Wednesday, November 21, 2018

Thanksgiving count

Just wanted to post an updated count before we adjourn for the Thanksgiving.

The weather in western WA will be pretty lousy -- thunderstorms! -- this weekend, so I'm set with reading Murray Rothbard's America's Great Depression.  He applies the Austrian analysis of the business cycle to understand the causes of the 1920s credit bubble as well as the extended pain it caused by the various market interventions and policy nonsense in the 1930s.  Very relevant book for where we are today.




Proposing here that the wave alternation between waves 2 and 4 is a flat 2 and a sharp, spikey wave 4, which finishes our first larger leg down in the first week of February.

Of course, the bounce from that only forces the Fed to hike again in March.  Have a happy Thanksgiving, friends.

S&P 500 daily

15 comments:

Christian Gustafson said...

Hey ease off the bickering, we all know this is voodoo. We care about technicals because we really want to see some order out of the chaos, and to know it. There's a tremendous act of faith in all of this.

Kevin Wilde said...

In my AK newsletter I've drawing two projections for weeks now.

One is similar to what Christian outlined, which sees one final retest rally back to SP 2800ish before we crack in the crash wave. In my chart, that projection is based on the first sell wave of the 2007 experience. That requires a very big bounce here....

The second projection is 1929. That is a better fit given the rapid drop this week. That requires a much smaller bounce here, similar to where we are trading at this morning. Maybe a little higher to close the gap. Then we crash to NAZ 5000, SP 1850. Dow 17K.

Trends can turn positive, and the tape right itself, though the one characterization of trading since the October slide began was buying has been much smaller than normal on both down and up days in both time and price. That has to change for the bulls to have a chance.

The trading plan is to sit in cash and trade short if we rally back to SP 2800ish, and buy for a very short term trade if the markets crash to hit the targets as laid out above.

Hope you'all have a great TK!

Christian Gustafson said...

At 2811 test I'm buying Q4 SPY puts in quantity.

Christian Gustafson said...

Ultimate face-ripping, short-eating c of 2 would have us right at 2811 on the early close Friday.

The upper Bollinger Band daily SPX is sitting up there, waiting for us.

Kevin Wilde said...

Back in 07 the B down wave was 5 days, and the rally back C wave 5 days. This time around it was 8 days from peak to yesterday trough. Hard to imagine 2 days getting us back up, with 8 more likely.

Once again, not seeing such strength, and we have to survive the 1929 test, where the massive Island reversal (gap up 10/31, gap down at same spot 11/20) holds and the slide resumes into its accelerating fruition.

Armstrong 11/26 panic cycle week facing us in the cross-hairs next week, though that might be voodoo too.

Christian Gustafson said...

IIRC, Armstrong's "panic cycle" is for next week.

So maybe we can finish c of 2 up as a 4-5 day run and reversal.

Kevin Wilde said...

Bear market rallies can be spectacular, so maybe you'll get your monster rally day Friday and/or Monday. I'm talking to Uhaul right now to see best way to load up a truck, in case you're right! Please keep us abreast of McHugh's thinking from shorter term trading stance, as I need all the help I can get!

Hugh Jazole said...

BPSPX confirming the market will head back down after the bounce. Do you really think we're in a similar situation as the 1920's? What about, muh gold standard?

Kevin Wilde said...

Hugh, there are two types of bear markets: down 20% minor kind, and down 50%-80% big one. The difference between the two is the degree of speculation and monetary stimulus. If we fear a bear, we only have to go down 20%. If we scoff and scoff - buy every dip - then we have to suffer the big one.

Big ones come in two forms: fast and slow. 1929 is obviously a fast one that morphed into a double one. 2007 was the slower down 50%. That's currently what we are deciding between the too. A rally back to SP 2800ish that Christian is patterning would 2007. A failure of the current rally - which already has disappeared for the day - would keep us on the 1929 path.

Could we keep this at the down 20% level and survive? Yes. Though getting down to that level puts us smack in the crash zone. The difference between those two is the amount of over leveraged big players who get margin called due to such a drop, and the presence or absence of an Enron or Lehman. Odds are some idiot entity is getting their head handed to them.

Then we have trade war, similar to 1929.

Not sure what the gold standard had to do with anything, beyond back then you could hide out in gold, and now that might not help, since gold is held by those melting big players.

Of course all I can guarantee is I don't know, though what walks like a duck, quack likes a duck, should be deemed a duck till otherwise. And the NASDAQ continues to track 1929 perfectly. If so, tis all going be over in the next few weeks.

Christian Gustafson said...

Open to either scenario. Crash next week is certainly possible.

Hugh Jazole said...

"1929 is obviously a fast one that morphed into a double one. 2007 was the slower down 50%. That's currently what we are deciding between the two." False dichotomy? I think the odds strongly favor 20% or less, until proven otherwise. The scenario you're not including is a mid nineties scenario, where stocks were overvalued for an extended period of time. If we're in anything similar, we likely have a few more years before the crash.

Hugh Jazole said...

Do you guys think the FED is impotent here? I'm thinking they intervene in a big way, if we start getting anything more than 20%

Hugh Jazole said...

https://www.globalresearch.ca/hillary-emails-reveal-nato-killed-gaddafi-to-stop-libyan-creation-of-gold-backed-currency/5594742

Kevin Wilde said...

Hugh, what you suggest is a 1998 moment, when the blow up of Long Term Capital Management moved them from rate hike stance to an emergency rate cut. That gave us the blow off into 1999/2000, and something that should be watched for.

However, 1987 they didn't cut rate till after the crash. Remember, they can happen over 4 days, like 1987. That final day was 20% for the Dow, on top off the slide that happened going into that fateful day.

Powell is speaking tonight - I believe - so maybe he says something calming that give us what Christian expects. Without a trade deal, I don't us getting beyond his target, so I will be shorting there. The problem is everyone wants such a move, and there's zero evidence yet that the bulls have what it takes to get there.

Then there's the 1929 pattern, which is basically NAZ 7000 is all the rally we get. Then 6500. Then 6600. Then 5000 (crash.) Then 5900. Then 4400. Then we get a big rally, finally. (Not a projection, just saying what happens unless the bulls step forward to break us out of that pattern, which it has been in since October.)

When things change, they change, till then: gulp...

Kevin Wilde said...

1739pm today I posted my chart at daneric's site so you can see it without subscribing to my AK newsletter.

http://danericselliottwaves.blogspot.com/2018/11/elliott-wave-update-15-november-2018.html#disqus_thread