Thursday, February 13, 2014

DJIA 1929 fractal is still very much alive

I don't usually do this, but I had my eye on the DJIA today, watching to see if it would (a) make a new high, and (b) reach its 50 DMA.  It succeeded in the first, barely, and failed in the second.

So ... what can we say but that the 1929 fractal scenario is still very much alive.  I know, I know, I hate the Dow, I hate this shitty little 30-company index that is a pain in the ass to chart.  I hate its place in the popular mind, where a +300 day can be powered by some quant jerks pumping IBM like crazy.

I hate the Dow.  And it couldn't reach its 50 DMA today.  Despite the SPX retracing 80%, despite the techs making new highs, despite everything I hate about this index ... the '29 scenario is still very much alive.

Let's talk about what this may mean.

First of all, should this play out, I would expect a wave 3 on the SPX, the main index of interest here in Deflation Land.  At an expected 1.618x magnitude of wave 1, it would get us down to SPX 1646 by about the end of February.  If we check the chart, we notice that critical chart support from the 1074 low in 2011 lives down here.

But the 1929 fractal describes a FIVE WAVE move.  At three waves, you could label it a "wave 4" of some degree and start plotting out major wave 5 UP targets.  But if it traces 5 waves down and breaks this key trendline, it's a whole new ballgame.  So we would likely bounce and then violate the trendline from 1074, completing a wave 1 down from the top, bottoming into Purim, like so.

SPX 02-13

Oh, you noticed I drew a few extra waves.  

Well this W1 is part of a larger structure, that runs through May and June and halfway into July.  I mentioned the other day how insanely important the 4/30 FOMC is, for the GDP print, New Moon, FOMC meeting, and general seasonality.  April 30, 2014, could be the best turn date ever.

OK, so what next?  Wellllll ... this would set up a real crash in the fall.

SPX 02-13 3Y

Moving a little fast here, you're thinking?  You remembered that this whole market is pumped-up and completely fake, right?  Just like our entire economy.  How did you THINK this would end?  Five waves takes us across the giant megaphone, to the 2002-2009 lows trendline, and a final crisis in the $USD and bonds.  

Got geese?

All this ... if the little '29 fractal plays out in the next few weeks.  


Bicycle said...

Subjectively, I just don't see how we don't just keep going to my Nixon Shock trendline up near 2250.

After today, we're "only" a 20% ramp from that target. Of course there will be pullbacks along the way, and it could take 18 months, but any number of things can take us that high:

- US oil production keeps rocking. Yes, at some point it will sharply and terminally fall, like Steve says, but it clearly has 18 mo. to a couple years to run at this point.

- Yellen un-tapers. They've given themselves some room to do that now and will increasingly give themselves more room as time goes along.


- Or, we just need a final, straight to the moon blowoff to finish this off.

After that, of course, we go visit 450, and perhaps 210 (per Nixon shock trendlines).

A 90% collapse, top to bottom.

Christian Gustafson said...

If we assume $10B taper per FOMC meeting, the Fed has one or two meetings this year where they can "pause" and send the market north.

June might be a good time for that.

Just posted a fresh count, crazy stuff.

pb said...

I think it all comes down to QE. If the fed continues with the taper the market will deflate. I believe the only reason for this rally was that the Market believes that Yellen will buckle and untaper. It's not going to happen - QE has lost any effectiveness at this point / four trillion dollars and we get horrible job numbers- It isn't working.

Bicycle said...

Except, tapering has not caused the US equity market to deflate. That is why that last big dip got bought, because it was false.

It has however caused turmoiling in international markets.

If the fed continues to taper on schedule it will cause increased turmoil in international markets.

My belief has been, that QE and ZIRP has been a way for the Fed to intentionally export inflation to developing economies while they allow the US to stagnate. This has happened--ask anyone living in India or China recently. Ben got what he wanted.

Now that inflation in China and India is pushing jobs back to the US (or at least, some robots factories), the Fed is content to gradually pull the rug. They are seeing more wage parity with Chindia, and feel they can now back off.

This is where they can lose control... not in the US, not at first. Developing economies begin to fold, along with Europe, Japan.

Capital flight to the US takes hold in earnest. This is another way we can get a massive 20% ramp in short order. Leading to a top near 2250, where the Fed has already completely tapered, feels like it is beginning to lose control of US equity markets....

...and in a panic...

...raises interest rates. But it's too late. Far too late.

The treasury complex collapses almost overnight on that announcement. Equities headfake at first, then follow.

All of this against the backdrop of energy depletion, which the Fed may or may not be paying attention to. We get a headfake north out of Steve's brent oil triangle, then the price of a barrel collapses, shutting in massive amounts of production.

pb said...

Jezzzz Bicycle they only implemented the taper in january and it's been a
reduction of ten billion a month- practically nothing so far. If they
continue with the same pace or increase it - I believe the Markets
will rapidly deflate as they have in the past. I guess we will see shortly - but you do have an interesting theory.