Thursday, October 30, 2014

The Christmas Crash Scenario

When he's not scoping out moldy old sci-fi in the local Goodwill, the modern Elliotician spends most of his time war-gaming various scenarios, some of them extreme, about the future.

It's a little like those great old Avalon-Hill games we played as kids on the giant hex maps where the Soviets were pushing through the Ruhr Valley with the Czech mechanized units, and, well, could you counter it conventionally, or does it need to go nuclear?

If we can make it to the top of the megaphone -- an insane 2040 SPX -- by, say, Monday, then I can get us a crash by Christmas.  It would be triggered by a rejection off the underside of the 200 DMA, and then ... nothing but air for 700 handles ... a true historic panic.

So here it is, mechanized units thrusting into the Ruhr.

SPX - Christmas Crash scenario

But we gotta finish the rally and -- hopefully -- make our new highs first.  Bicycle is worried about us hanging around up here for a while like a bad canker sore, and so am I.  We are bold men of action, eager for the future!

47 comments:

Bicycle said...

Bold men of action...

Christian Gustafson said...

Trust me, as a dad of a couple of daughters, I'm always on alert for creeps like Linus.

He had best watch his six. I'd bury him in that pumpkin patch.

Bicycle said...

Well folks, we aren't too far away now, are we?

Megaphone completes tomorrow. And we're done.

Christian Gustafson said...

What an intense tape!

Everyone watching this knows the stakes. This is what I meant about the final advance being scary for all involved.

T.Berry said...

amazing, snp up 2.2% since feds last purchase of stock on 10/27.

Phat Repat said...

Very nice action. It is interesting that the Transports (IYT) are somewhat lingering here and, though a sell hasn't been triggered, is it the pause that refreshes or something else? Soon we shall see...

System says Sell below 153.51 with Stop 155.51 (numbers adjust with fresh data, but relatively close)

As to the numbers, here is what the S&P is showing:

Buy above 1988.63 with Stop 1965.02 and Targets previously stated

Sell below 1956.04 with Stop 1979.62

Phat Repat said...

Given the outrageous action by the Japanese Central Bank; looks like we might be setting up for 2040 Friday!? Yep, this will end badly. Monday Bloody Monday?

You were saying T.Berry?

Buckle up...

john said...

This is getting very interesting. May I reblog this?

Christian Gustafson said...

Yes, of course, John.

Christian Gustafson said...

Exited a bunch of SPY 200 weekly calls I picked up for a nickel, at $1.45. 29x-bagger!

Yeah, I know, I should hold them into new highs. But I'm still trying to do the responsible thing here, and I don't have the stomach to hold longs.

Fundamentally I don't believe in them.

Bicycle said...

Just a little Dow chart update. I can't believe we're really going to top on Halloween...

What hellish nightmare awaits us next week?

A better question, whatever happened to that crazy Molyman and his forks? Could he have painted the tape with a Freddie Claw today??

T.Berry said...

"You were saying T.Berry?"

1929 no qe = depression

2008 qe = no depression

btw, liking the qe free mkt so far.if we can make it to 2100 this year would feel real good for 2400 next

Fetal Position said...

Hi, Ive been lurking here for a while. A couple of questions. How do things like oil factor into your analysis? In 2007 we had a very rapid rise in oil price, leading into the downturn. Also, have you taken a look at the 3 month T-Bill this morning?

Bicycle said...

Oil factors very heavily into the analysis.

We recently blew out the bottom of a huge bull pennant on the WTI and Brent oil charts, which ends up being very bearish for oil.

A good place for primers is at the "economic-undertow" blog linked in CG's links, and run by Steve from Virginia. The current bull market has only been possible because of QE on the backs of the shale oil production growth by US producers. As WTI falls below their cost to produce (it is very expensive to extract shale oil), fields will be shut in and US production will fall. The Federal Reserve is aware of this, which is why they are ending QE and will increase rates, to enter us into an era of conservation.

Demand destruction will cause the price of oil to fall quite significantly, but due to the deflation, you simply won't be able to afford the price, even as it is falling. Steve thinks we will also see supply disruptions because producers and distributers will bankrupt themselves in this process.

Bicycle said...

If this is really the top, there is a certain deliciousness in Citi getting probed right as it happens. Remember all of the talk right before the march 2009 floor about how they were about to BK....

Christian Gustafson said...

I'm getting dozens of hits from links on a couple of Polish fin blogs this morning.

Greets and welcome!

http://www.redapplebuffet.com/

Delicious.

Christian Gustafson said...

Fetal --

Re bonds, rates can't go up ... until they do. Then we're done, and this blog transitions to gardening tips and firearms reviews.

I've maintained for a long time that the 10Y is headed below 1%.

Bicycle said...

We are probably within 100 Dow points of the Grand Supercycle top, now.

Phat Repat said...

Good job on the calls CG; you had more patience than me. ;-)

By my system, an interesting cluster of numbers is appearing for next week (looking like after Monday right now which dampens my thoughts of a Bloody Monday).

Ah well, what ya gonna do.

In other news, gold is on sale. Thanks for the gift.

Christian Gustafson said...

First the Poles, and now I'm seeing Slope of Hope-ers.

Greetings, friends.

Fetal Position said...

Copper prices nose diving once again.

T.Berry said...

from traders almanac
“In a midterm election year remember that the six best months of the year as identified by the Stock Traders’ Almanac shows that the November through April period has risen an average of 15.3% since World War II and has advanced 94% of the time,” he said.

15%+= snp @ 2300

Phat Repat said...

T.Berry
That's what makes a (quasi-)market.

But, as you know, nothing goes up in a straight line either. It sounds like you are mainly buy-side. That's fine, but I like to profit on both sides. Less gut wrenching too not having to endure some significant draw-downs.

But, to each their own.

Peace out.

T.Berry said...

phat-i'm not very good at shorting. tried over past 2 years and lost more than won. for me anyways, always make more on long side. need patience and know mkts will come back

all the best to you

Christian Gustafson said...

Thanks, guys, for remaining civil to each other through all of this.

I think we all understand the issues here, and the stakes.

Bicycle said...

Unless we get a truly unholy ramp here in the next 30 minutes, our top is going to have to wait for next week, at least. 17395 isn't high enough. And this is where I wonder if we're just getting teased today, and this will grind away sideways for weeks (or months) before resolving...

Piter said...

Top takes time to resolve. Might be even 10 months...
Check this great post from Chris. He knows the shit :)
http://www.chrisperruna.com/2014/10/30/market-tops-take-time-form/

T.Berry said...

cg, pulling for your vix 12's call, although like to see it test 52 week low which it's 26% from (10.28).

interesting stat here...

"October to October in that third year (of a Presidency), the market has risen 17 of 17 times since World War II gaining an average of 17.5%,”

doesnt get to my 2400 next year but i'll take it :)

impressive close today too..bull confidence into weekend..2100 is looking good for eoy

Fetal Position said...

Do any of you guys follow Elliot Wave Predictions site? It seems his predictions are turning out much better than most so far. Check out this post.

http://elliottwavepredictions.com/http:/elliottwavepredictions.com/sp500/longterm-elliott-wave-hurst-cycle-analysis/

Fetal Position said...

I find it interesting that NOW every one is bullish.

Christian Gustafson said...

Yah. Big weekend post ahead. We need to talk this over.

Bryan Franco said...

Markets make opinions

Christian Gustafson said...

Well aren't YOU just the man of the hour.

Congrats on today, Mr. Franco.

May your model work out as expected soon. Very soon.

Bryan Franco said...

Unfortunately it just says we needed the new closing high. It doesnt say anything about how high we go. But i would tend to agree with a top trendline touch of the megaphone or even slightly higher. I think mid november through the end of the year will be nasty down. This will go against seasonality, but would be in line with the 2007 tape, just delayed 3 weeks.

Bicycle said...

Or, Japan blows the fuck up on Monday night, and we go LLD every day from then until Thanksgiving, unable to trade.

It can happen, gents. Please be careful. This wave will be indiscriminate about whom and how it destroys.

Imagine the unimaginable. And rest up. Soon... Very soon... We won't be getting much sleep.

Phat Repat said...

Bicycle
True that! Though we enjoy this volatility from a trading perspective, I am surprised that most are not realizing the reek of desperation from the Japanese.

And to think that we are in any better position given the expansion of our own balance sheet would be some serious state of hopium smoking delirium.

But, that's pretty much what we've got now; may the games continue and may we have the fortitude to know when to extract ourselves from the system. And how to protect ourselves should the system fail. ;-)

Permabear Doomster said...

Well CG... we're in the last sixth of the year.

Gods help the bears, I hope you're right.
-

I'm certainly aware a few people are looking at another major wave lower, but personally, until we're back under sp'1900... I just can't believe it.
-

Regardless.... have a good week.

Bicycle said...

So about that EUR/USD move tonight...

Something is about to break, and very badly.

Christian Gustafson said...

I was going to post today, but the outlook is unchanged, and I was busy seeing chum salmon spawning in Piper's Creek in our neighborhood.

You guys did check out the McClellan Oscillator from Friday, right? Between it and the daily/weekly BB on the SPX, you could say we are a wee bit overbought.

Christian Gustafson said...

Hey, Nik Wallenda pulled it off.

I lived on the 45th floor of the West Tower of Marina City from 1993 to 2000. Loved it.

Phat Repat said...

Bicycle
Yeah, that's pretty amazing. Thankfully I'm short FXE with a target of about 119.17 to start and a stop of 125.49. Will likely increase if everything holds for Monday.

I am also long TLT though I may have entered that a little early ahead of a signal from my system (usually not a good idea ;-).

CG
Perhaps sell the news after the election on the 4th? Definitely way overbought as you showed.

Consulted in Chicago and stayed at Chicago-Mart Plaza River North for about a year in 2002 and very much enjoyed it. A gastronomical delight!

Phat Repat said...

Yep, note to self; never ever go against the system (i.e. TLT). A trader is his own worst enemy. ;-)

Bicycle said...

Here it comes. Man battlestations.

Christian Gustafson said...

5-wave micro-count off the top looks good, plus the little retrace late, check.

West Texas Intermediate crashing again, check.

Metals in free-fall, check.


Bicycle said...

In the depths of the post-holiday retail apocalypse in Jan 2009, I went to do a lot of clothes shopping, because there was a hell of a lot of inventory at the mall, and no demand at all.

During that time I picked up a great fleece jacket that listed for about $160, and I got it for twenty-nine US dollars. It was the best damn fleece jacket I ever bought. And it lasted until two days ago, when a seam near the zipper, and the zipper itself, catastrophically failed.

I'm convinced, it's a sign. I feel as though I should make a quilt of the remnants, so that when the dial on my utility meter spins for the last time, I can drag it out to keep the children warm.

It's a shame, I was trying to make it last until the next retail depression, but its getting cold around here, and I need a jacket.

Bicycle said...

Speaking of WTI, does anyone have any downside targets in mind?

Permabear Doomster said...

re: WTIC Oil

Target $65/60, no later than early spring 2015.
--

ps. CG.. please get Disqus installed.

Seriously, it'd be.....useful with so many comments starting to appear.