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Thursday, October 7, 2010

Elliott Wave Update ~ 7 October [Update 8:58PM]

[Update 8:58PM:  The Fed has to do QE2 because they have no choice.  They and the Primary Dealers and the US Treasury have been doing a circle jerk now since the crash of 2008.  It seems to me the Fed has no choice in QE2.

It has nothing to do with them carrying out their "dual mandate".  They couldn't give a rat's ass about the "little people".  It has everything to do with the provable Ponzi scheme they are running in conjunction with the US treasury and TBTF banks. It takes at least 3 entities to keep the illusion of a Ponzi going hence you have the trifecta of the Fed, the Treasury and all the PDs.  They stumbled into this arrangement of passing the football (in complicated and not so complicated mechanisms) and it has worked for a while now.

You sell me this, I sell you that, we sell to him, he sells to us, and we promise to buy it back. And we'll leverage it and make a "profit".  And here is your bonus for doing it so well. And we'll all carry our "balance sheets" and show no one. Just tell 'em everything is fine. We own you. We own your malls too.

ITS ALL BULLSHIT. They are bankrupting us.

The mechanisms though must be faltering I would think. They are running out of holes to hide the stinky stuff.  That is the nature of Ponzi schemes.  A "steady state" is only steady for a while. Then when the system quivers, you must do something new and adjust or take renewed action.

Ah but we have a fourth pig to the party known as the GSE's of Fannie and Freddie. This pig is insatiable and is not wanted at the party. But the pig must be fed or he will ruin the whole gig.

I may not be a the brightest guy on the block, but the thing stinks to high heaven.

The Fed has slowly unveiled QE2 as if they have the choice and are in control.  They have no choice and they know it.

It may be the beginning of the end for our financial structure as we know it. 2012 is not far off.  The best I can hope for is massive deflation and we all just pull together.  I like the US dollar. Its convenient. I don't want faith to be broken in it. 100% of Americans want the same. We like our dollar bill, its a powerful symbol as much as the American flag. (although backed by Gold would be the way I would want it)

To save the system you must let it fail. The Fed must be disbanded. The TBTFs must be broken up. Let my local bank print and back dollars. In the end I want to save our system. So I know it has to go through a big failure first (deflation and a lot of mass defaults on the Ponzi debt). Painful? Very.  But the opposite would be no system (or a new unwanted system forced on us) at all and that is anarchy. And debt slavery. We must free ourselves of the bad debt.   We must take our living standard haircut now or our children will bear our misdeeds for their entire existence.

It won't matter whether we choose to do it or not. Nature's laws will force us.

That which cannot be sustained, won't be.]

[Update 8:28PM:  This chart I meant to show for a while.

A few weeks back EWI had "free week" for other services and one service was short term update - Asia (and Europe).  One thing that struck me was that they were calling for the Indian markets to burst higher and challenge the 2007 highs.  The immediate thought I had was - why is the right hand of EWI calling for Minor wave 2 tops (they have many analysts) when the left hand is calling for a powerful rally - a Minor third wave at that in an index that is subject to any powerful down moves in the US and Europe? That bothered me the whole time - and now for good reason we can see why. There was a powerful rally - it came to pass. And Minor 3 down in the US markets was not to be.

I should have followed my initial gut instinct on that.

It is not true that every market in the world must be in sync. Certain markets are not. China and Japan are a bit off with China being way more so.   But when it comes to other markets, Europe, Americas and probably India, you can see they largely move together for many years. This is the slow synchronization the world has gotten itself into via social mood. Globalization at its best (and worst). A panic in America will likely reverberate in India too.

A Grand Supercyle wave III that last centuries takes a few decades to "top". We had Japan in 1989, Nasdaq  (US Markets) in 2000, Europe in 2007 and now any remaining emerging markets likely in 2010. (Thats a Fibonacci 21 year time span by the way).  So my point?

First - there are world-wide forces that have not yet fully rippled out - but they are getting there.

Second - The markets of the world are synchronizing for a great fall after all have made major cycle and super cycle peaks. That much seems clear.  What happens when there are no more markets in an up cycle and they all  find themselves in a downturn? Will that have a synergistic effect for a super bear storm? ( I think so)

Third - India may want to make new highs on the Nifty 50 here or at least challenge. They are close now. So Minor 2 may trudge onward (or we make new highs too)...not sure how it plays from here between the two.

Fourth -  As much as EWI gets a lot of crap around here, this was a great call by the Asia guy.  And I recommend you become a CLUB EWI member (free - and they offer a ton of free stuff) by clicking on my links to the left. Then any services you dabble in I get a small commission.  I am a member and get the US STU, EWFF and EW Theorist.

[Update 7:37PM: The count below shows what I mean when I stated there are enough waves for a valid count. There are certainly other ways to count it but the main point is this points toward a final wave after the sideways BS as of late.  I have us topped in wave five today but if the market wants to extend, well, I can't stop it.

But the pattern looks mature. Particularly when you place the 50% FIB in the middle of the formation. Also the channeling is pretty decent. A break of the lower channel line would be a good starter for bears.

The entire things is riddled with huge open gaps up. These are open because the bulls cannot afford to lose ground here and slip back under lower resistance levels. This was hard fought territory.  Yet the gaps fester like open wounds.
[Update 6:51PM: Here is a good example of what I am counting on for the dollar.

First chart is the Euro/dollar chart and see the blue box area?
See what came next after the blue box area?
Here is the current dollar with virtually the same setup which we count as [1]-[2], (1)-(2).
[Update 5:56PM: I get a lot of questions on what the alternate count above the April highs would be.  I have stated in comments several times but this chart pretty much shows the alternate.  Its simplified.  Since this would already be wave 3 of (C) it implies the very top of (C) would be stunted and perhaps only squeak over the old high by not much.

But this chart also shows why I think P[2] is fine where it is and this is a Minor 2 rally within P[3]. First of all, notice the new extremes in market interals since April worse than anything in P[1].   This would not be conducive to a (B) wave move....its more a clue to P[3]. Wave threes are supposed to be stronger and we already had new extremes and it was from the market top more or less!

Also the psychological implications of the market trying to erase the memory of the panic. This is the logical stopping points for both P[2] and Minor 2. P[2] had one squeaker close over Lehman BK day and Minor 2 has yet to close over the May 6th flash crash day.  Each represents a challenge for each's respective wave degree.

If the market decides it wants to rally to a new 2010 high, who am I to say its not correct?  The market is always right. I have made my analysis and it stands.

I will say this: If the market attempts again to get above Lehman Day and set a new P[2] high, the danger will be greater than ever. The Fed cannot induce good social mood. They cannot induce spending and printing money always ends in disaster.

Logic tree as I see it:

QE2 = psychological disaster (The Ponzi recognition phase would go viral).

Disaster = probable mass panic

Mass Panic = Mass Selling

QE2 = disastrous mass panicked selling

QE2 would be implementation of the endgame.  It is nothing to cheer. It is to be feared and an affront to our very core way of life. QE2 = Ponzi awareness goes viral.

The FED is dangerous and must be reigned in.
Well as I stated last night there are enough squiggles in place to call a Minor 2 high. Now all we need to do is monitor the things we watch to help verify this is a wave 2 like sentiment, the dollar, etc.

First we need a 5 wave structure down to help confirm a trend change.

From today's high to today's low we have only 3 waves. Yet even though that suggests corrective down, the three waves is a possible bear formation in the making: A leading expanding diagonal from a significant top (which is where they occur).

We can accomplish this by a huge gap down and making a lower low under today's low. Then a rally in an attempt to close the gap would be wave ii that might run through Monday.

Now if the opposite happens (a gap up) then we are impulsing up for further highs likely. We have a news event with employment tomorrow.  We still haven't had the Wilshire have a close over the flash crash candle high of 12252.  If that happens tomorrow going into the weekend, that will likely trigger major bullishness in sentiment. And then we see if the market has enough gas left in it to hold the flash candle as support and move to new 2010 highs.

Thats what it comes down to basically.
In the long-run, the way I view it is even if we have a melt-up through elections that triggers new 2010 highs on some indexes, we will have a melt down after.   I would be looking for a DOW theory divergence for instance. This rally is not being confirmed with any volume.  The Price Volume Trend on the DJIA is not moving higher. It is diverging form the April high. The breadth is also waning. You can see this in the daily DOW OBV also.

Incidentally, the upper blue line is the upper channel line from the 1930's.  I have blogged about this before.  If it is the true DJIA target then we are about looking at a double top within a few weeks.
We are at a key resistance for the total market Wilshire5000.  

We need 5 waves down first. Its as simple as that.

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