Yves on a 1987 Setup

We have run a series of historical comparisons, primarily to 1929 and 1937. Now I am seeing comparisons to 1987. Yves published an interesting piece over at Zerohedge and I asked him to focus it for this site, particularly on the 1987 comparison. 

Back on Jun19 Yves posted a guestblog on how the greenshoot-fed bull market was dying, and recommended a move into bonds. Rates have dropped and bonds have done quite well over the past three months.  His count for the long bond is attached.  He asks rhetorically: if bonds are in their strong wave 3 move up, what does that imply for stocks? Will the hot money roll out of equities into bonds? 

Here is his take on the Dollar and how it drives stocks and bonds right now.  Where this leads is to another rhetorical question: are we about to repeat 1987?

The Problem With Competing Views

US dollar bears should take notice of the great correlation between global liquidity annual change rate and the dollar index. We view this big drop as a positive development for the dollar. It is tempting to get on board with  talk of the greenback going into freefall. However, if taking a look at the graph one can reflect as to the big picture in the making perhaps then you can arrive at a different set of conclusions. We stand in the deflation camp and have been accumulating long term Treasuries since June. Our behavior is very similar to primary dealers, as discussed in my Zerohedge piece.  

The problem with competing views is that the bond market looks out to the medium and long-term horizon while stocks today are mostly concerned with the day-to-day fluctuations. If you were confused, you were not alone. Investors needing to be protected are pushing managers and advisers to invest at all costs if not beware. The fast move up in equities makes you react the same way as when a drop occurs. You behave out of fear.

There is no doubt that a bull market of regrets will ensue. 

This market looks like the setup in 1987, where the Dollar had just dropped in half in 1986 as part of a coordinated worldwide effort. Just compare our current market (first graph) with 1987 (second graph) and what might be next (third graph).

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., nor Yelnick. 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

[golden]

History doesn't repeat itself, but it often rhymes. The market has `already' crashed -- November 2007 to March 2009 -- much larger percentage decline than the 1987 Crash. And by the way, do you remember what the GDP was in the 4th quarter of 1987 during the Crash -- 7.9% and interest rates were soaring leading up to the Crash. The economy was cranking during 1987!

The market will weave a new pattern going forward that will be different than all other patterns in past history. But 50 years from now, they'll be some Elliott Wave analyst comparing their current market movements to ours.

Bottom line: As long as human nature remains unchanged (fear to greed and back), markets will boom and bust. And some Elliott Wave analyst will be selling a monthly newsletter and getting RICH!

My two cents: I still see this phase of the secular bear market from 2000 ending around May 2011.

[Upstart]

Futia sees us in a consolidation for a few days before heading to 1120 emini. That would be about 10300 DOW.

[teaf]

one MAJOR problem with that analysis - we aren't in a 5th wave

worst case we are in a 3 of C which puts us up in the 1230 area
best case we are in a 3 of 3 of I which takes us to new highs and beyond

as golden said we already had the crash - we wiped out trillions of dollars in wealth and greed - we corrected a 20 year bull market (1980-2000) in both price and time

at least that's how i'm looking at it

[Mamma Boom Boom]

So far, I like the reaction (sentiment).

[Eventhorizon]

The things I keep coming back to are

1) Time. If you start the bear in 2000 then we had enough time to correct 1980-2000. But if the bear started in 2007 this would be one of the shortest bear markets and yet it was in response to the worst financial crisis in 80 years and the worst economic conditions in 40 or so years.

2) Valuation. For a major bear market we got no where near "cheap". Trailing 10 yr PE's got to 12 or so - not cheap and certainly not reflective of the situation. Same with dividend yields.

3) Trend. We got nowhere near the long term trend lines.

4) Retest. To put in a lasting low, the market tends to retest. It didn't.

[DG]

Eventhorizon,

Even if you start the bear in 2000, that is no guarantee that we've finished enough time to correct. Corrections, by their nature, are more complex affairs (speaking in terms of mass psychology) than Impulses. The oscillation between euphoria and despondency and indifference makes the corrective process much more drawn-out than the relatively simpler processes of growing confidence and cheerfulness inherent in an Impulse wave up. Neely's work indicates that corrections should take at least as long as the Impulse waves they correct, leaving us much more time to go.

[Charlie Tarango]

I don't subsrcibe to Elliot Wave or any "Technical Analysis". They are all useless, and unreliable over time.

But Yves is right on on the chance for a 'Crash' - and that chance is extremely high.

What all the indicators cannot gauge is Human Emotion, though they purport they can.

Once the 'herd' realizes that this is indeed a Bear Market rally, they are all going to try and head for the exits at the same time.

The Volume we have seen shows there isn't strong Buying - just the absence of Selling pressure.

Those two factors lay a perfect set-up for a 'Crash' and that's why all the so-called 'indicators' don't mean a damn thing.

The Market gave a clear and unheeded warning when it took at the 2002 lows - we will see an S & P under 500.

The only Position now is short or Neutral if you don't have the stomach for being short.

It doesn't matter where the Market heads in the short run, it's where it will end up.

The real bootom will be marked by two critical factos: Few will be left standing, and the bottom will be an'L' - not a 'V' like what we observed in March.

Believe otherwise at your Capital's peril.

Think I'm wrong ?

In the Summer of the 2008 I was Long the Dollar and Short the Market for Deflation.

Take a read: www.TalentSeeksCapital.com.

This is a freebie warning for you Yves readers - go to Cash now.

[Mamma Boom Boom]

Charlie Tarango
Choked on a Mango

[Poe]

If this is 1987, that means the Dow will be at 35,000 in 13 years.

Nice!

[Tom Greene]

Everytime someone posts 1929 and 1987 comparisons - the market SMOKES HIGHER and crushes the bears.

Its uncanny.

[Oil Trader]

Got this in my email from Neely....

"In January 2008, I warned customers and the public that a massive, new bear market was underway. That bear market unfolded almost exactly as originally predicted on both a price and time basis. It seemed almost impossible, at the time, the U.S. stock market would experience a 50%+ decline in less than a year, but that was what NEoWave theory told me and that is what occurred.

As I have said many times in the past, as a market moves toward the center of a large, complex corrective formation, predictability becomes more and more difficult. It usually reaches the point where you can;t predict what will occur next, confusion is high, inaccurate forecasts are common, everyone is looking for answers (when few are possible) and a level of public agitation or irritation is obvious.

That point of confusion is exactly where the S&P is right now. After a year of extremely accurate market forecasts (I was in Timer Digest's Top 10 repeatedly the last 12 months), the S&P is now in the dead center of a 15-20 year, complex correction that began September 2000. Until the S&P moves far from this part of its structure, I will (at best) be able to predict general market direction, but not specific day-to-day behavior. This same phenomenon occurred from 2004 to 2006 when I knew a "bull market" was underway, but I could not predict, with wave theory, exactly how it would unfold.

The continuing rally in the S&P has forced me to reconsider the design of the bear market from January 2008. Initially, I thought it would be a complex correction that pushed to new lows at least once more before the lowest point of this 20 year bear market was reached. But, recent action brings into question that assumption and raises new possibilities. For that reason, I went back to my S&P archives and looked up the various scenarios I originally created for the 4+ year bear market starting January 2008. Attached is one of those scenarios that still explains the past, fits current evidence and explains the magnitude of the rally off 2009's low. If correct, the 2008 to 2012+ time frame is a contracting Triangle that will eventually end much higher than 2009's low. It also means 2009's low will not be broken for the next 50 years!

This feels eerily like my call in 1988, just 8 months after the 1987 crash low, when I was the only wave analyst in the world predicting 1987's low would never be broken for the rest of my life. The count attached to this email is not yet my "official" wave count, but it is quickly becoming a serious choice. Over the next few weeks it should become more obvious the path this phase of the 20-year bear market will follow."

Enjoy,
Glenn Neely
NEoWave, Inc.

[Mamma Boom Boom]

Like I said, wavers are lost.

[DG]

Like I said, wavers are lost

Neely comes out and says there might be something different going on and I want to warn you about the potential and that indicates he's "lost"? Based on the times you've called for an end to this bear market rally on this site and it hasn't happened, how would that same term not apply to you?

I'm not (for once, I guess) really defending Neely's action and I don't think his new scenario adheres to his own rules, but it takes a special kind of lack of self-awareness for you to use Neely's announcement as an opportunity to say "wavers are lost".

[Astrotrade]

Count 55 trading days from July lows and we hit the next bullish Mars Uranus cycle which will be a top.

Count 89 trading days from the July lows and we hit the next bearish Mars Jupiter cycle which will be a low.

[Mamma Boom Boom]

DG,

You drink too much coffee. I didn't say I was right, I said wavers are lost. It's the same thing I said a couple days ago, nothing new.

I admit, I've been wrong, or at least 'not right' since 875. At least I have not advocated short positions, just cash, though.

If Neely has abandoned his Oct pivot, and now a Nov pivot, I have to consider him lost. Can't you handle that?

[Astrotrade]

Arch Crawford on the Mars Uranus cycle...

http://www.crawfordperspectives.com/documents/Mars-Uranus.pdf

[DG]

I didn't say I was right, I said wavers are lost.

Fair point. It just sounded a little 'pot calling the kettle black'-ish when you said it.

If Neely has abandoned his Oct pivot, and now a Nov pivot, I have to consider him lost. Can't you handle that?

Sure, if it happens, which I don't think it will. There is a whole long debate in that question about what exactly "lost" would mean in a forecasting and trading context, though. It's possible that we would disagree on what is and isn't possible in forecasting.

[min]

"I don't subsrcibe to Elliot Wave or any "Technical Analysis". They are all useless, and unreliable over time."

So you see everybody, everyone was wrong while Mango choking Charlie has had all the answers all along.

I guess I better give back my 1000% returns of 2008 and my 105% returns so far this year acheived through E-Waves and TA because that stuff just doesn't work...

Damn, I'm so bummed out.

One thing Mango choking Charlie is right about is that Wall Street is a place where stories are bought and sold everyday.

Charlie, it's not the tools that are the problem it's the wielder of the tools that is usually to blame.

Obviously you have experienced failure using E-waves and TA and so have decided to generalize and conclude everyone else shares your disability. That's a tad self-centered isn't it?

What has worked for you? Cycles? Fundamentals? These are good tools also that can be just as ineffective in the wrong hands.

You tried to come off all knowing but you in fact choked.