Yves on the Greenshoot-Fed Sacred Fed Bull Died Fat and Happy

Or, how wave 4 is rolling over…

 
The obvious sometimes stands clearly. You face it and prepare for the outcome.  We stand at a juncture that would have you believe  in the coming outcome. But wait - lets take a quick journey into what seems to dominate my observations and you can determine the best course of action for yourself.

We have continually watched monetary aggregates and they are contracting. You will notice from the M2 chart divided by the monetary base a drop. This is significant and comparable to the 1930’s. The complaint would be the same as to banks sitting on a monstruous pile of cash but not lending it. The tradional behavior of the consumer to start saving instead of buying also compounds this problem. M2 decceleration cannot lead to inflation. The Fed cannot force the banks to lend and monetizing bonds will continue to aggravate the only asset  that people have en masse their household. An inflationary outcome is tantamount to financial hara kiri. The bonds vigilante will strike hard and mortgages will keep rising, killing any stabilization that is in process. The impact of the recent rates hike will be felt in the stock market in the next few months.

Given the choice to protect housing or stocks, the Fed will surely realise to go the real estate way. A liquidity trap as such is deflationary. The money base also doubled in Japan after the stock bubble collapsed and to no avail the economy kept contracting.

Are bonds finishing the C wave or are they in complete fast and furious 3rd wave?  This is the question we did pose in the article May 2nd. If the Fed gets it, they stop buying and monetizing the debt then it is a C wave.  

On the next graph, the spread of the discount rate to the rate of the long Treasury has never been so wide.If you had bought on a few occasions where the spread was wide as 4% between both, the resulting trade would be a winning one on most occasions.

Unless you are suggesting the Fed raises rates by about 2% over the next 24 months then buying treasuries would not be a great investment. On the other hand if you believe that there is little room for the Fed to move, then long bonds are an even better bet. There is a fine line that the Fed is walking and a slight tilt of strategy can undo with great dammage what they have built so far.Mild deflation is the preferred outcome and necessary one.

We have sold all of our inflation hedges that we owned for the last 2 months.We are turning to deflation trades or unwind. Possibly the greatest misunderstanding in the lift off of all markets singularly correlated is a function of investment demand and not real changes from supply/demand. Realise that all markets cannot possibly beat to the same rhythm for a prolonged time. Those correlations will unwind and support real bull market where there is cause for that.

We have held for a while our position of a rare 4th wave at this juncture. The last move up does look impulsive but is part of an ABC ABC 12345 pattern. The pattern still holds to the rules established. The implication is for a 5th finishing wave that will complete a bigger A wave down. The general area of the March low is the objective. It could be truncated or extended. I will be looking for an equivalent 3 standard deviation in sentiment measures to call the bottom if that was to occur. We are looking to short the market on the wave 2 of 5 and not before since window dressing could still be part of present activity.

The bull market ate too many greenshoots and died of natural causes.  Often bull markets roll over from their own weight.

Yves Lamoureux, Investment Advisor, Blackmont Capital Inc.
 
The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc.. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CI Financial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.

Comments

[Ross]

Thanks Yves, I appreciate your comments so much.. -Ross

[Rob]

Fascinating.

[trader]

spot on! down hard to new lows in oct...

[Forkoholic Serge]

Money magazine Bull cover
https://coversxchange.timeinc.com/current/1012_top1_100_thumb.jpg

anyone knows how to pull full size?

[Forkoholic Serge]

Got it
http://coversxchange.timeinc.com/current/1012_top1.jpg

[Forkoholic Serge]

Hawaii prepares for the biggest Disco Ball Party ever!
http://forkoholic.com/images/hawaiidiscoball.jpg

[vipul garg]

btw, whats the contribution of ' Yves Lamoureux, Investment Advisor, Blackmont Capital Inc.'
apart from coming on bloomberg tv?!

[Taz]

DG et al.

I am looking to get into NeoWave and am wondering how I should go about doing it. I have bought Neely's book and an wondering how one goes about learning his new patterns developed since he wrote that book.

With respect to his book, does it help faciliate orthodox EW or should it best be kept separate entirely.

Any help would be greatly appreciated.

Taz

[Forkoholic Serge]

Prechter on Gloomberg
mms://media2.bloomberg.com/cache/vjP_4O1wOz_0.asf

[Forkoholic Serge]

US to liquidate its gold reserves
http://www.theonion.com/content/video/us_to_trade_gold_reserves_for?utm_source=nav

[DG]

Taz,

Definitely start by reading MEW. I would take Neely seriously when he says Chapter 3 is not meant to be read straight through.

For some of the information on new patterns, go here:

http://www.neowave.com/info-past-interview.asp

And download the "NeoDiscoveries" PDF. There is also a lot more detailed information in the "Question of the Week" section of the website.

NeoWave is meant to extend and make wave analysis more rigorous than Elliott Wave by adding a "logic" dimension to the analysis. Here are a couple of "Question of the Week" responses that directly address this issue.

http://www.neowave.com/qow/qow-archive-406.asp

http://www.neowave.com/qow/qow-archive-80.asp

If you decide to subscribe (I highly recommend at least a trial) and want to access the blog I have set up for subscribers, email me at neowavetrader at gmail.com with a snippet from a subscribers-only update and you can get access. I limit it to subscribers to protect Neely's copyrights, but I am not affiliated with Neely in any way. Just a trader who thinks NeoWave is the best method out there and wants to discuss it with other subscribers.

[Tartan]

Taz,

Regarding your question on learning NeoWave:

I recently started learning NeoWave and had the same questions as yourself. I think it was helpful that I had a solid understanding of Elliott Wave - having read Pretcher's "Elliott Wave Principle" and having used it in practice for about a year.

I then read Neely's "Mastering Elliott Wave". In hindsight, I got bogged down in chapter 3 and recommend that you only spend about an hour skimming the Rules portion of this chapter after page 3-22. Then, move on to chapter 4 and beyond. Come back to chapter 3 after you have read the entire book. Neely also recommends skimming the Rules sections of chapter 3, but I am stubborn that way - sometimes to my detriment.

As DG mentions, it is also important to read the questions of the day and various PDF documents on NeoWave.com - this is where you will learn about Neely's newer patterns. I found this content to be poorly organized on the web site, so I copied it all into a Word document and categorized it into sections. I refer to this document very frequently. If you want a copy of this Word document, then shoot me an email (tartan31 at gmail dot com) and I will send it to you.

I subscribe to each of Neely's trading newsletters. Maybe you just want to start off with the S&P newsletter.

I chart each day's action in Excel according to Neely's charting recommendations and have written Excel worksheets to interpret the chapter 3 Retracement rules. But I have not been able to develop an Excel worksheet to automate the Pre-Constructive Rules of Logic - it gets VERY complicated and time consuming. Consequently, I don't use the Rules very often in my analyses - I will likely do so in the future when I get a bit more experience. Many of the rules are actually reflected in the content of the other chapters, so in actuality I am applying the rules when I apply the logic of the other chapters. I would recommend that you do not try and automate the rules as I did – my time would have been better spent re-reading the other chapters.

A key difference between Elliott Wave and NeoWave is the use of time in the analysis – time is very important. I do not find that Mastering Elliott Wave or the content on the web site provides enough detail and explanation regarding the use of time. Pay very close attention to the small amount of content that there is on time. Time is embedded within the Pre-Constructive Rules of Logic – but again this section is a very challenging read.

I find the comments in Yelnick's and DG's blogs to be extremely helpful and I am a regular reader of both.

Good luck!

[Account Deleted]

Taz,
what DG and Tartan said about THE CHAPTER 3 is true.Just read it through.I know many people who were adamant on finishing it first before moving on further but.... they never could.Take ur time with it and it will slowly sink in.Once it does,it will get a lot better.Just give yourself some time and don't rush about it.
BTW tartan,if u have organized the QoW into sections,would appreciate if u can share it.My mail is mmanishbahl at gmail.com

[Tartan]

Manish,

I sent to document to your email

Cheers

[Eventhorizon]

Is anyone aware of any practitioners of EW (or NeoW) applying speech-recognition algorithms (or, more generally, pattern recognition algorithms) to Ellliott?

There seem to be many parallels between the problem of recognizing a limited set of phonemes in the time domain and the problem of recognizing a series of price patterns:
Both are noisy signals (background noise),
Both have wide variation within a given pattern (accent, pitch, rhythm),
Both convey additional information in the specific form of a pattern (mood, voice, tone),
Both need context for reliable interpretation ("your" vs "you're"),
Both come with additional sources of information that enhance interpretation (facial expression, body language), etc.

The major differences would be in the fractal nature of EW vs voice - but this actually amounts to additional constrainte eliminating choices in most cases.

This would seem like a simpler place to start than, say, an unbounded pattern-recognition approach to price series analysis.

[DG]

Eventhorizon,

I don't know of anyone doing work in that vein. You kind of had me understanding where you were going until you mentioned "unbounded pattern-recognition". Wave theory implies that there are s limited set of mutually-exclusive patterns that combine to form all market price movements through time. In NeoWave, there is allowance for the possibility of new corrective formations (I've never seen Neely directly address the question of whether or not new impulsive formations could arise, but I think the logic of the rules of impulse wave formation preclude that), so long as they do not exhibit behavior that would allow them to be analyzed as the combination of a currently-accepted pattern + an x or X wave + another currently-accepted pattern.

I may be misunderstanding your use of "unbounded", but it seems to me that wave theory is definitely "bounded".

[Curt Smith]

After reading these comments, which GS and the boyz have also since this view is everywhere this weekend, I'll bet the boyz force a short covering rally next week. Perhaps Tues especially if there's a comforting down move for the gullible bears to nibble on. Too many have 6/26 as a VST low for a down move to go that long.

Just thinking like a thief.

curt

[Mamma Boom Boom]

>>The last move up does look impulsive but is part of an ABC ABC 12345 pattern.<<

That's what makes markets.

I just wrote the opposite, yesterday on my site [The entire rally, off the March low, failed to build a structure, creating a very dangerous condition, similar to levitation. Healthy markets need to back and fill.]

[DG]

Curt,

"A thief" was probably accumulating in March and April to sell in May and June, not worrying about executing a short squeeze in June after a 40% run-up in the face of a deteriorating economy.

Besides, right now short interest is nothing special (about 4% of shares outstanding are short), relative to the last 52 weeks.

http://www.nyse.com/press/1244542229537.html

I have been online monitoring various stock discussion boards for almost 15 years and I've never been able to work out a system for trading the information one gathers on them, so saying that "everyone" has this or that view is meaningless in the context of actually trading the market.

More importantly, the charts say we're ready to head down.

[Upstart]

Dig this, folks: The high close (so far) of 6/12/09 is Lucas 322 months TO THE DAY from the low close at the 1982 bottom, 8/12/82.

[Eventhorizon]

Hey DG,

By bounded I meant that if one uses the EW or NeoW patterns as your basis for interpreting the price data, the problem is bounded, rather like trying to interpret speech when you know all (or most) of the phonemes that are used in the language. It reduces the problem to statistical pattern matching.

By unbounded I was thinking more along the lines of trying to understand spoken language when you don't know the set of phonemes employed in the language or any of the rules, vocabulary, syntax or grammar of the language - a far harder challenge.

As you correctly surmised, I would think that EW or NeoW would provide an excellent base from which to attack price series analysis using tools like those used in speech-recognition. Now, if only I had some knowledge of the field!!!

By the way, I have been really enjoying the recent discussions amongst you NeoWave experts.

[Wavist]

More importantly, the charts say we're ready to head down.

From what I can gather from Neely's last monthly forecast he anticipates the drop concluding sometime within the next 6-12 months, which still gives plenty of opportunities for fakeouts beforehand does it not?

[Taz]

Thanks DG Tartan and Manish for your help, particulary about chapter 3. Very much appreciated. I had a quick read through the book yesterday and it seems quite intense.

Tartan: I would very much appreciate a copy of the document you referred to. I will shoot you an email tomorrow from my work.

Cheers beers

Taz

[Forkoholic Serge]

Summer solstice special from Elliott Wave Forkology to our Yelnick friends.
If you frequently post on Yelnick, send me a message to receive $15 off our EWF June issue. You will also receive a special market alert issued for subscribers tonight.

http://forkoholic.spaces.live.com

[Forkoholic Serge]

>The high close (so far) of 6/12/09 is Lucas 322 months TO THE DAY

We dig it but the method's accuracy is 1 month +/- 1 month so
kinda wide to me :)

[Forkoholic Serge]

Are we getting fooled by cash? Futures & cash have different recent tops,
so that impulse everyone claims to saw could actually be a wave C of an ABC down
What do u guys think?
http://forkoholic.com/images/ndxcashvsfutu.jpg

[Upstart]

The high also occured at 191 weeks from the 2005 end of the mammoth triangle in the DOW, 144 + Lucas 47. Anyway, it's not so wide when the month is almost over! The price stop is close by too:)

Also, on further inspection, the rally is nothing but an A-B-C in the DOW. It counts perfectly. You can count 5 up to two-thirds through March for A, the pullback there is B, and the rest actually counts beautifully as five waves for C, with the corrections alternating. You can count C two ways. One is to count the first wave as a leading diagonal ending at the middle of April and a zigzag there, and the 3rd wave ends early May, with wave 4 being the May flat. Wave 5 counts well internally as ending at the high that stands. The other way I like even better because wave C channels: You can count a small 5 waves ending on the 8th trading day of April for wave 1, an expanded flat for 2 (ending two-thirds through April), wave 3 ends at the higher peak(DOW) past mid May, followed by a quick zigzag to alternate with the flat. Same wave 5. When you draw trendlines through the top of wave 1 and 4 (ignoring that part of wave 3 goes above it), it's parallel to the 2-4 trendline and wave 5 ends right on it. Very clear count, with some possible timing occuring with it. The top being in fits with an ending diagonal in the XAU having ended on a throwover on June 1. The XAU was also 233, 199, and 55 months from important turns this month.

I like to watch the C-waves of flats more than anything, and I don't see that the rally from March counts like one or acts like one. Furthermore, five waves down ending in March actually channels fairly well. No, the rally counts as a three; and, since it obviously can't be the entire correction of 17 months decline, has been wave A of a flat. This is how the market will keep the most people fooled for the longest time: Wave B will go to a new low and then the strong impulsive wave C of the flat will begin. That will finally be a rally analogous to 1930's. Bulls will say, "Look at that! That HAS to be the final bottom." Bears will claim we finished wave 5 down, and the rally will be impulsive, so it will seem like the A-wave of a big zigzag has begun. When it tops out and starts pulling back, both camps will say it's a pullback before we head higher, but it will be the end of the flat's C. That's where the real collapse and "second half" of the bear will begin. Check out the waves down in the 1830s, I think it is, for an example. I think it's the decline starting in 1835, but I don't have a chart with me.

[Upstart]

That's supposed to say: When you draw a trendline through the top of wave 1 and the end of wave 3 (ignoring that part of wave 3 goes above it), it's parallel to the 2-4 trendline...

[Upstart]

The comments by Richard Russell posted by da bear are indicative of what I'm talking about when I say the market will keep everyone fooled. He says if the market retests the March low, reverses and bounces back above the May peak it will mean a new bull market and inflation. And, if instead, it violates the March low, he expects a massive crash and deflation. Wave B down of a flat may or may not violate the March low (can do either), followed by wave C up which will better the May high, and yet be the end of the upward correction and lead to the second half collapse of the bear.

[Forkoholic Serge]

>Check out the waves down in the 1830s, I think it is, for an example. I think it's the decline starting in 1835, but I don't have a chart with me.

Yep, especially I'm interested in 1835 intraday charts ;-)
Dude, I don't even have a yearly that far :) lol

[Forkoholic Serge]

> Wave B will go to a new low and then the strong impulsive wave C of the flat will begin. That will finally be a rally analogous to 1930's. Bulls will say, "Look at that! That HAS to be the final bottom."

if it is in fact the case some indecies will not confirm giving us more clues

[Wavist]

I've been wondering about a similar expanding 4th wave scenario whereby the January to March decline is wave 5 of 3 as per Forkoholic's count, but then the March to June rise only wave A of 4. That would result in a false bottom occurring in a couple of months in wave B of 4 followed by another rally to early 2010 to complete wave 4. After which would follow the fifth wave down to the final bottom by spring.

[Upstart]

p.455 in the year 2000 edition of "At the Crest of the Tidal Wave" has a chart at the bottom from 1784 to 1840+ where you can see the five waves down from 1835 and then a flat. It almost makes sense that if we're in this killer bear market that it would be more likely than usual for wave 2 to be a flat instead of zigzag.

Yes, Forkoholic, definitely we should look for clues to confirm if that is happening. Much of it at that time may be that valuations are still ridiculous, housing is still declining/negative wealth effect, etc.

[anon_aka_TERA BAAP]

being LONG is always good move but when is being LONG the BEST move??

of course it is during FOMC..go back and check what happens to market during FOMC times..

it is HUGE rally day!! we are going up BIG TIME this week..only a FOOL would be bearish in the face of this extreme negative sentiment coupled with Bernanke PRINTING!!

FOMC announcement maybe they will print 5 TRILLION or more to support equity and treasury markets!!

never NEVER fight the Fed..it does not matter NEOWAVES or LIQUID index..they are all failure against FED!!!

i am massively LONG and ready to enjoy SAME type of PAYDAY as last several FOMC meetings..in XOM, GS, WFC, SPY calls!

will buy GDX also if any pullback...

be LONG or be WRONG..we are going much, much HIGHER!

[usdollar]

I agree with you upstart. I believe what we've seen so far, is wave W down sharp, and this is wave a of X, also sharp. It is just a matter of if we are going to see a double or a triple 3 sharp down, ie W(done),X(a done),Y,X,Z. wave b of X is probably complex, so this X wave will most likely not be done until 2010, as long as one always believe Prechter is wrong, there is a pretty god chance to be right. Fed still has easy access to a lot of money, so no free fall.

[usdollar]

I believe there was a triple 3 in one Prechters books in the dow 1932-50 in that span somewhere I haven't read his books for a couple of years. I will try to look it up. Could be interesting to see if this is some kind of fractal.

[Forkoholic Serge]

> That would result in a false bottom occurring in a couple of months in wave B of 4 followed by another rally to early 2010 to complete wave 4.

That would be very long 4 :)
I'm trying to make it simple. Fractal looks the same so far(with some variations)
but it probably does not mean count will be the same.

[Forkoholic Serge]

btw have u noticed chunk of a fractal went missing? we started from mid April or so. Or maybe it just got smoothed by bullishness I can't recognize it anymore
I hope it won't flip on us and showup at the end - that woudn't be fun

[Virginia_Jim]

Yves, the third chart. I favor the same count with March 9 being the end of the B wave of an irregular or expanded flat. But in an irregular where B exceeds the start of A, wouldn't the preferred view want a C that significantly exceeds the end of A? My cycle targets put the final end to C at late July to late August and Prechter (who has March 9 as the end of a major impulse wave down) favors later in the summer or early fall for an end to the bear market rally.

None of that discounts the need for a correction now, but not the 'big one' quite yet.

Thanks for your insights!!!

Jim

[Yves]

Virginia Jim, I believe a lot of our differences in counts from Prechter going higher to 11,000 as per Bloomberg last week to Neely's big drop and Yelnick B wave to my completed 4th wave, are about to get answered.My preferred count is base from experience shorting Japan and this has the same "feel" both from the news , the money contraction and the behavior.It is a rare pattern indeed.It could turn out to be an X of an ABC -X-ABC
coming and will go much lower than my prediction but for now I will stick to this coming drop being a 5th until we have better evidences.
Cheers
Yves

[KRG]

Tartan : Would be happy if you could mail me the organized QoW.. thanks

[email protected]

[Charles Dyer]

"Nothing but cash" rule that dominated 2008 and early 2009 has reasserted itself. I suspect next few months will surprise even biggest bears. I have Asperger's and I am on my own emotional cycles and have a relatively easy time avoiding the contagious public moods. This is a blessing and a curse. Ideally, you want your mood to presage others. You want to be at the head of the pack and not the middle or tail. Bull markets charge ahead when positive feedback dominates and bears when positive feedback dominates, too. Negative feedback equilibrates. I see many positive feedback loops that have just begun to kick in. The "instant, easy auction" of the internet and the current Walmart psychology ("price over quality and relationships") and the classic vicious cycle of "anger and recimination" that many married people know so well are going to help wreak havoc.

The best way to see the problem is to consider the $1457 wastebasket. John Thain was chastised for this expense loudly and publicly but it is exactly the sort of expense needed to keep the boom going!

[DG]

As you correctly surmised, I would think that EW or NeoW would provide an excellent base from which to attack price series analysis using tools like those used in speech-recognition. Now, if only I had some knowledge of the field!!!

By the way, I have been really enjoying the recent discussions amongst you NeoWave experts.

Posted by: Eventhorizon | Saturday, June 20, 2009 at 04:13 PM

Neely recently addressed the question of whether NeoWave could be completely automated. His short answer is "no". This is actually a key conceptual difference between his approach to markets and "traditional" E-wave, which considers itself a closed system, so far as I can tell. I remember Dow Predator, in particular, used to be very dismissive of any new patterns Neely "discovered". I am only concerned with making money, not fidelity to Elliott Wave as it was conceived by Elliott himself.

Question:
Do you plan to develop NEoWave software? If not, why not?
Answer:
It should not be surprising that I've been asked many times whether the Institute has software available that produces good NEoWave counts or if we recommend any wave analysis software.

In the 25 years I've been in this business, I have never worked on or considered producing such a product. Why? It is a waste of time. Like all things in nature, wave theory grows, expands, evolves. Computers can only do what they are told. They can't think, reason, deduce, induce or adapt. If I had gone to the trouble, in 1987 (when I started Mastering Elliott Wave - MEW), to enter every rule and concept presented in my book, by the time the project was concluded (which could have been 1-2 decades later), the market had "moved on," producing new, more complex and unusual patterns (such as NEoWave Diametrics, Neutral Triangles, Symmetricals, 3rd Extension Terminals and other pattern variations not discussed in MEW). As a result, to produce good wave counts, many additional months or years would have been required to tell the computer how to interpret and identify all those new patterns. Once that was finished, new behavior or environments would have emerged to cause the project to continue, ad infinitum.

On the other hand, the human mind can extrapolate, interpolate, induce, deduce, reason, brainstorm, curve fit, rationalize and adapt very quickly. For that reason, if you simply take the time to learn and understand the basics of Elliott Wave and the advanced logic and confirmation rules and concepts of NEoWave, you can (on the fly) adapt and logically combine information in new and complex ways that a computer could never do. As a result, spending the time to learn Elliott Wave and NEoWave concepts is easier, more useful and more effective than spending years trying to get a computer to understand, interpret, label and forecast the future based on past standards of behavior.

[DG]

From what I can gather from Neely's last monthly forecast he anticipates the drop concluding sometime within the next 6-12 months, which still gives plenty of opportunities for fakeouts beforehand does it not?

Posted by: Wavist | Saturday, June 20, 2009 at 04:20 PM

Yes, there will be countertrend rallies, but if the top is in, we will get a rather large drop to confirm it, according to NeoWave rules. Anyone who wants to make one trade for that 6 month period would be well-advised to short or go to cash now. Other, more active traders will try to catch those countertrend rallies.

[William Chookla]

http://www.investech.com/others/upload/cw090601_coppock.gif

[vipul garg]

yves,
when you say textbook 5th wave in progress in the post diagram ;which and whose textbook are you referring to ?
it looks very messed up in the least

[Anthony]

If I data fit, I, too, can find a slew of miraculous indicators of bull and bear moves.

Coppock is crap. It works until it doesn't. The only way to play the market is to read history, study your neighbors, and check your balls.

[Wavist]

DG am I correct in surmising then that you disagree with Neely's release today and don't regard the recent decline as already sufficient to confirm the top? I have the impression that he bent the rules a little on Wednesday's 905 break.

[DG]

Wavist,

Neely is apparently using the Monthly chart's "structural" criteria to make that call, as well as some other time- and price-based rules specific to the pattern he has been tracking, so some of the short-term retracement and time rules can be overridden in that situation.

I have seen enough stuff happen in markets that the only thing that "confirms" anything for me is when I close out a trade with a profit!

[johnny]

yeah, going down to S&P500 @ 500 , finally..