Planet Yelnick

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.