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. 

Comments

[Eventhorizon]

the end is high or nigh? Maybe both?

I am surprised at how low the $CPC is getting - 13 day moving average is at a 2 year low. $CPCE still has a ways to go - not sure what to make of that.

Some argue that $VIX and $VXN are too high for a significant top. I would argue that they are not taking the ACTUAL volatility relative to IMPLIED volatility into account. Currently, with the $vix at 43. the 34 day average true range is 3.8%!!! Last Sept when the $vix was 20, the average true range was 1.7%. Black-Scholes tells you options should be higher than usual right now; maybe the $vix is not pricing panic (i.e. excessive implied volatility) it is simply pricing actual volatility.

This is just thinking out loud here - I haven't done the actual math!

[Canadian Money]

I continue to agree...lower lows.

Obama should not listen to any economist, or anyone else for that matter, if they did not forecast the market crash. Even Greenspan said he was surprised.

Does anybody know what Obama advisors were saying prior to the market collapse?

CM

[DG]

CM,

Here's an article about what Larry Summers was up to in 2007:

http://blog.atimes.net/?p=552

[george]

yelnick,
i have to agree with you about
them slipping pig (or pork in
the barrel) with this stimulus
package. also i agree with your
comment that they are not concerned
enough to keep away a depression.
what if this sideways correction is
the obama rally? scarey thought...
george

[Forkoholic Serge]

>Their prime count is a little wave 2 of that wave (5) down,

Jezz EWI can't even count? ;-))
We're still in Wave 4
http://forkoholic.com/images/Wave4topping.jpg

[dom]

"Jezz EWI can't even count? ;-))
We're still in Wave 4"

Wow did you even read the post?

[MHD]

Could Neely be right???? Some of you think a crash might start because of an terrorist attack, but a derivative "issue" would also be high up there as far as a potential cause for a crash. Or maybe the markets are looking at 6 months from now and things are just going to suck!!!

[KD]

Is physical Au a long-term buy here?

[MHD]

I need an Elliott expert to explain the different forecasts. Neely thinks we go off a cliff from here and once we bottom have a stong rally and then fall again but not to new lows. Most other ewavers think we break the lows in Nov followed by a large strong rally (50% retrace) and then a C wave that will take us to the final lows. Why the different forecasts even though both point down?

[yelnick]

MHD - not really that different. Neely sees a good short right now, hence his view. The STU is not specific on the downside from now, but it will at least break the Nov21 lows. If it meanders down in an ending diagonal form, it should truncate short, and that would represent a wave 4 triangle rolling into wave (5); but if we just ended wave 2 of (5) and are now in 3, we should have a rapid and decisive break. The prime count of the STU is wave 3 of (5). So the prime count of STU and Neely agree on the prognosis: a sharp drop like a wave 3 'point of recognition' that the Geithner/Porkulus plan is the wrong medicine for the patient. Might have started today!

[MHD]

Thanks! I like the name you've given the plan.

[yelnick]

MHD, there is a lot of good economic analysis trashing this Porkulus bill. Interesting how Obama claims there is a 'consensus' that we have to act fast and deep. This is very much like Gore pronouncing a 'consensus' on global warming. Turns out in neither case is there such a consensus. Makes you realize that when a politician claims consensus and urgency in the same breath it means they are stuffing down our throats something that cannot withstand the scrutiny of light. The only urgency is to get it passed before common sense returns. Simplest way to put it is only about 12% of the Porkulus is even arguable as stimulus, and much of it is spent slowly.

[DG]

MHD,

Neely is saying that we're in a complex correction from the January 2008 highs (he doesn't have the bull market ending at its highest price point, which is actually very typical for the way he counts waves), whereas EWI has us in an ABC. The end of Neely's complex correction (which may have just ended its "x" wave) is likely to be a contracting non-limiting triangle. In that triangle, the "A" wave would make the lowest price print. That "might" be the wave we're starting now. That triangle should play out over the calendar year 2009, eventually ending it's "E" wave somewhere around halfway between the highs we just had around 870 and whatever low we hit (you know the numbers that he's been discussing). From there, we start a new bull market to all time highs.

At the core, the difference in count is driven by the rules they use to determine whether waves are impulsive or corrective.

[cruiser9805]

The reason for the all time high is coming inflation. I believe in 10,000/ounce of gold. I also believe in the 5 dollar coke and the 10 dollar pound of bread.