Planet Yelnick

The Surge Will Not Be Denied

Some comments to my prior post have compelled me to lay out the prediction regarding The Surge.  The title of the prior post comes from the first Rap song, "The Revolution Will Not Be Televised". The Surge will not come as expected, and will not be on CNBC.   The Surge will, however, be recognized when it comes by the Elliott Wave world, and is one of Prechter's three future scenarios.   The logic of timing of the Surge below the fold. 

The Surge Will Not Be Televised

This past quarter (2Q08) has been the worst in VC history, at least since the modern era of institutionalized VC from 1978  For the first time, NO venture-backed company went IPO, and for the first time since 2003 (at the tail end of the dot-com bust) no info-tech company went IPO.  Today Initiate Systems became the 20th venture-backed company to withdraw their IPO due to lousy market conditions (no kidding!).  The number of withdrawals (largely in Q2) is triple the number of realized IPOs (all in Q1).  The Surge won't happen until the IPOs come back.  Even CNBC cannot make lemonade out of these sour lemons. 

Entering the Bye Zone

The markets have spoken.  Time to listen.  Today they crashed through the Mar low, the 2000 high and the Jan intraday low without hesitation today.  They are decisively below the 34 year trendline from the 1974 low and the 2002 low.  The Dow is back to Sep06, when this final leg up until Jul07 began.  Any bounce (and it should come, maybe off Dow11.2-11.3K) will be fast and furious, but short-lived .. buying the dips right now is like catching a falling knife. Housing is still falling off its cliff.  Oil seems destined to spike above $150.  Asian markets have plummetted overnight - Shanghai down 4.5% as this goes to press (~50% off the recent irrationally-exuberant peak). "The worst June since the Great Depression" and similar headlines should be popular tomorrow. 

EWI and Neely both called this one. Paraphrasing Tony Caldero, this is what a C wave feels like.  This is at least a little Big One.  And we are only part way through it. 

Oil spikes can drive recessions.  The US can weather it by hunkering down.  China has to keep the magic going at least through the Olympics, in August.  Think it bad now?  September will be very interesting ...

To stop the impending disaster, the Fed will have to raise rates.  Right now the world financial markets are caught in a huge game of chicken between the Fed, the ECB and the BoJ.  Short term Treasuries have gone up, putting pressure on the Fed to raise. The ECB has put pressure on the Fed to raise. The Fed seems stubbornly prepared to keep rates stable through September (let me guess, is this an election year?), while the ECB may raise again in September, wary of inflation.  September will be very interesting ...

Enter the Yves Zone!

Yves is back.  After calling the last two major market moves, he now sees his second great buying opportunity coming up.  Call it want you want - The Yves Zone - he is now joining me in calling for The Surge.  His Zone will be driven by specific sectors, not a general rise. Yves is particularly keen on CleanTech companies.  Watch for Yves to be featured next month in the Institutional Investor Magazine on carbon trading.  Check out his count in this chart, which accompanies his guestblog, below the fold.   

Free Week on the Cheap

EWI would like y'all to know that in the final two days of Free Week, you can get a special discount by subscribing: 58% off for the first three months.  Click here if interested. 

If you need a teaser, listen to Bob Prechter on Bloomberg television for an interview in the 5 p.m. hour (Eastern Time) Wednesday, June 25. Visit Bloomberg Television to see if it's available in your area. Bloomberg TV is also available on the Internet on TVU networks, channel 10085.

As a personal aside, the EWI services have been a lot more useful to me during impulsive waves, not corrections, and at major turn points in trend.  We may be at edge of the Big One now, or (in my view) we may meander through the summer - but around September I expect a trend change and major market move.  Up or down?  If Obama seems like the winner, his capital gains tax increase may cause a market sell-off before the  new year, regardless of the market's views of his economic policies.  If Mac seems in the lead, the expected bellicosity of the US and the continuation of Bush's easy-money policies could also lead to market angst.  Between now and the election I expect the EWI services to be particularly valuable to help clarify what may be an unusually confusing and noisy poitical and economic environment. 

Neely River Flood!!

Neely has sent out three emergency bulletins to help his subscribers manage their short positions.  A collapse is now likely, albeit after maybe one more "media induced" relief rally.  Tonight's STU crows that the long-term trendline (34 years) has been decisively broken.  As the Feds march two Bear Stearns' hedge fund managers off in cuffs, we should soon test the Bear Stearns' last-minute-save low of Mar17.  That level hovers around the 2000 peak level, and the Jan22 low level.  A former ceiling becomes support - it is the next line to either break through or bounce off.  However, we first may see the proverbial Kiss Goodbye: a retrace to the bottom of the 34 year trendline and then a failure to decisively break through.  Either way, this market is now poised for the point of recognition: a sizzling slide down. 

Neely River Overflows!

Market has dipped twice so far today and bounced, including pushing the Dow below 12K and the S&P below 1333.   Glen Neely has been watching this fairly closely; new line to watch: SP1320.  A drop below indicates the Bear will accelerate down. 

OMG! Free Week!!

It is Free Week at EWI, and I encourage you to click on the flashing box to the right and check out the Man himself.  The markets are poised on the edge, and the EWI prediction is for The Big One, and yet, so many times we have had Free Week at such a point only to see the markets rise!  Neely put out another emergency bulletin recommending lightening up on shorts, even though markets were down today.  Why?  Not fallen fast enough far enough; indeed, we may be forming a short-term low.  Tonight's STU continues the theme of the Big One is coming, but also hedges a bit given the continued resilience of the Naz. More interesting is the Euro seems poised to *really* drop and the Dollar strengthen, while US Treasuries are strengthening as well.  Watch the short term T Bills closely, as if they reverse and continue to weaken, the Fed will be forced to raise rates.  At the same time, inflation in the EuroZone was up a whopping 3.7%, and perhaps that caused the Royal Bank fo Scotland to issue a Crash Alert (thanks to TObject for pointing this out).  Also today Yves was on TV and gave his warnings.  Time to read Free Week and follow along. 

Yves Explains All

Yves is on "Taking Stock" on Bloomberg Television Wednesday from  17:00 to 18:00 Eastern standard  time (can also be viewed on Bloomberg.com).  Fascinating juncture: Neely has prepared his troops to pull out of their shorts on the S&P unless the Sept S&P breaks 1333, and then confirms by breaking 1290.  He also gave an emergency recommendation of how to play this - I will save that for those who subscribe. The longer it takes, the higher the odds of a continuing complex correction.  Dollar weakened today against Euro.  The Euro has not collapsed against the Dollar, and may continue its own complex correction (a trinagle or similar) and still could pop to new highs above $1.60. The STU is patiently watching a 34 year trendline, which is arond Dow12055 tight now and slowly increasing.  A close below that signals death to the market.  RIght now they are watching SP1344 for an indication of continued down vs. complex correction.  Stay tuned, and listen in to Yves. 

Neely River Not Overflowing Yet

One of the indicators Neely uses much more than Prechter is whether a change of direction goes faster than the previous trend.  In this case, the drop off the late May top has been fairly steep, much steeper than the rise off Mar17, but it is starting to stall.  Neely compares it in a fractal sense to the drop into Mar17.  If it continues with that sharp of slope, it would confirm confirm the change of trend.  Zoran was a fan of this (which I gather came from Gann), and the Elliott Fractal site also watches such fractals, a modernization of Gann.  In a simple sense, it shows whether the impulse waves down are continuing, broken up by plateaus/corrections.  This now requires the S&P to break 1300 within a few trading days, and that is looking improbable. 

We may now find the rally up from Mar17 is not over, and it may break as a larger ABC upwards, with the last few days the end of the B wave.  Even more bullish, it supports the view that the wave down into Mar17 was an X wave of a complex correction since Jan22, rather than wave 5 of an impulse down.  If so, this correction may meander for several months before we know the trend: the Big One down or the Surge up.  In the meantime, Dollar seems to be *really* rallying, as the Euro has continued down, sharply in the last two days.  Next week is options expiration, and usually we see a market rise into the third Friday at the end of the quarter.  Enjoy the summer, and watch GOOG and other tech leaders for an early indication of the trend. 

The Fed Will Raise Rates

Prechter World gets on a roll during times like this - the wave pattern is easier to discern when impulsive.  Last night's STU proferred more evidence of one of their core claims, that the Fed follows the market on rates, does not lead.  Check out the chart - it speaks for itself.  For all you Prechter bashers, the service provides counter-intuitive insights such as this which are worth their weight in gold - your gold if you can separate their wishful calls (see my prior Wolf! Wolf! series) and their broader insights.

Also, we are gaining clarity on how to count the market since July.  The wave down from Oct07 counts as five waves if we look past the Dow - the Jan22 bottom was wave 3, the Mar17 low was wave 5.  It looks less clear in the Dow, but sometimes waves 5 truncate, especially when something happens as happened on Mar17 - the Fed forced a workout of Bear Stearns and avoided financial gridlock.  I wouldn't call this a bailout as Bear got sold for scrap; it was more a pre-packaged bankruptcy without all the complexity of a court proceeding. 

Does this mean we are in wave 1 of the Big One down?  Not necessarily.  Just as the Mar17 bottom is not the low point in the Dow, the Oct top is not necessarily the top even though it was higher than July.  In other indexes this count is clearer: if July is the top, wave A and B were the down/up to Oct, then wave C is the five waves to Mar17.  This would be a classic Zigzag pattern; caveat that the wave off of July is easier to count as a 3 than a 5.  (Zigzags break 5-3-5).  I will let strict Elliotticians parse this for us - please comment. 

Obviously the key level to watch is the Mar17 low.  If we fail to break it, the odds increase that the market has been in a bottoming process since Jan and is preparing to rise again into 2009. But the EWI analysis is making a stronger case that we will break it.  Imagine that (a) oil spikes well above $140 towards $160/bbl, (b) Fed raises rates, and (c) inflation fears run rampant.  Neely stated today he is almost "certain" that his Big One is upon us. 

Prechter Predicts Petroleum Panic Peak Price

Current EWT came early so Prechter could opine on oil & other events.  He expects oil to peak at between $160-190/bbl.  Rationale is a commodities bubble is driven by fear, and the fifth wave tends to extend; whereas a stock bubble is driven by greed, and the third wave tends to extend.  A typical fifth wave extension runs 1.618 x waves 1-3, measured from top of 3 or bottom of 4, hence the range. 

Beyond waves, does this make sense?  John Mauldin has worked out an analysis that even if half the rise of oil is driven by a weak Dollar, the core driver seems to come from a regulatory hole that long-term commodities funds have driven an oil tanker through:  "The CFTC created a loophole when they allowed investment banks to be classified as commercial investors. So, when a long-only commodity index fund wants to buy a million barrels of oil, they can go to the investment bank, who will sell them a "swap" on the price of oil, and then immediately hedge their exposure in the futures market. ... [T]he long-only index fund can now create positions far in excess of the position limits that are enforced upon normal speculators."  The size of these commodities funds has become roughly the size of all oil demand, essentially doubling demand. 

These funds have gone into commodities as part of the huge de-leveraging from the credit crunch.  Check any commodities chart and you will see the commodities bubble take off in Oct 2007.

Where will it end?  Usually it is difficult to time the extent of a bubble and the length of the foolishness.  Several calls for the end of the commodities bubble have already been made, fruitlessly so far.  Best is to watch the extent to which the Treasury really does try to strengthen the Dollar, not just jawbone; Bush has done no apparent interventions since 2001.  Also, the Fed can begin to take liquidity out of the system, either by raising rates or other means.  Despite Bernanke's statements of last week urging support for the Dollar, the Fed has made no specific moves, and indeed seem more worried this week about Lehman Brothers, which is trying to borrow to stave off collapse.  Maybe they should let a bank like Lehman collapse - this would send a huge message back to the markets that the Greenspan Put is no more. 

The Fed has conducted a grand experiment since 1987 - flood the market with liquidity every time it seems to be collapsing.   Bernanke of course used to teach this prescription at Princeton - hence the moniker Helicopter Ben.   Apparently the concept came from the revered Milton Friedman.  We are now testing the outer limits of this theory.  The US debt (government, private and derivative) has grown exponentially in the last five years to levels unimaginable to economists like Milton Friedman.  When the final bubble bursts - and this may be driven by the Prechter Petrol Panic Peak - this theory will be tested.  We are the lab rats.      

The Market Chose Death! Or Did It?

The turn window said: reverse or die! And the market spoke.  Kudos to the STU for the coiled spring of nested 1-2 waves: it seems to have sprung!  Neely put out several alerts Friday, including saying that he is more worried than he has been for 25 years, and this may the worst bear market (ie. the best shorting opportunity) in 75 years.  (See comment to prior post, here.)  And yet, rather than crowing, in Friday's STU, Hochberg showed caution around several divergences.  But they expect them to resolve consistent with a Big One down shortly. 

Prechter may come out with an early EWT this weekend.  This may truly be a critical juncture in the market. I will wait to comment.  But ...

... Reflect on what an odd day it was Friday - and a week before Friday the 13th!  Oil runs up a huge amount (over $10).  A minister of Israel says an attack on Iranian oil facilities is 'unavoidable'.  Linked?  Maybe, but oil began the big move the day before these intemperate remarks.   Unemployment pops up a huge amount, maybe due to a bad seasonal adjustment; but the ECB chairman holds rates, fearing inflation more than recession.  The Dollar drops hard against the Euro; maybe the Euro is going back above $1.60.  Bernanke talked of the need to strengthen the Dollar several days ago, and Thursday and Friday bloggers picked up on a speech by the Dallas Fed President to ask whether Bernanke is 'incompetent.'  A combination of longer-term issues centering on lack of confidence in the US, and one-off spikes whose impact can be reversed quickly.  So which is it?

All this means we should watch how the market reacts Monday before jumping to conclusions.  Hochberg notes that after a big move, it is often worth waiting until the next trading day to see what it means, if it means anything at all; he was speaking of how the large rally Thursday was more than retraced Friday.  Well, maybe Friday was anomalous, not the barbinger of the Big One.    

Pundits at the Tipping Point

Next day or two should prove interesting.  STU sees the vaunted nested waves 1-2 at three degrees, meaning the Big One should commence at any moment.  Other than a small flutter up a bit (meaning the lowest degree wave ii is not quite over), their view has little wiggle room.  Neely is in a similar posture, telling his subscribers to maintain a short position in the S&P as it has little more than a jitter to go before a sharp fall.  If the Big One doesn't happen, the best alt count is bullish: the drop off the May19 high would count as an ABC, and we are soon to go to rally upwards (the Surge?).  The new line of no return is the very recent highs on May29 at Dow12.727 and SP1407.  Break that and the bearish count falls out of its nest(ed). 

We have been here many times in the last five years, where the STU sees the nested 1-2's and the markets goes the other way.  The nested 1-2 is meant to snap like a coiled spring, so if the market fails to snap, and instead meanders, even if it doesn't break the May29 new line of no return, the meandering by itself begins to vitiate their count.  June Swoon or Summer Rally?  We'll see by the weekend. 

Pundits Agree - Tipping Point Reached

The STU thinks wave 3 began last week, and has recommenced this morning.  Neely sees the S&P as vulnerable to price collapse, and the time for it to hold up has about run out.  Yves gave us his sell signal a month ago, and went on TV today to say it is time to take two aspirin in preparation for the market headache that is about to commence.  The Euro has gone back up, although not yet back to its recent high, and the Dollar is still meandering rather than solidifying.  Watch to see if the countertrend rally at the end of the day today continues for a bit tomorrow, and then the bottom falls out of the market either right away or within a week or so.  For the punditry to be right, the market needs to stop meandering and take huge drops downwards in a relentless move below the levels which have held support since Jan22.