Election Correction is On!

We expected an Election Correction once the Demo's won Congress - the reverse of what happened in 1994 when the Repub's took Congress.  It is now occurring, but with a marvelous twist: it is first occurring in the Dollar in a reaction to Bush, not the Democrats.  The 'good' Republicans in 1994 and the 'bad' Bush in 2006 may turn out to bookend the period of growth and bubbles in the US.  We have undergone a great monetary experiment by the Fed during this period, and have seen the Chinese emerge on the world economic stage through 'vendor financing' of the US trade deficit.   Let's take a look at this story and project out what happens next.

The story begins in 2001 when Greenspan dumped massive liquidity into US markets to avoid the deflationary depression that usually follows a stock market crash.  This was conscious policy and meant to correct a great mistake of the Fed in the 1930s.  We have been watching this story and have commented on it in a number of prior posts, including here (Beating Kondratieff Winter), here (the Greenspan Put) and here (the Greenspan Indian Summer).  The resulting Greenspan Indian Summer has kept the market going when many pundits thought it would collapse.  In one of his final columns, Milton Friedman in the Wall Street Journal compared three market crashes ('29. '89/Japan and '00) and showed that monetary policy caused the resulting financial problems.  In the '30s, the Fed let the money supply (credit) collapse, and we had the Great Depression.  In the '90s, the Japanese let it go flat, and they had their flat economy for 15 years.  In the 'Oughts, Greenspan pumped massive liquidity, and the US economy suffered a light recession and kept on truckin'.  At this point we should declare victory for Greenspan's policy, and expect Helicopter Ben to continue it.

What we don't know is whether Greenspan cured the problem or merely postponed the inevitable.  The Austrian School of Economics would say, after an excessive credit boom (such as we had in the '20s and '90s, and Japan had in the '80s), we should take the medicine and get the resulting recession over with quickly.  Otherwise the collapse is merely postponed, and made steeper. Instead, the US went from a stock bubble to a real estate  bubble.  The excess credit of the '90s rolled over to excess credit in the '00s, and the asset of choice switched to real estate.   Obviously the US real estate boom is over, and seems to be rapidly unwinding with no end in sight.  Although the perky financial press is calling for a soft landing, the inverted yield curve, slowing economy and real estate bust are all signaling recession ahead.

Greenspan's liquidity had the immediate negative effect of the Dollar dropping 30% over three years) against a basket of major currencies.  Gold soared, as did commodities, and the Dow.  On a Constant-Dollar basis, the Dow rose less than the Dollar fell, and is actually not that close to all time highs in real terms. 

The potential distortions of the Greenspan Indian Summer also spill over into globalization.  The US has been running an unprecedented trade deficit.  In the past such a sizable deficit (approaching $1T per year, or 8% of GDP) would cause the currency to collapse.  Instead the Chinese have been providing a form of 'vendor financing' by keeping their currency artificially cheap.  They build up US Dollar reserves from all the sales to the US, and then buy US treasuries, which keeps the Dollar bouyant and the US Federal deficit funded.  At some level does it hurt us to send over pieces of paper and get back physical goods at low prices?  If the pieces of paper become worth less by the Dollar dropping against the Chinese RMB, the Chinese take an enormous paper loss and we get lots of new toys.  Sounds clever, but it is too clever. It does cost us.  The coming drop in the Dollar will reduce our national net worth relative to China.   On the one hand it looks as if China is funding our deficit; but on the other we are funding the growth of their economy.   If we had done so as we used to by investment, we would accrue ownership of major parts of the Chinese private sector, and reap the benefits of these investments as we had previously in Europe and other parts of the world.  Instead we have reaped our transient toys, and they have reaped a marvelous and robust economy. 

The Chinese are beginning to withdraw that vendor funding.  The Chinese currency has started to appreciate against the Dollar, and China is diversifying their reserves out of the Dollar into a basket of currencies that reflect their trade flows.  The YE$ currency is emerging.   The Dollar is still the major currency, and is over-represented in such a basket due to seniorage we receive for the world oil trade being in Dollars.   

All of this didn't seem to matter as we came into the mid-term election.  The view that a split-government would emerge was positive to the stock market - a look back to history shows the financial classes are better off with divided government.  When one party controls too much, regardless of whether it be Demo's or Repub's, spending gets out of control.  Demo's get blamed for tax-and-spend; Repub's for borrow-and-spend.  As the late, great Milton Friedman pointed out, the problem is spending, however financed.  Bush turned out to be as profligate with other people's money when his party (Repub) controlled Congress as had Lyndon Johnson when his party controlled Congress (Demo).  Both also made one of the classic blunders - getting the US stuck in a land war in Asia.  This inevitable political tragedy regardless of party has substantiated the wisdom of the  Founders of the US - the problem is government, and it has to be constrained.  One couldn't count on either political party to be responsible despite all their high-handed rhetoric.  Unfortunately, after the Great Depression, most of the Constitutional constraints on the Federal government have been eviscerated, and government spending in the US has accreted to over 40% of the economy across all levels of government (local, State, Federal).

The Election Correction did not happen when the Demo's won Congress in part because of the benefit of divided government, and also because this new lot of Demo's are much more conservative than the Demo's of the '60s and '70s who had let the economy get out of control before Reagan fixed it.  Further, investors respect the job Rubin did as Treasury Secretary under Clinton, where he kept spending constrained and managed a robust economy adroitly.  It was (and still is) hoped that the new Demo's will follow Rubinomics.  After all, once the Repub's gained the House in 1994, Clinton triangulated towards the political center, respecting the message the voters had delivered -  and became a better 'Republican' President than the Bush before him and Bush after!

But last week a series of events changed everything, and the Dollar plummeted: 

1. While the new rank and file Demo's are conservative, the leadership isn't - and they will drive the agenda.  This began to become clear as infighting among the Demo's led some to publicly repudiate Rubinomics.  What stripes they really wear will not become apparent until January.  Hence the stock market has gone into a triangle - a holding pattern if there ever was one - and is likely to stay in it pending clarity on the direction of the Demo leadership.
2. The Chinese RMB began appreciating, and the Chinese made public statements about their having too many Dollar reserves.
3. Most devastating, Bush began making pugnacious speeches, starting in Vietnam and continuing in Jordan, to the effect that he doesn't give a damn about the message of the voters and will do what he damn well pleases with respect to Iraq.   He even pre-emptively repudiated his own commission on the war, which is led by a trusted advisor to his father, James Baker, who was Treasury Secretary under Reagan.  We don't know if he is posturing on the grand stage to get air cover for a shift on Iraq - a face-saving way to leave - or if he really intends to stubbornly oppose the growing pressure on him to get out. 

Bush's behavior is quite unprecedented in US history, and the opposite of what Clinton did in 1994.  It is certainly not a very smart move, because it rapidly makes him politically irrelevant, and emboldens the Demo's to begin  'investigations' to tie him down for the next two years, as the Repubs did to Clinton when they impeached him for diddling with an intern, or the Demo's did to Reagan for Iran-Contra, or what they did to Nixon for Watergate.

Worse, even the prime minister of Iraq felt he could snub Bush, by skipping a planned dinner a couple of days ago.  The prime minister was under pressure not to meet Bush at all, and did the snub to appease his own political constituents.  A remarkably bold dissing of a standing President in the middle of a war!  He simply sees Bush as less relevant to the future of Iraq than all those militias and gangs he is warring with internally. 

Now the financial markets need to deal with a lame duck President who might begin flailing away to maintain his stature, and in the process seriously damage US relations with our trading partners. 

No wonder the Dollar dropped so sharply - it reflects a vote of no confidence in US leadership. 

While we may want Bush's dad to take his son out to the woodshed and knock some sense in him, the dad has tried as much as he could by surrounding his son with seasoned and mature advisors.  But his son seems determined in some twisted Oedipal plotline to make up for his dad's perceived failure in the First Gulf War by ignoring those advisors and continuing on his own path.  How this will turn out is very murky.  Murkiness is not good for financial markets.

Hence we end up with the Dollar on edge and the stock markets in a trading range unwinding as a triangle.  Likely to sputter on until January.

Both Prechter and Neely expect the Dollar to reverse any moment.   Whether this would be a brief countertrend rally or more than that is unclear.  Prechter made a fine call 2 years ago December when the Dollar bottomed after a 30% drop from 2002.  He sees us as now ending a B wave with a C wave up to Dollar Index 100 (from 83) over the next year.   Yet the Dollar is skimming on the resistance levels that if it busts through make it more likely it will sink another 30% for an amazing 50% drop since 2002.   Watch this closely over the next week. 

Neely made two urgent alerts today - to be ready to short the S&P, and to get out of the Euro and back into the Dollar.  He sees stocks as beginning a sharp decline, and the Dollar as solidifying.  These may be short term moves, however, following oversold conditions.

The Fed is likely to ease in December, or January, given the deteriorating economic news.  The bond market already anticipates this, and the bond bulls on this board have made some fine profits in the last few weeks.   Indeed, the long bond has been in a trading range around 4.5-5% for a number of years, even while the Fed dropped the Fed Funds rate down to the bargain basement and then ramped it back up.  Hence expect any Fed easing to have little impact on this larger picture. 

In the end the US has very few levers left to pull if the economy sinks into recession.  At best they postpone the inevitable through the 2008 election, and dump the recession on the next President.  It is looking more likely, however, that the chickens come home to roost in 2007.      

 

Comments

[jeff clark]

As Saturn pulls away from its trine with Pluto, and the good times begin to ebb away into recession, the best that can be expected is: GOLDILOCKS.

I perceive that "goldilocks" is code word coming up out of the collective unconscious and is a veiled reference to the very next timeslice...a period defined by the next big outer-planet configuration:
Saturn in Leo opposite Neptune in Aquarius.

The fair young (Neptunian) maiden with the golden (Leonine) hair (hair being Saturn ruled).

This configuration will unfold very rapidly (for an outer planet combination), because Saturn is backing and Neptune is full speed ahead.

The 3 Degree orb is attained on Feb 2nd
The 1 degree orb on Feb 19th
The opposition is exact on Feb 28

They will pass by each other and reconvene later in 2007 for the 3rd and final time.. check June timeframe

Thus the "goldilocks economy" and "soft landing" that has been foretold by the (optimistic) pundits shall be the period between Feb and June of next year.

In the Feb timeframe, a deal will be struck between the US (Saturn) sitting across the table from China (Neptune). This deal will ensure the goldilocks scenario and set up the all-time blow-off top coming summer '07.

[EN]

Well thought out piece on fundamentals.

The action in the stock market reminds me of the action in September/October 2005 when the SPX hit 1245 fell about 25 points, retested the high and fell almost 70 points in the span of 2 or 3 weeks starting October 3. So we are LIKELY destined for a retest of 1325 or so in the coming month but that should be as you say a correction and we have not seen the bull market highs. We then need more and more and more action to the upside. When this ends, the greed of the public should EXCEED the year 2000 Nasdaq highs.

As for Elliott Wave, this whole mess up and down since 2003 has been a big correction, not a fifth wave, so I would have to side with Neely. His count easily takes this market much higher into 2007 and likely 2008 making it one of the longest cyclical bulls in history.

[chrisco]

Excellent analysis...

[rdneu56]

A well thought out piece. There is only one thing that deeply concerns me - Precter expects the dollar to reverse any moment. If I apply a regression analysis to the dollar based Precter's prior forecasts, the rsult is that the dollar will go to oblivion any day now. This is deeply troubling to me because of the Amero proposals:
http://en.wikipedia.org/wiki/American_currency_union

[Joseph Russo]

Elliott Wave Technology’s
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For Monday - December 4, 2006
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[alphonso bedoya]

April 2003 Post

http://www.investorshub.com/boards/read_msg.asp?message_id=958263

[Futia Blog is on the money]

Election correction is not on

Carl Futia has excellent weekend analysis:

How to Trade Your Forecasts
Sunday, December 03, 2006

As you know I like to predict the future trends in markets. I think this distinguishes me from most market analysts. They generally predict the past by telling you why the market went up or down yesterday or last month. Then they tell you in effect that the market will go up tomorrow or next month unless it goes down. Some of them can even do this with a straight face.

When you predict the future your job is only half done at the time you make your forecast. As the market moves it keeps giving you new information about its technical condition. Moreover, the extent to which it is following your forecast or deviating from it also tells you whether or not the premises underlying your forecast were good ones or not.

Only a fool ignores this new information. Let me put this another way. My only commitment as a trader and investor is to making money, not to being right in my forecasts. So when the market tells me something which contradicts in some way a forecast I made days, weeks, or months ago I generally listen to the market and junk my forecast.

At the current juncture I want to bring your attention to this post. In it I used several methods developed by George Lindsay to predict an important top in the Dow Industrials for the third or fourth week of November.

Well, the time for the predicted top has come and gone yet I still think the market is headed higher, perhaps continuing its advance into the February-March '07 time frame. Why?

The reason is simple enough. In a bull market I have found that uptrends such as this one which began from the June-July lows do not end at the point of maximum bullish sentiment and price velocity. Instead one generally sees some visible drop-off in bullish sentiment and a "rounding over" appearance in the averages before the final top develops. One also generally sees obvious bearish divergences in the advancing issues moving averages. None of these warning signs are yet visible.

In my opinion the late November 2006 time frame will probably mark the point of maximum bullish sentiment. From this point forward I expect a sequence of more or less deep reactions followed by rallies to new bull market highs. This process will probably end sometime in the first quarter of 2007 and be followed by a 15 % break in the averages.

http://carlfutia.blogspot.com

[cstradingman]

Rate cut expectations in the Fed Funds futures for January have spiked. Told you a cut was coming in Jan. It is now time to start looking for a top in equities. I expect the employment data on Friday to resume the rally in bonds.
The stock market is now digesting the rate cuts coming.

[cstradingman]

Looks like the current market rally may be the final blowoff. Even the stock bulls have been calling for a top for some time now, but the market keeps going up and up and up because of low long bond yields. I can't get a gauge yet if the stock bulls have become bond bulls yet. I think they are still bearish and expect rates to rise. Once they become bond bulls and stock bulls at the same time, and aloo deny a recession, they will believe the stock market is 40% or more undervalued. Soon after that a stock top will form. I will come up with some price targets and time targets for a top soon.

[cstradingman]

Also another attempt by bonds to sell off today met with buying. Bonds still looking bullish long term. Rates heading lower and deflation will be the next major event.

[Joseph Russo]

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[Latest from Neely]

Neely has a new RIVER SYSTEM????????

Our recent, substantial profits in T-Notes and the Euro currency are testiment to the effectiveness of my new NEELY RIVER trading technology. This is a technology that was only possible once I stopped focusing on forecasting as the key to trading profits. Forecasting has its place and can be fun and intellectual, but most traders want to make money. That is what NEELY RIVER theory is all about. A revolutionary concept that equates the flow of money through a market to that of water flowing in a river. Once you understand this concept, your losses will be reduced substantially, your emotionalism will almost completely disappear and your trading results will improve dramatically.

NEELY RIVER trading technology - a more advanced concept than both Elliott Wave and NEoWave - will change your life as a trader.

Sincerely,
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NEoWave, Inc.

[QQQQ_Predator]

interesting. sounds like neely is really disheartened by the failures of elliott in actually making money. prechter gave up on elliott last year when he started giving higher weighting to all the edwards and magee stuff like diamonds, head shoulders

who is next to give up on failed elliott. joe russo?

[cstradingman]

Suprised stocks are not rallying more. Gold dropping. Bonds yields very low. Inflation scare pretty much gone. Market not anticipating deflation. Looks like the stock market is hungry for some rate cuts! The fed will not start to lower rates until the stock market makes a significant pullback.

[rdneu56]

Inflation is a monetary phenomenon. Of course, this is now a much cited phrase since the passing of Milton Friedman and may begin to sound hackneyed, but it is nevertheless absolutely accurate. In other words the root cause behind inflation is profligate spending by the US Congress and is made possible by the power to manufacture money backed by debt instruments granted to the Federal Reserve Bank. Case in point, W’s Iraq adventure by itself swallows a cool 2 Giga Bucks in goods and services per week.
The short and intermediate term fluctuations of bond, currency, commodity and stock markets notwithstanding, inflation is eroding the purchasing power of the paper money in the long run. There are various indicators – PPI – CPI – PCE – that the Fed uses to measure (obfuscate) the effect of inflation. The facts remain the same nevertheless. Government spending generates so called “excess liquidity” that dilutes the value of money. This value loss does not necessarily manifest itself in an immediate and proportionate price increase for goods and services. The excess liquidity can and does go into real-estate, stocks, commodities and bonds. The US was and still is in the enviable position of having its money regarded as reserve currency by the rest of the world. As a result the “trade deficit dollars” do not immediately and not completely return and drive up domestic prices, but are spent abroad on trading between foreign nations to a certain extent. For instance, oil is still traded in US dollars. If that ever changes watch out below.

[stu mann]

a very good article. one comment: the US$ only dropped 'big' from a trading perspective. Down here in Australasia, it's still a fair bit from the lows of last year, meanwhile OUR trade deficits (OZ & NZ) are blasting off the charts. makes no sense.

That said, the Yen has yet to dip below 110, and the EURO is hardly a bellweather, it's so heavily traded. Movements in the Euro tend to be almost worthless in predicting a trend. Its almost as if it was created to be a fiction.

The fictitious Euro makes a good backdrop for Greenspan's centally planned economy, which has run it's course but can continue on sailing who knows were for an indefinite amount of time. when this thing finally does strike land, the US$ soars because all the other fictions around it start to come undone.

we can only guess about who owns the majority of those foreign assets - we only know that they're offshore. What we don't know is how the holders will react in the midst of global tailspin. which goes to the Q whether China even has an economy. should the US consumer cave, China's "economy" my not simply turn inward and continue chugging away at 10%. then what do those mystery asset holders do? do they remain "global players" or do they rush home to lick their wounds (which I believe to be the US & Europe)

fiction, fiction, everywhere, but not a drop to drink!

[?]

When is the Election Correction supposed to start?

[cstradingman]

World central bank's tightening complete. Today's hike by the ECB will be the last. The stong dollar has made teh ECB more dovish. Japan is finished. And the Bank of England and the US have all completed their rate hikes. In The next step global easing will begin to take place. Next year. The bond market remains long term bullish. The stock market is short term bullish. But should top in the next few months. We are going to have to try to pick a top in equities. Will it happen before or after the start of global interest rate cuts. If the market continues to rally un corrected it will be before. Otherwise the cyclical bull market will continue unitil after the easing starts to take place next year. Mild correction in the bond market should complete by the end of next week. I do not see a top in equites yet.

[cstradingman]

I suppose I should comment I why I feel stocks will ultimately fall during global easing. The market will be dissappointed in the lack of effect global easing has on strengthening the economy. Long bond yields are already low. They will finally come to terms that the central banks are out of ammunition to stimulate growth.

[yelnick]

?, the Election Correction already started in the Dollar. Equities are in a triangle which looks like a 4th wave. Equities should continue to rise after the triangle in a 5th wave into Mar-May 2007. Could be strong pop up into all time highs, even in the S&P. Right now watch the Dollar - will it hold at these levels? Prechter expects it will, and continue up in a final C wave before it truly collapses. But the Fed is now in a trap that their policies created: raise rates to support the Dollar and force a recession; ease rates to avoid a slowdown and watch the Dollar drop another 30%. Most likely move by the Fed is to try to find a middle path and muddle through, but given comments by the Treasury Secy, when push comes to shove, they will ease rather than support the Dollar.

[rdneu56]

I am beginning to think that 25 bps interest Fed Funds rate adjustments don't do squad in supporting the dollar or anything else for that matter. If the Fed wants to put a serious dent into inflation and serious support level underneath the dollar they have to act in concert with Congress and engage into some serious open market operations. Congress will have to cut spending and the Fed will have to dump massive amounts of treasury securities in the open market and thus drain liquidity. Of course, the negative side effect of such action is a serious recession. I also think that the Fed is not ready to do this yet and may just continue to do nothing for longer than anybody now believes. For the time being the dollar remains cheap while everything else remains expensive.

[cstradingman]

rdneu56 -- I agree!!! What is 25 bps going to do. It's the threat that the fed will tighten that keeps inflation in check. The market has to believe that the Fed will act if inflation creeps higher. Not "Gee well they may move to 5.50% the definitely stop". What will that do? But the Feds credibility is clearly gone. With the dollar falling and the Fed fund futures pricing in rate cuts. This while the Fed threatens the markets about inflation. I don't believe inflation is the ultimate problem. But if I am wrong and inflation is around the corner, then this meeting would be a great time for the Fed to act and tighten 25 bps. It will put fear in the markets that the fed means business when it comes to containing inflation and greatly lower inflation expectations. It will also put credibilty back into their hawkish statements. Better to take a little pain now, if I was the Fed, then let inflation go out of control and have your Fed hawkish speak be meaningless.

[Joseph Russo]

The NEAR TERM OUTLOOK For Friday Dec. 8 is posted.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID676791

On Dec 6 the QQQQ predator posted the following:

"interesting. sounds like Neely is really disheartened by the failures of Elliott in actually making money. Prechter gave up on Elliott last year when he started giving higher weighting to all the Edwards and Maggee stuff like diamonds, head shoulders

who is next to give up on failed Elliott. Joe Russo?"

Elliott Wave Technology's reply:

Rather fair observation and query "Q." The short answer is that we have never embraced Elliott wave theory as a stand-alone method of market analysis, let alone an exclusive method by which to make money, or navigate through the volatile short-term trading environment.

Perhaps therein lies elliottwavetechnology.com's superior competitive advantage.

Elliott Wave Theory is a superb "forecasting tool" in all time frames. However, when the rubber hits the road, there is a whole lot more required to be successful in consistently extracting profits from the marketplace.

Anyone may acquire a particular set, or even a full treasure chest of tools. However, it remains exclusively, the resident skill that one acquires over time in using such an arsenal of weapons in a most lethal and consistent fashion.

A savant may memorize every rule forward and back of Classic Elliott, Neowave, and Neely River COMBINED!

This would be utterly amazing, however WE WOULD EAT HIS BREAKFAST, LUNCH, AND DINNER, EVERY DAY, ALL THE TIME, UNTIL HE EXPIRES.

Such a savant would still- more likely than not quickly "lose his shirt" in the bitterly harsh, and unforgiving environments of the winner-take-all trading arena.

In essence, you might say we are one degree of trend ahead of Bob, and Glenn (whom we greatly admire and respect) in that we've never "given up" on Elliott in "making money" simply because we've never relied exclusively upon it to do so.

In studying the manner by which we "firmly corner" the price action and convey our guidance, I trust you will comprehend the powerful comparative advantages to which I speak.

As luck has it, NOW happens to be an ideal time to make such an evaluation.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID676791

[Joseph Russo]

Elliott Wave Technology's
NEAR TERM OUTLOOK for the NDX-100:
Friday December 8, 2006

30-minute study (9th chart down # 5bbbb)

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID676791

Yes, we realize this is a busy chart however, all trendlines bare significant 'trigger' potential in the shortest of time frames. First off, traders short the 12-5 probe are doing quite well thank you. A rather nice position to be in, especially coming off the previous 12-1 long side trade from the 1760 levels. Quite a fine hour to convey the immense power of EWT's NTO and Day Traders Perspective. That said, the NDX is nearing ST levels of oversold that may soon usher in a snap-back. Keen observance of RSI behavior will offer queue's for aggressive ST traders to key off. Nimble traders should watch this closely. R-1 is key to locking in well-deserved short-side profits. Further, a plethora of additional exit targets are dispersed deep along the right side of our chart.

[cstradingman]

10 year note yield set to backtest the lower trendline of the triangle breakout. Then rates should start to head lower again. Time to start loading back up with bonds.

[MKB]

> Yes, we realize this is a busy chart however

Yes. That is an understatement. I see lots of labeling, but also lots of hedging about the current call. You label 1824 at "5", but don't know if the structure since December 6 is a 1-2-3 or an a-b-c? You give lots of technicals, but no calls as to what to do.

> First off, traders short the 12-5 probe are doing quite well thank you.

Yeah. Did you give a specific call to go short? A price point to short with stops and downside targets? Neely does that on his charts. Why not you? Are the downside targets of 1772 to 1758 the area to go long or cover shorts? Or go flat?

> Keen observance of RSI behavior....

All well and good, but ..... What's your market call, specifically, and at what price?? And that's just with this 30-minute NDX. How about the daily NDX? Are you long, short or flat using the daily chart? At what price will you go whatever? Don't tell me what has happened, I want a specific forecast/prediction. Please.

And then there's the Gold, GLD, and HUI charts. I assume you are longer-term bullish, since you have labeled the October 2006 low as "(4)" of "1" on the daily Gold with an upside target zone in the 686 to 725 area. I assume that's your "(5)" of "1" target, you are long on that time frame? When did you buy and at what price? You've got the HUI with a secular top in May 2006 and no "2" to be seen. You claiming the HUI has topped and is leading the metal by over a year? How low do you expect the secular (daily chart) 2 to go? And again, specific calls of long, short, or flat and stops on the Gold, GLD, and HUI for the various time frames would be greatly appreciated.

You are, after all, enticing us to pay for your service with these free looks. I haven't seen anything worth buying, yet.

MKB

[Joseph Russo]

MKB

Sounds like the only thing worth buying in your view, is either a total hand-holding (instruct me specifically what to buy/sell and at what prices) or tomorrow’s newspaper today!

We do not impart the former, and the latter is simply not available at any price.

Elliott Wave Technology provides non biased, objective, navigational guidance across numerous markets and time frames serving a rather diverse group of traders and investors.

I trust you will agree that someone holding a long-term position in the GLD ETF, or mutual fund is going to have a much different trading plan (entry/exit strategies) than someone day-trading Gold Futures.

As such, it is quite plain to see that one size cannot possibly suit all. I trust this addresses your questions with regard to “where are you long from” etc.

If we were to provide specific trading instructions with ongoing position management guidance for every time-frame and market we cover, our subscription fees would be well into the thousands.

The forecasting and navigational guidance provided is intended as a clear and concise roadmap of probable outcomes across varied time frames for traders/investors of all money management disciplines.

We do not issue "black box" blind trading instructions for novices seeking explicit and exclusive trade management guidance.

Making “market calls” per se is truly a waste of time in our opinion, and simply does not make sense. However, gaining full understanding of past price behaviors, then defining specific criteria and boundary protocols for future price action does.

Those willing to put in the work, discipline, and patience to plan trading strategies around the dynamic queues ever present in the market place are those who will consistently profit.

For those seeking more of the hand-holding approach, I would suggest finding a service that does issues specific trade instruction/management. I would recommend that those doing so make certain that the advisors objectives are in general alignment their time frame, trading style, and risk management criteria.

More experienced traders/investors, with a developed money management strategy, trading style, and general market opinion for the time frame and theatres in which they trade, will be well-served via the navigational guidance found consistently at Elliott Wave Technology.

[MKB]

Dear Mr. Russo,

I am not asking for hand-holding. I am simply requesting you to state your expert opinion about the future trend in prices. Are you selling a computer program that displays wave counts and what-not or are you selling your expertise (interpretation) about that display?

If you are selling just the display, then a novice would not be able to understand the nuances, so you are ripping them off. I assume you don't want the novice to subscribe to your service. An experienced trader totally understands, probably has their own trading system, and you provide no value-added service, so they would be wasting their money. I assume you don't want the experienced trader subscribing to your service.

I assume you are after the masses in the middle. Those who know what you are talking about, but don't need the hand-holding. Those who want an expert opinion about what will probably happen within a given time-frame detailed enough so they can take action within their investing/speculating time-frame.

For example using your Dow daily and 30-minute charts of December 8:

http://stockcharts.com/c-sc/sc?s=$INDU&p=D&yr=0&mn=5&dy=0&i=p39219584703&a=89807690&r=627
http://stockcharts.com/c-sc/sc?s=$INDU&p=30&yr=0&mn=1&dy=16&i=p70039125234&a=92066849&r=60

One has to assume you are bullish longer-term, but there is an intermediate-term top (Wave 3). The display (Dow daily and hourly charts) imply it was on 11/17 (closing price 12342.55). One has to assume you are unsure about Wave 4. The 30-minute chart has the 11/22 intra-day high (12326.95) labeled as Wave 1 on a short-term basis, which is now correcting.

Ergo, your "market call" (assuming I have interpreted your charts correctly) would be long-term bullish, buy dips (down to 11,785) or a breakout to new highs, upside target 12,626 to 12,750.83. Short-term bearish, cash or short, cover shorts 12,078 to 11,903. Stop (go long) 12,394.32.

All I am asking is for you to specifically state your market call. Is that too much to ask? You do plenty of "what happened" chatter. Less back-looking commentary and more forward-looking market calls would be worth something. Provided, of course, that the forward-looking commentary turns out to be correct. Naturally, a market call that is so wish-washy as to be deemed correct regardless of what prices do is worthless.

MKB

[cstradingman]

Bull market in bonds getting ready to resume this week. We should retest the highs in yields on the 10 year One more time then rates will begin falling again. Stock bulls back to cheering the bond bull market. If they only knew why rates were falling! :) Stocks should continue to rise for the time being. Top in stocks still a ways off. Buy bonds on any weakness here. 10 year note will be in a bull market until yields hit at least 3.15% probably alot lower. 10 year not yield should not rise over 4.67% Set stops there.

[MKB vs. Joseph Russo]

MKB, great comments.

Score:

MKB 1 Joseph Russo 0

[TTheoryFan]

cstradingman - you might be interested in taking a look at this:

http://ttheory.typepad.com/rate_t_theory_summary/files/Post20061211.pdf

[cstradingman]

TTheoryFan --

Thanks. Definitely checking it out.

[cstradingman]

Temporary selloff in bonds on fed news should give a bond buying oppertunity.

[Kraig]

latest free NEoWave letter is out

1. go to http://traders-talk.com/
2. click on "Current Market Analysis Area"
3. click on "NEoWave S&P, Gold, T-Notes, & Euro 12/12/6"

[cstradingman]

My #1 reason we will see rate cuts in January was weakness in housing. The Fed is now seeing it and is preparing the market for rate cut by saying
"a substantial cooling" in the housing market. The bond market agrees with me and is ralling again! I am surprised stocks are not reacting better. The stock market already has alot of the rate cuts discounted. Maybe we are getting close to a top in stocks? But not yet. cstradingman still bullish on Bonds!

[Joseph Russo]

Elliott Wave Technology's
NEAR TERM OUTLOOK for:
Wednesday December 13, 2006

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID676791

It is our hope that many of MKB’s queries will be answered in the full read of today’s NTO, particularly from our commentary under the second listed chart.

Beyond this, we do not believe any further discourse that is non-constructive, nor respectful of our sincere and strident efforts towards assisting traders will be of value to any party, nor the blog in general.

Wishing everyone (including MKB whoever he is) the best in trading endeavors, and a prosperous and healthy Holiday Season.

Joe

[MKB]

> It is our hope that many of MKB’s queries will be answered in the full read of today’s NTO, particularly from our commentary under the second listed chart.
>

Yep. I had assumed you were providing a market timing service. You do not. Your statement (in the second listed chart), "We do not predict what the market will do next, nor do we bark out specific trading instructions" clarifies your service immensely.

Compare that to your statements on this blog last week. Such as:

"Our steadfast mission is [to provide] the most comprehensive, effective, and actionable forecasting experience available anywhere in the world".

and

"The forecasting and navigational guidance provided is intended as a clear and concise roadmap of probable outcomes across varied time frames for traders/investors of all money management disciplines."

Thank you for the clarification.

> (including MKB whoever he is)

It doesn't matter who I am, you were the one hawking your wares with such hype. I'm just a disappointed prospective client. Sorry I bruised your ego.

Regards,

MKB

[Joseph Russo]

What's with all the sour grapes behind the hidden curtain MKB?

Who died and left you "the advisor Nazi?"

Nothing bruised on this end, though it sounds as if you might have taken one helluva a beating in the past following blind trading instructions, or worse yet-your own.

Better you focus on your own business, and keep your incessant criticisms between you and your personal analyst.

GAME OVER…

[rdneu56]

I suggest another category on Yelnick - wars of the wannabe pundits...

[Gordon Graham]

People... Until each of you can show objective measures of your methods (not results), your bickering will never cease. Right now, you are all blathering about superstitious nonsense. So let's grow up and get scientific.

Serious analysts and traders might consider:

Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals

http://www.amazon.com/Evidence-Based-Technical-Analysis-Scientific-Statistical/dp/0470008741/sr=8-1/qid=1166066415/ref=pd_bbs_sr_1/002-5325212-4320830?ie=UTF8&s=books

Over time, this book will separate the men from the boys, the workers from the dreamers, and evidence-based traders from faith-based traders.

Who wants to be a member of the Flat Earth Society?

Good luck!

[MKB]

> What's with all the sour grapes
> Who died and left you "the advisor Nazi?"
> keep your incessant criticisms
> GAME OVER

Oh my. A personal attack and shouting. Is this an attempt to shift the discussion away from what you started? Away from the "free look" and what your service entails? Seems so.

You started the discussion by advertising your service on this blog. You are no doubt looking for new subscribers. That is all well and good ... it's a free country ... not quite on topic for this blog, but close enough. I guess. People on this blog make and discuss market calls. So I asked about yours. You claim you don't do market calls. I inquired about buy and sell signals. You seem to not do them either. I stated my opinion, but it seems you do not wish to discuss your "free look" or clarify the service you are advertising, or hear any comments. It seems you prefer censorship.

So I went looking to find out more about your service. You have an interesting "outlook" and forecast at the Financial Sense University and SafeHaven Web sites.

Equity Markets Approach Critical Mass (Sept 14, 2006)
http://www.safehaven.com/article-5883.htm
http://www.financialsense.com/fsu/editorials/russo/2006/0914.html

It seems you're expecting a GSC top in the DOW between now and 2010 from current levels to possibly as high as 20,000 followed by a "sharp bust" in 2012-2015 and a Great Global Rebalancing in 2017-2033 taking the DOW down to possibly as low as 3,000 to 7,000 (all times and prices subject to change, naturally), or lower, or higher, since, after all, prices are gonna go where prices are gonna go. This all from your graphic available at both of the below URLs, but the FSU one is slightly larger:

http://www.safehaven.com/images/russo/5883_d.gif
http://www.financialsense.com/fsu/editorials/russo/2006/
images/0914.h15.jpg

I suppose that is an illustration of your long-term market call. I suppose you are advising your subscribers who invest over the long-term how to position themselves, you're just not letting us in on how that is being accomplished during your "free look" periods.

Same with the subscribers who invest on an intermediate-term basis. I see on your HUI daily chart the comment at the bottom below the green up arrow, "Yes, we did catch the last big 'buy' signal albeit early from 9-25 @ into the 285 low, with gut wrenching reversal to significant fresh lows seven days later". Well, I'm naturally curious how that "buy signal" was issued, since you do not bark out specific trading instructions. And since there is no "sell signal" on the chart, one has to assume your intermediate-term position is still on that buy signal. Correct? That looks like a great call, if indeed you had earlier published concise parameters (such as if this and this and this happens, buy) for that signal on an intermediate-term basis. But then, there is no "sell signal" indicated on the chart around the intermediate-term May 2006 top. One has to assume you would have been advising your intermediate-term subscribers to be taking some sort of defensive action during that time-frame. But then, and maybe it's because I've misunderstood you, you don't issue intermediate-term signals, per se.

I also found this post of yours on this blog from January 11th of this year:

((quote))

Regarding the DOW....

"Topped or Topping in Minor 5, of Intermediate(5)or(c), of Primary 5, of C-V, of SC-III, of GSC-V."

End of story.

((end quote))

(http://yelnick.typepad.com/yelnick/2005/12/do_not_cry_wolf.html#comment-12959)

That was the day of a top of some sort (11,047) and the DOW dropped to 10661 over the next six trading days. Some would call that a great call. Short-term. We're now in SC-V of that earlier count, I guess, although SC-IV never did drop below the 10661 level.

Anyway.... You know your stuff, no doubt about it. Working your way towards becoming an MTA Chartered Market Technician. I hope you succeed. It's just that the way you impart that expertise throughout the various time-frames to potential subscribers during your "free look" period has me curious. Many other market timers provide some sort of a historical record or current position/forecast during their periodic free looks. It gives people more data to help make a decision. You didn't have anything obvious, so I asked.

For Gordon: Thanks for the book tip.

Regards,

MKB

[JerryC]

Bears are taking one of their largest beatings in years!

[cstradingman]

Great time to be loading up on bonds during this pullback. Here's the stock rally I was expecting with low bond yields. Now we are finally getting closer to a top in stocks. Still researching time and price targets for the cyclical bull market top in stocks.

[Shawn]

CS, just curious about all of your analysis presented here about top in stocks. Do you have your own proprietary timing model, or it is based on your bond timing model? Thanks!

[cstradingman]

The bond market provides me with the main tool I need for timing the stock market. That's why I predicited a 'big drop' in stocks would not happen until after the long bond made it's intermediate term top in yields. I can say 'top' in stocks now because coming out of the june low (I admit) I was not sure if the markets would made new a cyclical high's, and of course they did. The last intermeditae term rise in yields before the one we just completed happend around June 1998 to October 1999. Soon afterward equites made a cyclical and (I predict secular) top in stocks. We just completed another intermediate term rise in yields April 2003 to April 2006. I predict another cyclical bear coming soon in equites (within a secular bear) just like in 2000. Combine this evidence with cycle analysis. I believe it is very low probabilty the June low in stocks was bottom of the 4 Year cycle, it was much to mild of a selloff. Also most cycle analysis points to a top in stocks in the first quarter of 2007 as making a 4 year cycle low. Third I look at sentiment. When yields were rising the begining of this year no one thought they would fall again in the face of Fed tightening. I was correct about a renewed fall in yields and has soon as I recognized the was in in yields, I went long bonds. I the next 4 months I expect the stock bears to completely dissipate, bond yields to stay low, profit forcasts to stay high, inflation to be reading low, the dollar to rebound a bit, gold to remain tame. Making everyone bullish. Then a top in equites with come unexpectedly. This scenario is playing out perfectly so far. Of course, if people were to look at long term valuation, they would see the stock market over priced by any metric except the Fed Model, which relys on low bond yields. So a top we be here in stocks between now and he end of March.

I will let you know when I am making a large purchase of Put contracts.

Good Luck!

CSTRADINGMAN

[shawn]

Good post CS,keep it coming!

[shawn]

CS, I think Tim Wood used to say the 4-year cycle is right shifted to 1at quarter of 2007. So far this year he is pretty good.

That beg the dilema -- the market better start tanking soon to have a low in spring 2007!

[On The Sidelines]

Shawn,

Is this Tim Wood a Chartered Market Magician? Can his judgment be trusted?

[cstradingman]

Shawn -- did you sse the inflation data today! Rally in bonds!!! NO inflation. Inflation is dead! I am making a killing in bonds. I feel like I am 6 months ahead of the market. I will re quote my previos post.
"I the next 4 months I expect the stock bears to completely dissipate, bond yields to stay low, profit forcasts to stay high, inflation to be reading low, the dollar to rebound a bit, gold to remain tame. Making everyone bullish."
And yes, I guess Tim Wood is on the same page as me about the 4 year cycle low.
A sharp drop fits my scenario. The Fed is TRYING to raise inflation expectations by threatening to raise rates and saying they are concerned about inflation to give them ammunition against deflation, which is unfortunately inevitable. The fed will be cutting rates soon. It will have little effect on the economy.

[cstradingman]

Shawn -- Also look at Tony Caldaro's blog. He is a long term stock bull. I just noticed he stop predicting bond direction. Because he is confused. He was a bond bear I believe. When bond bears become bond bullish a top in stocks will form. It will spook the market when they realize something is wrong. I suspect eventually Tony will become a bond bull. Then when he sees stocks dropping he will start to become a stock bear. Cstradingman is very bullish on bonds long term.