednesday, and wave {d} down would take prices to the 8,450ish level. Then a small wave {e} would take prices up to the 8,800 to 9,000 area, then plunge. That plunge would likely occur right after the election.
The 30 minute, 15 minute, and percent above 5 day indicators all suggest that stocks could decline Friday.
The Daily MACD and Full Stochastics have generated new buy signals in the Industrials, and the Weekly Full Stochastics have also generated a new buy signal. This argues for the short-term Bullish scenario.
The Dow Industrials fell 74.16 points, closing at 8,990.96 Wednesday, October 29th. NYSE volume was flat at 110 percent of its 10 day average. Upside volume was 53 percent, with advancing issues at 63 percent, with downside points at 54 percent. S&P 500 Demand Power rose 2points to 431, while Supply Pressure fell 9 points to 535, telling us there was a lack of interest in selling, but a few large issues drove prices lower.
The Demand Power/Supply Pressure indicators generated an enter short position signal September 4th, and remains there Wednesday. Wednesday's McClellan Oscillator improved to positive +43.04. The Summation Index improved to negative -4,089.15. NYSE New Highs was flat at 5, with New Lows falling to 85 Wednesday.
The percent of DJIA stocks above their 30 day moving average fell to 10.00 from 16.67. The percent above 10 day fell to 60.00 from 76.67. The percent above 5 day fell to 90.00 from 100.00. The NYSE 10 day average Advance/Decline Line Indicator rose to negative -165.30, remaining on a "sell" signal from September 11th, when it fell below negative - 120.0 threshold necessary for a new "sell."
The Plunge Protection Team Risk Indicator rose to negative -15.67 Wednesday, remaining on a "sell" signal. A drop below negative -16.0 triggers a new "buy" signal.
The NASDAQ 100 rose 4.55 points Wednesday, closing at 1,302.12. Our key trend-finder indicators remain on a "buy" signal Wednesday. The Russell 2000 rose 8.33 points Wednesday, closing at 490.88.
The HUI Amex Gold Bugs Index rose 22.40 points Wednesday, closing at 195.09. Volume rose to 114 percent of its 10 day average. Our key trend-finder indicators moved to a new "sideways" signal Wednesday, October 28th. December Gold rose to 767.6. Silver rose to 10.12, while Oil rose to 68.51. The Dollar fell 2.10 to 84.63. Bonds fell a point to 115^03. The VIX rose to 69.96, as volatility and fear remain.
Gold's Daily Full Stochastic generated a new buy signal Tuesday. The HUI Amex Gold Bugs Index Daily and Weekly Full Stochastics just generated new buy signals.
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We continue to believe a major move is coming in stocks this week, starting around our phi mate turn date of October 23rd +/- a few days. Monday's rally does not change anything from our Weekend analysis, the triangle scenario remains in full effect. Today's rally looks to us to be the "{b}" wave inside the {d} wave forming for this triangle, and if so, 9,200 should prove to be formidable resistance, which is approximately where the upper boundary of the triangle passes. The 15 minute full stochastics argue that this move up should be over this afternoon, however the 30 minute Full Stochastics are indeterminate. If the triangle pattern is occurring, we should see a 300 to 400 point drop in the Industrials over the next day or two. That would complete the fourth leg of this five-legged triangle. Then we should get a short pop up, wave {e} up to finish the pattern probably Wednesday or Thursday. Then a massive decline should follow, the final decline for the first of thee major trends for this Bear Market from October 2007. A huge rally that lasts into early 2009 should then follow, before the last leg of the Bear Market occurs, which should be catastrophic. Of course things can change, but that's how things look at this time.
As of 2:00 pm EST, the Industrials are up 220 points at 9,071. The S&P 500 is up 26 to 966, the NASDAQ Composite is up 24 at 1,735, the NDX is up 16 at 1,328, the Trannies are up 92 at 3,784, the RUT is up 6 at 533, the HUi is up 10 at 214, Gold is up 1 at 788, and Silver is up .38 at 9.71.