Planet Yelnick

Redskins Lose, Pullback Looms

Ok, the silly Redskins indicator has no predictive value. And it would have better presaged this very close election if we had gone into double overtime, with the win determined by the Referees on a disputed call. As it turned out, the key play of the game WAS made by the Refs - the Redskins had just scored a touchdown and would have taken the lead but the play was called back by a penalty. We shall see how predictive this is.

A slightly better predictor is the electronic trading markets where you can buy Bush or Kerry futures. The Iowa market has two contracts - win, and win by more than 52% of the popular vote. Bush maintains his edge, as he does in the other market, Tradesports, in the just-win contract, but the win-by-52% contract has plummeted in the past week.

The stock market is rising into this election, expecting a Bush win. Yet a Bush win may not be good for stocks, since he will likely carry both houses of Congress as well. The economy seems to function best with a divided Congress. Indeed, according to James Fallows of The Atlantic in Bush's Lost Year, Bush Presidency fell off the tracks in 2002, a year in which Bush solidified his control over the government following the mid-year elections, with poor decision-making on the war and unconstrained spending.

Watch for the stock markets to sell off on a Bush win due to a new concern over undivided government.

Election Eve Pullback? Watch the Redskins fullback!

Fibonacciman makes a gutsy call - despite a seemingly robust rally, he believes we are due for a pullback. He gains confidence in his call from the Red Sox improbable win of the World Series. Zoran observes that often there is a last gasp rally before a major trend change, and that is what we may be seeing this week. Prechter's STU is a bit more circumspect - they too expect a pullback, but where it drops to will give guidance as to whether there is a further rally left in the markets.

So what is the market rally telling us about the election?

Currency Crisis Update

The Rude Awakening adds more grist to the grind-down-the-Dollar mill today. In addition to Russia, now India has said it would sell $120B of US Treasuries in order to invest in infrastructure in India. Foreign buyers stayed away from the normal sale of Treasuries this Monday, including China, which owns over $500B in Treasuries. The Dollar fell below 85 for the first time in 9 years in the Dollar Index. Developing ...

Markers of the Fall: Currency Crisis Looming?

Zoran circulated today a news item that the Ruble has risen sharply against the Dollar in a special trading session last Friday. Speculation is that that Russia may not be supporting the Dollar, leading to possible election-eve currency manipulation. Perhaps if enough anti-Bush countries gang up on the Dollar (George Soros included, a nation unto himself), they can momentarily run it down over the next week and make Bush look bad, perhaps deciding the election. Let's hope this doesn't happen, but if it does, it might spook the stock markets in time for Halloween.

As we head into Monday's market open, the Asian markets already have opened and the Dollar has dropped to six month lows against the Yen and Euro.

Yelnick has pointed to three Markers of the Fall that should precede a big decline: the Google IPO fizzle (which happened, and while the subsequent rise in Google somewhat overcomes its impact, the overall IPO market is in the dumpster), slowing economy (which is happening), and increase in interest rates (which is happening in short term rates, but not long term rates), possibly coupled with a currency crisis coming from a steep drop in the Dollar. This Russian manipulation in itself would not be sufficient, as the global currency markets can snap back. Yet this election-eve manipulation (if anything more than an unfounded conspiracy theory) may spark a broader run on the Dollar. Not at all likely, but something to watch out for this week.

Key Week Ahead

The election is not the only poll on edge. The Naz is up, the S&P confused, the Dow down below key support levels. This market bifurcation is likely to resolve itself into a direction shortly.

The many ewavers have a range of opinion as well. The STU believes we at least touch Dow9650 before a significant bounce, but they look for much more downside afterwards. Zoran is more bearish. He believes we are close to a decisive move down, one which will continue down to the level of the start of the Iraq War Triangle (the five wave triangle from Jul02 low, Aug02 high, Oct02 low, Jan03 lower high and Mar03 higher low), or around Dow7200. He says if the current rally in the S&P fails over the next few days, both it and the Dow will lurch downwards.

On the other side, more traditional analysts think once we get past the election, and any legal shenanigans that follow, the market should pop up on 'certainty.' Also, we are soon to enter the 'good six months' of the market - as Yelnick has mentioned from time to time, most of the gains in the market come between Nov and April. But sometimes the market confounds these patterns.

Election Year Posts

This being an election year, I have increased the number of posts in Politick, one of the side blogs to Yelnick, including some from guest bloggers. This is turning out to be a difficult choice, with both sides trying to exaggerate their differences and deepening the problems with our political process - possibly several states go like Florida this time, and lawyers will decide this election.

Also I would like to welcome back several loyal Yelnick readers who have changed email and had not notified me, but requested to be back on the mailing list, such as it is.

As to the stock market, the Elliott Wave STU has been much more accurate recently, which indicates they are on the right trendline now. They now wonder whether the markets are bifurcating as they did in early 2000 - Dow peaked first, Nasdaq kept up its manic behavior for two more months, and behaving as they did in late 2000 - election fiasco (hanging chads) caused a deep and quick market slump due to the uncertainty post election. We have the Dow at its low for the year, looking like it has more downside ahead of it. We have Google in a marvelous bubble echo run from $140 to $180 in two days, approaching $50B market cap. (A case can be made for this, which I may do in the Technik side blog soon, but come on ... ). And we have an election going down to the wire that may go down to the mire of lawsuits.

The only silver lining is that the Red Sox seem to have broken the Curse of the Bambino. When in the 4th game the Yankee first baseman booted a routine ground ball, it recapitulated the 6th game of the 1986 series when a Red Sox first baseman (his name shall not be stated ... ) muffed a routine grounder that would have given the BoSox their first series since they traded Babe Ruth to the Yankees in 1919. The Mets in '86 went on to win, and the Sox in '04 went on to win the most improbable comeback in baseball post-season history. If the Sox win the series, then anything can happen in this election ...

Topping Around the 200 DMA

Dr. Joe Duarte in his Market Intelligence Report notes that all the major indices are hovering below their 200DMA (200 day moving average). His analysis:

As has been the case over the last few days, the S & P 500, the Nasdaq Composite, The Nasdaq 100, the Russell 2000, the Value Line index, and the Dow Industrials are now trading below their 200 day moving average. That is a very negative set of developments, and one that needs to be resolved quickly or this market is heading significantly lower, as by definition, the market is in the early stages of a potential down trend. The key chart point is now 1100 on the S & P 500, as the index took out the support of its 50 day moving average.

The EWI Short Term Update (STU) concurs, and adds that the the S&P has done a false breakout above the 200DMA, unconfirmed by the DOW, and now has fallen below. Although the major indices were up today, the technical underpinnings of their move are "lackluster", which is typical of a top forming. They expect this 'rally' to have ended today or to end tomorrow. Intra-day upside target is Dow1075, and downside target is Dow9600.

Market is Interesting Again

Not just because it is dropping, but because momentum/volume figures are increasing. After summer doldrums and election uncertainty, the market is about to gain a direction. Fibonacciman has withdrawn his triangle for the Dow; we have broken below levels to allow that. Prechter's STU has several scenarios, but essentially we are proceeding lower. The key support levels are close at hand. If we break through, we should hit new lows for the year right before the election. If not, we get a decent bounce before turning down, likely after the election.

Triangle Developing - Watch Upside Break

We are clearly heading towards the break point, but despite Prechter's bearish drumbeat the wave count is also setting up an upside break. According to Fibonacciman, the Dow in particular looks like a developing triangle which, like the current election, could break either way, up or down. If up, we would see one more leg towards the Dow10400 range before clarifying market direction.

Prechter Announces Break Point Down is Imminent

Prechter sent out an interim report today to lay out the case that the break point down is about to occur, either shortly - there is a turn window at the end of this week - or after a final thrust of 2.7% higher. "At all degrees of trend, there is strong evidence of a countertrend rally peaking right now." He further notes that the peak before the 1987 crash occurred on just about the same day - October 5 rather than October 4 - then gapped down and headed into its historic crash. Further, the volatility (or fear) measures, the VIX and the VXN, have hit 9 year lows. The various indices have retraced close to Fibonacci levels - the Dow is just below a 78% retrace. Watch closely this week.