Planet Yelnick

Timing of the Bottom

Tonight's STU attempts to estimate the coming interim bottom using a pattern of between 247 and 254 days that has come and gone and come back again in the S&P: Between Mar10 and Mar18.  Now, they are the first to be skeptical of timing models and turn dates, especially based on patterns, which can come and go, but this timing may fit the current wave count: we are close to finishing wave 3 of (5) down, and then should have a relatively sharp wave 4 reversal and a final wave 5 down, which might truncate.  All this may happen next week, or (more likely) extend a bit in time into the turn window. 

Neely also sees little near term downside and a coming rally, followed by his huge shorting opportunity of a market meltdown.  Hence he says to close out short positions.  The rally could be pretty strong, certainly back to the S&P 800s, but as yet he does not see the type of Obama Hope Rally seen by the STU:  a 38% - 50% retracement of the whole drop from 2007.  Instead, more like the wave 4 rally, although a longer and more extended one than seen by the STU, followed by a stronger and deeper wave 5 drop.  Note that their methodologies are related but different, and their counting systems are different - to Neely this short rally will be an X wave before his deep drop. 

Wildcard is the continuing banking crisis, which is not abating. In the US, Citi and BofA are not out of trouble, and indeed may need further bailouts or complete restrucuring to survive.  In Europe, banks continue to deteriorate, particularly those over-exposed in real estate (Englosh banks) and Eastern Europe (Austrian banks among others). 

Almost Time for the Big Obama Rally

We have Neely still expecting a dreadful fall, but Prechter in his EWT this week saying it is time to get out of the short positions, adn Yves saying be prepared for a buy signal bu the nd of March.

Prechter gave notice two days before the Jul07 S&P market peak (the Dow not the S&P made a slightly higher peak on Oct07) that it as time to short, and we have fallen 800 S&P pts in 19 months.  He was recommending buying the Sep07 futures, so he really called this about on the nose.  He now sees two possibilities: the interim bottom is close, and may come fast, so why risk shorting; or we have a more severe drop in conjunction with a more desperate banking crisis, and many of the trades in futures might fail due to the other side of the trade failing, o why risk it.

The STU has been counting so far 8 waves down in the recent move [wave 3 of (5)], meaning the 5 wave impulse has extended to 9 waves, and we have one last wave (down) to go. followed by final waves 4 and 5.  This pattern may meander out to around Mar20 before ending, but the STU cautions to look out for a truncated wave 5 and a really rapid up move before then.  When the wave 5 of (5) ends, we will have finished wave (1) of the whole drop from Oct07, and then see a strong wave (2) bounce, typically as much as 50%. 

We also Yves saying be ready around the vernal equinox (Mar21) for a big rally, but his signals are not yet definite.  His guestblog is below the fold.  

Ground Hog Market will Go Deeper into Hole

Wave count is now clear: wave 3 of (5) down. Prior wave (3) ended at the Nov20 (closing) / Nov21 (intraday) lows, and wave (4) ended at the Jan6 high. Expect bounces on the way down - perhaps as early as tomorrow. No clear downside target. If (5) = (1) we go to Dow6500 /SP625. Courtesy John Mauldin, watch the European banks, especially Austria; they lent heavily to Eastern Europe, often borrowing in Swiss Franks to do so. Now they are caught in a vise between crumbling economies and tumbling currencies.

Ground Hog Market Triangle

As this market grinds the bulls, it might pull a head fake on the bears.  The prime count is wave 3 of (5) down, but that should engender a sharp drop (like two days ago) and already it has slowed its descent. Neely pulled back yesterday from his short position. Recall that the prime count had been a triangle which should have retested the leg b lows (Nov21) in leg d and bounced off them.  We may still be in that count, and we may still be in leg d down.  The countertrend rally last week which could have been leg e was too short, and may have been a normal B wave in an ABC leg d. 

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Short Circuiting the Obama Hope Rally

The major pundits are on a Sell! Sell! signal: Yves (see prior post), Neely (special bulletin this morning), Prechter/Hochberg (special STU this evening).  Since the "leg E" of yesterday's post wasn't much of a spike up, and instead of spiking on news ran up on rumor and dropped on news, best count remains the STU prime count: we have been in wave (5) down since Jan6, and have just dramatically ended wave 2 of (5).  Wave 3 of (5) should be pretty strong.  As always, waves have retracements on the way down, so the expectation is some sort of retest from below of the Dow8K level, then a "kiss goodbye" as we hit a market air pocket down. (This doesn't have to happen, but it is a relatively common pattern.)  Wave (5) is not breaking as an ending diagonal, so once it breaches the Nov21 lows (Dow7449, SP741) it really has no good stopping point until around Dow5440, and should at least go through the Dow7K level, perhaps as far down as Dow6500 as an initial target. 

The expected Obama Hope Rally wasn't much (25%), and twice the market has voted violently against the new President: the sharp drop on Election Day, and this similar sharp drop today on Stimulus Day.  The market started down before Geithner started describing his bank bailout.  Since Geithner was intimately involved in all the failed rescues since Dec07, including the TARP, it should not be a surprise that his plan provided more of the same rather than change the market could believe in, and seemed relatively slow to take effect when urgency is said to be required.   

At some point there should be a relatively strong bounce - wave (2) retracing the drop from Oct07 to wherever the next real bottom is.  What to call it? The Obama Hope Hope Rally?  The Obama Bounce?  The Porkulus Redux Rally?  The Last Chance Rally (to get out)?  Suggestions welcome. 

What We Got Here is a Failure to Communicate

Yves is back with a new signal based on the policy bets now being made by the Obama Administration.  Is the Obama Hope Rally on?  Or are we about to pay a heavy price for Obama's economic illiteracy (courtesy of Gerard Jackson's latest post on SafeHaven)?  Read on  ...  and you can hear more of Yves on Bloomberg Radio Wednesday 11th at 16:00 NYC time.

Ground Hog Market Still Spooked By Shadows

Bulls make money, Bears make money, but Pigs get led to the slaughter - market wisdom

This market is grinding both bulls, who eagerly await the Obama Hope Rally, and bears, who anxiously await the Neely 'biggest drop yet!'.  Or perhaps more precisely, is grinding the more piggish who have been in and out of positions.  The STU gives a concise summary tonight: "The current position of the stock market should be on the side of a milk carton. Still Missing; the rest of wave (5) that draws the major stock indexes to new lows (beneath the November lows)."  Their prime count is a little wave 2 of that wave (5) down, but the slow grind fits a continuation of the wave 4 from the Nov21 lows, with the market currently in leg E of a running triangle.  Both counts suggest the end is nigh.  Leg E's normally spike on news, and this next day or two should have a double bang: the Stimulus passes, and the Geithner save-the-banks plan is unveiled.  The put/call ratio is extremely optimistic - as the STU notes, at the same level of the October 2007 highs!  The herd expects the Stimulus to Save All of Us. 

Governments tend to be the slowest to respond, the last to see the trend; and to make their moves when the need has gone or the problem is something else entirely.  I posted a companion piece on my Politick blog to summarize a very good analysis that the government moves since 2007 have been solving the wrong problem, and hence largely ineffective.  The influential economists directing the government are fighting the last war, the Great Depression, as if they want to prove their academic theories could have worked back then.  This is shadow-boxing - what about the problems of today? 

The characterization of the Stimulus as a Porkulus may be apt.  The new administration is trying to pig out to serve its political constituencies rather than head off the Greater Depression.  They may accelerate and deepen the disaster.  Expect the market to pop on news and drop on reflection.  Then expect future Porkulus bills as this one fails to be more than a blip.  The slaughter of the Porkulii will come later, in the 2010 elections and then the 2012 Presidential race.