Custom Search

Saturday, January 23, 2010

Speed, Surprise and Paradoxes

The speed and surprise of the 3 day downside move has yet to really dawn I think on just about everyone. Even bears, I think, are looking for playable up moves and expected bounce points for that perfect short entry. They may be disappointed.

I think rather sentiment is now the major determining factor on where this market bounces. There is scant worry in the market even after a 552 DJIA point drop. If this had happened in September the bearishness would be off the charts. In fact, that very sentiment prevented this kind of drop back then and enabled the market to dribble ever higher ad nauseum for 3-4 months.

The "correction" story is of course starting to gather steam. The talking heads will throw out a lot of support numbers and percentages and such so they all can sound smart. They will be surprised by the speed.

The other media "narrative" is that people are worried about Bernanke's appointment. Are all the world's financial markets so fragile that they rest on one man's shoulders? The next media narrative is that Obama is turning on the banks. Well, I have been telling you that eventually the social mood would finally catch up with government. And the mood is that government is reckless with spending and we the people are horrified. As well we should be. And now the politicians have finally caught on that this was not just a passing phase. Its a generational shift.

Don't get too caught up in the media narrative of the day. A lot in the end will make perfect sense. After all, by attacking the banks and dismantling the underlying financial leverage systems that allow this crack-induced market to continue floating above 10K is naturally going to help speed the deleveraging process of excess debt and risk. Raising interest rates will naturally make the debt burden that much harder to handle and naturally will help speed the deleveraging process and lead to asset price drops. There will be countless government actions from here on out that will all have unintended effects. And all actions concerning the financial markets will of course have the unintended effect of having them decline even further. Count on it.

Populism against the financial "evidoers" will extend to short sellers. And of course they will ban them at some point or another. Which will ensure the market drops. Even hobby info blogs like mine may come under attack as being "un-American".

Forces have been set in motion that are beyond any one man's ability to control. Heck, Time's "Man of the Year" cannot even secure his renomination less than 1 month into the new year.

Don't worry about earnings or economic indicators. Or the P/E "value" games. They lag. They should be topping out as we are turning down. The earnings game is a game played by the Wall Street crooks and the enabling media. Just know its a game will keep you safe. Jim Cramer is not stupid. He is a cronie. And the day he is finally booted off the airwaves and indicted years down the road is likely to mark the very bottom of the bear market. And I will buy hand over fist.

And yes, we have become so complacent and overly lazy, and particularly greedy (i.e. - everyone wants "easy" money), as a society that we handed a good portion of our financial markets over to Skynet.

How does that fit into EW theory? Well at the top of a Grand Supercycle, you feel confident enough to create such complex systems that no one understands and then somehow they wind up running the show. Naturally the things we do at the top, help determine we get destroyed at the bottom. Think of all the pension fund promises made over the last 20 years. We tied our entire future to the big market casino. We sold out any real economy to fall back on. Our economic well-being is largely determined by the velocity of money, not the productive hard work of real lasting wealth. And now finally overwhelming social mood forces will ensure that we will begin to dismantle the systems that allow money to achieve that velocity.

So yes, we turned all of America into one giant hedge fund. And how do you think that will turn out?

In handing over the keys to the big casino and dark pools to the "wunderkind" math wizards who created the Skynet systems will, of course, ensure the markets' very destruction. Guess what? If you unplug them the patient will die. If you don't unplug them the patient will die.

But back to the topic at hand: This initial drop. Technicals paint a bleak picture. We are not close yet to oversold on the daily which is where I think we are headed. The HFT machines are scalping the shortside and Skynets are running into buy-side algorithm problems. Or perhaps, the wunderkinds have reprogrammed them since the 2008 panic to be more efficient at selling then they were last time around. How does that fit into EW theory? Well isn't it ironic that just when we are predicting a P3 wave of immense destruction, we wired all the bridges to blow up at the first sign of the enemy? Fate?

But what of the media narratives and such? Well let me ask you this: Why is the entire world pretty much marching in lockstep? Are they all just tied to Skynets? Well yes in a way they are.
But the real answer is social mood forces are in worldwide near-synchronous lockstep. Is it fate that we have put into place a complicated "global economy" at the top of a Grand Supercycle wave? The very fact that its complicated and overly interconnected will naturally ensure that each country will fall like domino's in the coming downturn of social mood forces. Our actions at the top, help ensure our demise.

And as each domino falls we will naturally try to sever our links with the fallen dominos which will of course speed the global collapse. Stay connected and die, disconnect and die.

Dismantling the global economy will ensure the patient dies. Keeping the global economy in place will ensure the patient dies. Uggh, there is that paradox again. We can find it over and over if we look around each corner. Pull your money out of the system to pay debts will ensure the patient dies. Keeping your money in so you remain burdened with debt will ensure the patient dies.

Ban short selling will ensure the patient dies. Let Skynet short sell it on untested algos and the HFT machines to scalp it until it all blows sky high will ensure the patient dies. I don't think these are false choices.

Ben Bernanke, I have come to realize is a bumbling fool. Tim Geitner on the other hand I think understands the paradoxes that I am alluding to here. He knows the system is in a no-win situation and he knows he cannot dismember the underlying apparatus. And now he will, of course, be marginalized. Not that he could keep it propped up forever anyways.

I think, in his mind to justify his actions, he at least gave the people an opportunity for an out. But that opportunity has already slipped 552 points in a matter of 3 days. And paralysis and greed still run strong.

And now a man from the of the last 16 year bear market is elevated to king maker in this bear market. Paul Volcker. Naturally trying to apply the same medicine will kill the patient. I think Paul understands the problems but I don't think he understands how bad the effects will be if the financial apparatuses are dismantled. I don't think Paul understands how badly America has become one big hedge fund. Maybe he does and maybe the guy reads EW blogs.

Regardless Paul didn't "cure" anything when he was the last Fed Chairman. Social forces cured it for him. We were going to march on up in a Cycle wave V of Supercycle wave (V) of Grand Supercycle wave [III] no matter who was doing what. Paul gets credit for raising interest rates but of course the market is what determined at that time what they would be. And when rates are sky high they can only go down. And now interest rates are at the basement level which means, well, you can guess that answer. And of course it will kill the patient.

Again my mind wanders from the task at hand: Just what is in store for the market this week? Well, the waves and technicals are pointed pretty much hard down. Dare I say sub 1000 SPX this week is in the cards? Its possible based on the only thing that matters: sentiment. Too much bullish sentiment and prices will keep dropping. Once bearishness comes back again in vogue, then it should find its first wave bottom.

I generally get the feeling that pro market bulls are just trying to protect their positions with use of puts and what not. P3 of course will not care about any of that. I also hear talk of "2004" as if we are in a cycle bull and now is the dreaded sideways choppy correction that will play out for a year or so. Well, the opening moves certainly don't paint that picture necessarily....

P3 according to EWI is supposed to set new extremes that out-do anything that P1 did to the downside. This would make sense as wave 3's of any degree are usually more powerful than either 1 or 5. And already, as Kenny pointed out the VIX has already set an extreme higher CCI reading than anything in P1.

Can you imagine all the bulls (and bears who got queasy) gnashing their teeth if the market keeps flying to the 999 level this week? All their technicals will be smashed to bits. All their supposed "support" will be an illusion. Already the 1113-1121 didn't hold very long did it? Hours?

I cannot suppose I know where the market will bounce for a first wave bottom and what the "news" of the day will be. All I can say is that sentiment needs to turn bearish like that "wall of worry" it had going for it for 10 months running. So far, it seems like everyone is looking around thinking everyone else is going to buy the dip.

I think the speed and surprise of P3 will catch everyone completely off guard. Even EWI, who naturally thinks that total market crashes can only occur after they have already sold off a bit, may themselves be dead wrong. There is really no comparison to a P3 at such large degree other than 1930-1932 I suppose...

As far as technicals go, this is where I switch gears once again and start paying more attention to waves rather than TA. In other words, waves trump TA for now. For instance I think its entirely possible that the market gaps completely under the daily BB and trades outside the lower band for a day. Also the daily RSI, may just head to oversold too.

I am mentally prepared to see just a tad above 1000 or 999 again by Friday. And yes, any bounce won't catch us off guard either will it? After all its expected isn't it? We'll just have to paint the waves every day and see where it gets us.

P3 will not pause and let the bears on the train nor allow the bulls the mental pause to switch allegiances in mid-stride. It never intended to. What about the kid with a ruler and a million dollars?

And all the captured market money managers have no choice do they? They too are trapped in a damnable paradox courtesy of the makings of politicians who don't have a friggin clue. As are we who own 401K's and the safest they allow us to do is have our money parked in "stable value" funds. "Stable value" is a paradox and should scare us away by fact that the crooks chose that name for it. I am not kidding.

blog comments powered by Disqus