Friday, February 7, 2014

Quick take on the 1929 DJIA tape

I stretched it proportionally and overlaid it on the S&P 500. 

FWIW, we shall see ... .618 of the drop to 1737 SPX is up around 1807.

If it plays out then we need to decide if the entire structure is only a "wave 1" from the top, or if we have finished some larger-degree wave 4 in very dramatic fashion.

The outcome most likely depends on the FOMC meetings and announcements this Spring, particularly as regards the QE policy.  I can't stress enough how important this is, so I will do so below in BOLD TEXT.

The April 30 and July 30 FOMC releases are both on afternoons where a GDP print is announced in the morning.  If we print a red or recessionary GDP number, and the Fed decides to wind down the QE program, continuing the "taper", later that day, IMO, the markets will immediately waterfall into a 2008-style collapse.  The Fed will be seen as tightening into a recession.  Game over.

The April 30 meeting is particularly sensitive to this thanks to seasonal considerations, "Sell in May" and all.

I'll see if I can do a better job of a 1929 mock-up over the weekend.  This is just a quick hack.

SPX with 1929 Crash overlaid


Permabear Doomster said...

It is a very alluring scenario.

Yet, if the bears can't manage a daily decline when the jobs data misses by 60/70k, then how are bears going to manage anything like that outlook?

QE still continues at $65bn a month until early April, and that is no doubt taking the edge off the sell side.

As you note, seasonally, the bulls usually do okay until the 'sell in May' time.

What about your earlier outlook of another wave higher to the upper 1800s?

Regardless, have a good weekend

Bryan Franco said...

Sticking with another all time high, BUT first... i think we are in B of some wave 4, with a C (albeit widely anticipated) to follow. That means a short/intermediate low within a few weeks, only to be followed by THE top. May it be on April 30th!?

p.s. this feels like a classic pickup in volatility that precedes a wave 5.

p.p.s. encouragingly for Bears, the VIX Index itself has not taken out its March 2013 lows. Of course ETFs like VXX or UVXY have made new lows because they suffer from monthly futures rolling costs, and rebalancing decay.

Ponzi Unit said...

Christian, I believe I borrowed this ascending Andrews Pitchfork from an old charting thread you used to maintain on an old forum - 2 years of performance out of one rather simple fractal:

Permabear Doomster said...

*hey Ponzi Unit.

Fascinating charts, they sure look fancy.

I liked the one lower down, with a high of May 8' in the low 1900s.

I could go with that, seasonally, it'd be fine, and the price level would make sense in many ways.

Bicycle said...

Calatrava's Chicago Spire lives again:

We'll need this project to emerge from BK and get underway again, but it's another sign of a major top just like it was last time.

T.Berry said...

PB .like your 1900's by may....that would be beautiful especially if we see GC's 1630 in march. still holding 90% long and ready to unload half to catch 1630 next month

Christian Gustafson said...

Today's wild action supports Bryan's view that we have one more sharp rally in all of this.

Last night, McHugh back-peddled on his calling the top of the Jaws of Death, too, going to a more wait-and-see attitude.

There is still room for one more leg down on JPY, which is still running the show.

If this pace continues, with corrections as mostly sideways moves or very minor pullbacks, then we could be at SPX 1886 or so by EOM February.

There is a New Moon over the weekend into March; it would be nice if we could finish up into that, instead of lingering and languishing into late Spring. Ugh.

Bryan Franco said...

i thought we would get a sharp drop below the february lows first. I wonder if that is off the table?

Permabear Doomster said...

*I was just backward extrapolating from the wave in July 2013...

that would suggest...

1886 by late March

I'll post related charts on Wednesday, if i remember.

Christian Gustafson said...

Agree, PD, with the 1886, yes. But I think it may happen sooner -- this 5th wave is off to a pretty strong start, yes?

Permabear Doomster said...

6% down across a few weeks...

5% up in 5 days.

The old 'stair step up...elevator down' has been reversed.

I think its just a case of waiting for the weekly MACD cycle to tick upward for 6-8 weeks...and then rollover.

From might get somewhat 'easy'..for those with eyes on the bigger picture.