Planet Yelnick

Yves on TV Friday

Watch Yves on Bloomberg TV this Friday 17:00 ET  on Taking Stock ... also on Bloomberg.com

Prechter on TV Wednesday

Bob will appear on Bloomberg television for an interview in the 5 p.m. hour (Eastern Time) tomorrow, May 7. Visit Bloomberg Television -http://www.bloomberg.com/media/tv/ - to see if it's available in your area. Bloomberg TV is also available on the Internet on TVU networks, channel 10085.  See http://pages.tvunetworks.com/ to download their player.

Yves Raises a Yellow Flag

Our favorite guestblogger called the rise since January, but now raises a caution flag. 

Bush and the Line of No Return

One thing we know about W is that he is trying to correct the sins of his father.  First, invade Iraq and finish the job.  Second, be 'compassionate' to get past being born with a silver spoon in your mouth.  Now, make absolutely positively sure there isn't a recession going into the election year.  So, the wasteful tax rebate. And, pressure on the Fed to keep rates low to keep the Dollar low so earnings from exports keep the economy slightly above recession.  Hence I think we are past the low for the year, and this market will climb a wall of worry into 2009.  In general the market is up during election years as Presidents do what W is doing to pump the economy; sadly, W's dad showed great financial discipline by not doing this, and lost.  So his principled stand was lost to political calculation. 

When will The Surge surge?  The first obstacle is the popping of the Commodities Bubble, which may be happening as the Dollar is solidifying.  The second obstacle is the uncertainty over the Demo candidate.  Normally the election year surge starts by May, as the candidates are known by then; and often the winner is known.  This year we may see a continued trading range with a slight upwards tilt until the Demo convention in August, unless the two Demo's self-destruct before then, and McCain is presumed the likely winner.   

Bubbles and the Line of No Return

About every line in the sand has been washed away with the recent rally - EventHorizon's Dow12528, the recent Feb highs, the hedging of Hochberg (he still expects a decline to start shortly), Dow Theory (Friday's close above 12,743 got us back to a buy signal so quickly), the Google surprise, etc. etc.  A close above SP1400, and then a run above Neely's final line of SP1475, and game over.  So, expect a pullback next week!

How can the Fed survive the last decade?  Greenspan bails out LTCM in 1997, and causes the Dot-Com Bubble.  Greenspan kills it in May2000 with a 50 bp rate increase, and Congress over-reacts with really terrible attempts to 'fix the problem' that have had the effect of killing the golden goose of the US economy - tech jobs, the last bastion of high-value jobs against the Chinese onslaught of cheap manufacturing.   Then he re-inflates in 2001 and creates the Housing Bubble, inducing a generation of Boomers to stop saving and bank on their home equity for retirement.  Oops!  Then Bernanke reinflates after the July credit crunch, and the hedge funds have rushed into commodities to deleverage from subprime debt and the Dollar.  Up 40% across the board in 6 months, to the unintended effect of a huge spike in food, especially rice, and now perhaps 1 Bilion (yes Billion) people under threat of food shortages. 

The Next Big Bubble, the Commodities Bubble, is being recognized as such. Let's take a short look at bubbles. 

Googling That Line of No Return

No surprise, Neely's River sees more meandering, not a sharp decline; and Hochberg's STU sees us in a final C of a double abc.  But they both remain bearish, just not yet.  Dollar may be in its final thrust down, but Euro seems to have a bit more up/down/up to go.  Sit back and see what Google announces.  Their click rate has softened, and this may mean they are not recession-proof; but Google has been saying they have been increasing quality of clicks, and in a recession the ad budgets should tend towards the measurable (Google) from the amorphous (TV). 

Inverting the Line of No Return

Later today Neely and Hochberg will try to explain why their calls on Friday turned out so poorly.  Market did not rally then drop, nor just drop; it plateaued and is now spiking higher.  Over the weekend the G7 announced a coordinated attempt to save the Dollar.  Volcker called for raising rates, a very unusual public slap at the current Fed, also to support the Dollar.  Dollar/Euro is nearing the end of their triangle dance.  All this suggests an inversion of the primary wave count of the leading wave pundits: rather than a drop ahead, it looks more likely that Mar17 was the potential meltdown day (think: Oct 9, 2002) and the tide was turned by the rescue of Bear Stearns.  Since then we seem to be forming a distribution pattern which should lead to new highs.  (The Surge!?  Tech is *finally* showing life.)  And you can see a large inverted head & shoulders forming in the S&P (a distribution pattern) which would predict that the S&P would eventually get back to the 1520 range, crushing through even Neely's ultimate line in the sand of SP1475. 

New Line of No Return

Today's weakness sets up a clear test on Monday: stocks either must rally or we sink fast.  Only slop is perhaps a drop at the open followed by a strong rally Monday.  If we do not see that rally, watch the subsequent air pocket down in the market!  Neely is already there - two days ago he said he expected a sharp decline to begin at any moment, and he is holding firm with that.  The STU is almost there, but Hochberg wants to watch for a rally or not on Monday in the opening hours.  He counts us in a double ABC wave 2 counter-trend rally, with today's close at the level the second B wave would normally stop at (78% retrace of move off Mar31 bottom).  Zoran would see today as a bifurcation thrust out of the recent plateau: a thrust off Mar31, then the plateau; and we have now thrust below it.  In his thinking, this would mean a change of trend down, likely as a continuation of the thrust, but possibly a new plateau around the Mar31 bottom level. 

The Dollar/Euro couple is finishing their dance.  Triangle is coming to a head, and should end with a thrust up in the Euro (above $1.59, and probably $1.60) and a thrust down in the Dollar (below 70.69, and probably below 70).  Next big news should be *finally* a serious attempt by the US Govt to support the Peso. 

Testing the Line of No Return

Neely expects the largest decline since January to begin shortly.  The STU expects a short decline only, then a resumption of the countertrend move.  The major indicies have stalled at a 38% retrace, so a down then up is not required under the STU wave count, but Hochberg fails to see the right 'look' in the wave structure, primarily due to time relationships.  It takes until May to 'look' right.  In the meantime the triangle in the Dollar/Euro continues, and probably needs to end before we get the next big move in equities.   

The Dollar and the Line of No Return

Markets remain in a trading range.  The STU maintains several counts, and the Neely River has several tributaries to meander down.  So, they don't know.  In the big picture, they generally agree - they see us as having an A wave drop to 2002/3, then recently having ended the B wave up, and now being in either a C wave or a triangle to a lasting bottom sometime at or after 2012.  Is the B over, or will we see a higher high before the big C wave?  Or put differently, if this is a large 14 year triangle, will we see a D wave go to higher highs than last October?   Dow16K!  The Surge!  Or not.  How to choose?  Watch the Dollar.

Sand in the Line of No Return

Market appears settled into a trading range despite all the prognostication of a big collapse or a renewed bull.  The STU's line in the sand was obliterated 7 minutes into the trading last week.  Neely's line stands firm for the moment (SP1475).  Neither has solid guidance other than to watch.  Prechter's monthly Financial Forecast is heavy on history (of credit bubbles) and investor psychology rather than wave count.  Even Friday's STU was circumspect - after their line in the sand was blown, they thought a major countertrend rally as underway; but when that stalled they now are unsure.  Sounds like the rest of us!

Clear Line of No Return

Today's interim STU draws a line in the sand: yesterday's high cannot be exceeded, or their upward flat count is bogus.  (Dow12.461, SP1341).  The alt counts include: that we are still in wave 4 as a triangle or larger flat, with wave 5 down to follow (to new lows) or we ended the downtick and are in a large rally before the dreaded 3 of 3.  They don't leave open that we are in a larger-degree wave 4 with a wave 5 to new highs ahead of us.

Yves on TV

Watch Yves on Bloomberg TV - Thursday 20th  at 17:00 on Taking Stock (or at  http://www.bloomberg.com/tvradio/tv/)

Bob on TV

Prechter will appear on Bloomberg television for an interview in the 5 p.m. hour (Eastern Time) today, March 19. Visit Bloomberg Television - to see if it's available in your area.

Triple Bottom? or Coiled Spring

Special STU today to hold the faithful in line.  They count us just ending a wave [ii] flat before a wave 3 of 3 etc. down.  The pattern from Mar10 broke as 335.  The c wave came into the range of the prior wave 4.  It fits, but the up volume and breadth was huge (a 90/90 day?).  They are watching for the volume and breadth of a drop tomorrow to the prior wave iv low, and will then opine on whether we have several more weeks of correction first.  On the other hand, we have had a triple bottom of the drop to Jan 22.  If this puppy keeps skyrocketing past Dow13K then the last two days will mark a Zoran Bifurcation Point.   

Mother of All Margin Calls is Beginning

The Mother of All Margin Calls comes when sound institutions must sell good assets due to the write-down of bad assets.  Carlyle had such a call last week.  JP Morgan issues a report calling it a 'systemic margin call' that will spread, especially after the week jobs report Friday.  Soon, many of these calls will come in not because a fund like Carlyle Capital is at risk, but investors in that fund, who used leverage to finance their contribution, are getting margin calls, and must liquidate good assets/loans to pay off the margin debt.    This is what Prechter predicted years ago in Conquer the Crash, to much hooting & derision.  It has started.

Update Mar10: it is spreading.  At least 6 hedge funds with $5.4B have had to shut down due to margin calls.  And not because they are in trouble, but because their creditors are!

On The Brink

Guestblogger Tony Cherniawski returns with an update to his post right after Jan23 called A Probable Path Forward.   He saw Jan22 as the end of a wave 1 down of a much larger and more devastating wave C.  Now he sees us ending the wave 2 with wave 3 of C about to begin.  This chart tells the story.  Read Tony's analysis below the fold, and watch out below!!

Plateau Continues

STU gives several scenarios, but still holds to the nest 1-2s in the Dow.  They see a five wave down today, but it could also be read as a three wave followed by a little plateau. In the Naz we finished (or nearly finished) a wave 4 triangle, and in the S&P they still see the wave 4 triangle as a alt count possibility.  Neely also gives several scenarios, but they are essentially the same except for timing: we are in a B with a C to follow, and the B plateau (which we have been in for a month) could and likely will continue longer than most imagine - beyond the turn window around Mar21. 

we had a thrust down from Dec, and then a plateau since Jan23.  At a smaller scale, we had a thrust up from Jan23 then a plateau since.  The move down has stalled, which makes the coiled spring of nested 1-2s unlikely.  Instead, we seem to be in a wave 4, and likely a triangle.  Perhaps we get the break down late this week, the first turn window; but I am with Neely - more likely the E wave up starts later this week with a 5th wave thrust down sometime around or shortly after Mar21. 

Then the Surge?  IPOs are in a stall; only Visa will come out in March.  The tech IPOs are on the shelf until conditions improve.  Dollar continues to slide.  Oil at records beyond 1980 even when adjusted for inflation.  Gold approaches $1000/oz; it was $20 for most of US history, and $35 just 35 years ago.  Dollar now worth 2c.  Something has to give. 

Election Year Pattern - May Bottom?

Great chart on election years being choppy until May (or perhaps more precisely, until the contours of the coming election are clear).  We might have a clear pair of candidates by early Wed morning (John Wayne McCain and Barack "Yes We Can" Obama), but we may have to wait until the early-election dirt is exposed in the late Spring (Clinton did a number on Dole in 1996; Bush did a similar job on Kerry in 2004).  Patterns come and go and have no predictive power unless based on underlying causality.  Like the Four Year Presidential Cycle, which is driven by interference in the economy to get elected, this pattern is apparently driven by removal of uncertainty.  My thanks to Deacon (see reader comments here) for pointing this chart out. 

Google is Doing Fine, Actually

Comscore let out a report earlier this week that suggested that Google's click-thru rate was dropping, and fed the fire of concern over how Google would do in a recession.  The report sent a shudder through the tech investment community, and sent GOOG down sharply.  GOOG has since meandered, awaiting further info on the report.  Today the Comscore CEO commented on the report and reinterpreted the data in Google's favor.  Rather than signal more evidence of a slowdown, the drop in click-thru's instead reflects an improvement in quality.  Whew! The Surge is still possible ...

Blow Off Top!

Sometimes the STU is a joy to read.  Tonight's STU is an example.  Hochberg begins with the extreme sentiment across so many markets that have spiked:

Swiss Franc 97%; Euro 98%; Yen 93%; U.S. Dollar 7% (essentially the opposite of the euro); Crude Oil 93%; Heating Oil 93%; Gold 97%; Silver 97%; Platinum 93%; Corn 93%; Oats 94%; Soybean 97%; Soybean Oil 98%; Soybean Meal 93%; Cocoa 98% and the CRB Index 96%. Not far behind these 90%++ readings were U.S. T-notes 83%; Nat Gas 88%; Wheat 85%; Coffee 86%; Sugar 88% and Cotton 89%.

Source: last night's Daily Sentiment Index readings from www.trade-futures.com

As they note, serious tops in markets, especially commodities, are often preceded by a blow-off.  The implication is a rapid reversal across all markets.  All go down, including equities, except the lonely Dollar, which bounces.  We should know in the turn window next week.  Watch for the Euro below $1.50 and the Dollar Index above 75 to confirm a strong Dollar bounce. 

The Naz has completed a "textbook" triangle and now should drop in a fifth wave thrust down at least below the wave 3 (Jan22) low of 2202.  The STU gives lower targets based on Fib relationships of the whole movement since the late Oct07 highs. 

The Dow and S&P they still have in a nested 1-2 of three degrees, albeit the final i-ii is a bit stressed since ii retraced 99%.   Put differently, after the thrust up from Jan23 to Feb1, the Dow has essentially been flat in Feb until the last few days.  It came back to *just* below the Feb1 level then dropped hard.  Since the wave 2 of the drop off Oct07 was a zigzag, this could be counted as a wave 4 flat or triangle, or a smaller degree wave 2 flat rather than nested 1-2 and i-ii.  In a Zoran sense, we had a thrust off Jan23 and a plateau since then.  The sharp drop looks like a bifurcation move out of the plateau, but we have not yet breached the trading range.  Hence to support the fast downside case, we would want to see a breach of the Feb low in the next trading day or two.  Otherwise the Naz may fall but the broader markets may continue a complex corrective pattern.   

US Peso

Dollar drop is obviously causing the oil & commodity spike.  Bush and Paulson (Treasury Secy) talk of a strong Dollar policy but they certainly aren't following it.  Dow has been going UP on Dollar weakness due to overseas money coming in (Dow looks cheap in Euros!), so it is unclear if the last two days DOWN have been end-of-month portfolio cleansing or a larger trend of foreign investors staying out until the see where the Dollar goes.  This all feels like deja vu of the period from 1971-1974 when Nixon went off the Bretton Woods system and threw the world financial system into turmoil.  I thought we had learned then that wasteful one-time rebates, cheapening the Dollar and inflating the currency didn't work.  Nor does jawboning (remember WIN?  Whip Inflation Now buttons).  The big issue in this election should be Dollar and fiscal management; a few more months of this and maybe it will be!  The Dollar has no known support levels because it has never been this weak. 

Given the turn window next week (Mar 4-6), we might see a contrarian move - Dollar strengthens, Dow reverses up.   Neely says to watch the speed of this decline, if it slows, he would expect a continued complex pattern rather than a  sudden slide down.   As to the Dollar, Neely called this spike.  The Euro/Dollar ratio is following his prediction closely!  Worth checiking out if you are currency trading.  We will see later today what Prechter thinks.  Will his nested 1-2's hold?  

Opportunity Rebounds!

Nice rise since the last 1/2 hour Friday.  Puts stress on both the STU's and Neely's counts.  Now the STU has to wait for a 78% retrace to hold their wave 2 count.  I cannot remember how many times we have been at this count from the STU since 2002, and watched the "nested wave 1-2 with 78% retrace" simply fail.  Means to me that  a triangle 4th wave is more likely with a truncated 5th to complete the down move.  The triangle is clear in the Naz, and now is becoming clearer in S&P and Dow.  For the simplified Zoran view, with a triple bottom, this may end up with a truncated 5th to about the Jan22 level, then a 1 up and 2 down where the 2 comes near the Jan22 level as well.  As to the bullish view, maybe; but the impulse up off Jan23 seems to have stalled. 

Obscurity Abounds

Nice bounce at the close.  Dumb money comes in the first half hour; smart money in the last.  Tonight's STU believes the smart money will look stupid by early next week as the rescue bounce is retraced and more.   Neely also stands by a coming big down move.  The Nasdaq has completed a wave 4 triangle and should spike down first.  But is this the little Big One?  The look of both the Dow and the S&P is that the BOUNCE off Jan22-23 is impulsive and the retrace meandering and slow - a correction.  Wave 1 up and wave 2 correction of a new bull?  The Nasdaq may be presaging a wave 4 triangle in the broader indexes. Neither the Dow nor S&P has *yet* dropped enough to form a triangle; perhaps the Naz drops in wave 5 and the others drop in leg-b of their triangles to catch up. 

Wait and C

Both Neely and the STU say the count is ambiguous, so wait and see.  No Little Big One or Big Little One for a bit.  If you are Tony-bearish, this counter-trend wave 2 up is extending but the C wave down awaits.  If your are Yves-bullish, the confidence is rising that Jan23 was a bottom and we have just ended a wave 2 down - market should now pop up.  If you are Zoran-focused, we are in an extended corrective period that will end without a major drop.  Let's concede a third high happened in Dec (first two in Jul and Oct) and the trend has changed down; but we seem to be building towards a triple bottom which will signal a trend change back up.  The STU also sees this possibility: they have a "tertiary" count of a developing triangle since Jan23.  Since a triangle is rare if ever seen in a wave 2, it would be a wave 4 triangle and Jan23 would be the end of a wave 3 rather than a wave 5.  Triangles break in five waves, often labeled abcde.  The pattern the STU outlined last Friday would have the b-leg of the triangle come down near the Jan23 low, a c-leg up, then a d-leg which ends higher than the b-leg, a final e-leg up, and then a wave 5 thrust down.  If that thrust ends near the Jan23 level, as it may given an upward sloping triangle, we would have a triple bottom and a Zoran simplified Elliott trend change.  Timing?  The Feb19 turn window is a bust, so next one is Mar4-6, then around Mar21.  Given a triangle, the triple bottom may continue as far out as May. 

IPO Update

Watching tech IPOs as a window on a tech Surge, here is the latest:  three VC-backed IPOs in 2008, two postponements, seven withdrawals and 41 companies remaining in active registration.

Hop on the Hochberg Hedge

Lots of good comments to the prior post.  I decided to bring this to the front due the importance of the next few trading days.  Please check the prior post comments.  EWT Trader makes a great observation.  Mark Lytle sees a broader bearish pattern, and in an email exchange Tony Caldaro essentially agrees that his count is showing overbought.  (Check out Tony's blog).  In tonights STU, Hochberg says the slowing momentum means this counter trend rally could be over, but leaves open that the coming options expiration Friday is a wildcard for possibly delaying his Little Big One down.  Similarly, I still expect the next downturn to begin at or after Feb19 after the coming three-day weekend in the US. I remain doubtful that it is the Little Big One. Keep reading below the fold for a Zoran View as to why.

Ride the Neely River

We are approaching the moment when the Lights Out bearish view works, or the Surge or DIe! bullish view emerges.  I am finding that Neely's NeoWave service is doing a great job of following the twists and turns tightly, especially for those of you gearing up to short.  The Neely River is more fluid than the STU prime and alt counts, and provides a good alternative veiwpoint day by day in periods like this.  As Zoran used to say, the market seeks order, and then makes its impulsive move.  Right now were are seeking and have not yet found.  As each day goes by the Bulls get more cocky.   This is a good time to sample Neely and see for yourself.  We are approaching a turn date (which I gleaned from various sources, but not from Neely or Prechter) next Tuesday after the three day weekend. 

Lights Out?

Both the STU and Neely agree: a little more counter-trend rally then the Little Big One down.  As Neely elegantly puts it: "If [the counter-trend rally] ends this week or next, the S&P will experience its largest and fastest decline in years between now and mid March."  Hochberg says: "This push will correct the preceding impulsive decline and help set the market up for wave iii (circle) of 3 down, which should be a very strong selloff."  The other side (Yves for example) think the bottom is in.  The Naz turned up first; the Dow and S&P followed today.  My view is that the Surge is coming, but the bottoming process may take into March at least before this is clear. 

The most interesting part of today's STU is their Lights Out analysis.  They had shown last summer that high-yield corporate bonds went from available to non-existence over a very short time frame, one month.  Similarly,  last week the STU noted how the Baltic Dry index and the ISM index both dropped precipitously.  The STU then points out other examples.  By analogy they expect the equity markets to similarly wake up and fall off a cliff.   

The rapidity of a market window closing on an asset type squares with my experience: in June 1983 I got a tech IPO out, but in July 1983 the tech IPO window shut hard; in April 2000, I was on a roadshow and got my IPO funded, but right afterwrds the IPO window shut hard on dot-coms; and in late 2000, I saw  Covad and similar telecom stocks raise money in September, and suddenly they could not raise a dime in October (debt or equity).  Slam!  In one month.

We shall see between now and the next turn date, Feb19, whether the rolling LIghts Out in market after market will panic equities, or whether this is a buying opportunity. 

Oh No! Free Week at EWI!

Prechter's EWI has had an awful record with free weeks: they seem to come when the Big One down is predicted, and then the market bottoms and starts a new bull leg.  Well, go ahead anyway and read the source.  A free Club EWI membership is all you need to get access to FreeWeek.   Sign up for FreeWeek now here.  They are convinced the Little Big One is on us.  Yet Hank at Elliott Fractal sees a pattern he saw in 2005: a double bottom in the Naz ahead of the Dow.  The Naz may now diverge from the Dow - watch for the tech leaders to begin to recover (AAPL, GOOG, MSFT).  Yves is watching the financial stocks - he says keep an eye on Citi BAC and WB.  We have come through one of the turn dates.  Next up: Feb 19.