Cash4GDP Updated

Market reaction to better-than-expected GDP report (3.5% vs 3.3% consensus) is the expected retest of yesterday's break of key trendlines. A common technical pattern is to close a gap down; today the S&P e-mini at 1159 (at the time of this posting) is getting close to covering a gap at 1161. The Naz has a bit more to rebound to close its equivalent gap at 2116, so watch for continued strength today. It was bit surprising that markets were down yesterday before the GDP report, as more typical behavior is to rally into the news and fade it after.  It shows the strength of the four-day down-move 

 

We remain with clear signals of bifurcation yesterday in all but the Dow, which confirms the trend change: Dollar up, everything else down.

The strongish GDP report was based on gimmicks: Cash4Clunkers and the first-time buyer's credit. Edmund's noted that the C4C payments of $4k per car are really much higher at $24K per car when the trendline for sales without C4C is compared with the incremental sales from it. (They also note today that there are clear signs of a recovery in car sales from the October data.) A similar analysis of the $8K housing credit would estimate a $43K actual cost for incremental sales. Whatever the validity of those methods, they raise the question of whether this GDP bump will sustain. We should see estimates for Q4 be adjusted upwards as economists tends to extrapolate the present, probably from a pre-report range of 2.5% to a past report range of 4%. 

In past history the GDP turnaround following a bad patch - and we have been in the worst patch since the 1930s - would be much more robust. We grew well over 10% a year in 1934-36 coming out of the first phase of the Great Depression: 17%, 11% and 14%.  Today's annualized GDP reading at 3.5 and a Q4 performance at 4% are quite disappointing in comparison.

Updates: a number of sites have done a deeper dive this morning:

1. Almost the whole increase is due to government stimulus and gimmicks. Karl Denninger adds the auto component of 1.66% to the increase in government spending of 2.4% (the 7.9% increase times the 30% share of GDP from government) to show that the 3.5% would turn into -0.5% if those are removed.  Now, not all the auto component was due to C4C so his calculation is a bit aggressive, but the point is sound that absent stimulus we would likely have been flat or negative GDP again.
2. The consumer component is worsening. From Karl and also Mish, personal income decreased in Q3 when it had increased in Q2; taxes increased in Q3 when they had decreased in Q2; and most concerning disposable income dropped in Q3 (and dropped a lot in constant-Dollar terms) whereas it had risen in Q2. Ouch.
3. Savings dropped in Q3 vs Q2 even though disposable income dropped more; this is probably the result of C4C gimmicks, and is likely to reverse in Q1 if not Q4 due to Holiday spending.

The next report to watch is unemployment. We might crest 10%. Jobless recovery is an oxymoron, but note that unemployment is a lagging indicator. The key indicator to watch is real estate - it almost always leads out of a recession. The Case-Shiller report has good news - a fairly widespread price uptick. Whether this is mostly due to the another government gimmick, the first-time buyer credit, will be more clear when that program lapses.

Comments

[Mamma Boom Boom]

>>Today's annualized GDP reading at 3.5<<

I read where almost 2% of that was C4C.

[Michael]

I might be mistaken, but it would appear to me that the EWT "P3" perma-bears that have the current count on the Dow Jones as 1,2, i, ii just had their count invalidated today as the rally pushed back up into the Wave 1 low of October 22nd at 9917.01

The analogous level that corresponds to the Wave 1 low on the SPX is a touch above 1074.

[Account Deleted]

Michael:

I am surprised you still track STU's market timing opinions.

I do read Elliott Wave Theorist, because it is more intellectual and less specific about timing. That is what I like about Prechter best - he is an intellectual first.

But I will never read STU. It is just too biased. Their counts are always the most bearish count, and are often really far-fetched.

EWI does have more objective analysts, like Jim Marten and Steve Craig. I read their opinions in EWI website free updates. I pay a lot of attention to their wave counts.

[Michael]

Jing - It's not too difficult tracking what Steve Hochberg throws up on the chalkboard given that just about every single "perma-bear" blogger on the web has his count. People like Kenny, Daneric, Alphahorn, Binve, etc.

The web is "littered" with this Primary "P3" count with the 1-2, i-ii.

You can make a small fortune using them as a CONTRARY indicator!

:)

[Mamma Boom Boom]

>>You can make a small fortune using them as a CONTRARY indicator!<<

I wouldn't use that as my only tool, though.

[Ron Stein]

Yeah, I would make sure I had a variety of tools in my toolbox. Hechberg's count is a useful indicator (contrary or not) but I also like to examine A/D, acceleration, candlestick analysis, planetary stuff and check for very reliable markers like Tombstone Doji and Hindenburg.

This is a very VERY tricky market and if you are not careful you will find yourself on the short end of it with a position underwater. DO YOUR HOMEWORK. Read Prechter, read Prechter, read Prechter. He is full of sage advice and brilliant wisdom not to mention intellectual manna from heaven. I do not know how often one of these brilliant, rugged individualists come to earth to break icons and elucidate the masses (Einstein, Frank Lloyd Wright, Beethoven come to mind) but we are lucky to be alive when Prechter is alive and those who slander him do not understand what they are doing.

Good luck, use stops and read your EWT!

[Mamma Boom Boom]

GDP up 3.5%. Hmmm! One qaurter pop. Hmmm! How many trillion dollars did that cost, I seem to have lost track. 13? Now that's a good investment.

[Account Deleted]

Michael:

I see. :)

[Mamma Boom Boom]

Ron Stein, I tend to agree. I'm appreciative of Prechter and Neely and all the great minds out there. Even our fearless leader right here.

[Mamma Boom Boom]

Less rosy news fron the UK:

http://blogs.telegraph.co.uk/finance/edmundconway/100001543/this-recession-just-became-a-depression/#at

[Michael]

Ron - As a TRADER I cannot even begin to see how Prechter and his forecasts apply to making money day in, and day out in the markets. Your highly positive and "cheerleading" comments about Prechter above make no mention of his horrible track record in 2003, let alone 1993. Those were TWO HUGE INCORRECT forecasts made by the so-called "guru" and it cost people a ton of money!

[Michael]

David Rosenberg ( Merrill's former Economist ) now with Gluskin Sheff of Canada is on "Fast Money" right now. He's missed this move for being far too bearish. He's on TV right now commenting on today's GDP. Says that without the various Govt. stimulus packages the GDP was "flat". Right now, he says the markets are discounting 4% GDP growth for Q4.

[Mamma Boom Boom]

>>Right now, he says the markets are discounting 4% GDP growth for Q4.<<

Do you disagree with that?

[Michael]

Of course the markets are "discounting" 4% GDP growth otherwise they would not be up at these levels! That's pretty obvious, is it not?

[Mamma Boom Boom]

What was your point, then?

[Mamma Boom Boom]

As I rome around the web I see many folks talking about this big rally. But was it really? Seems, to me, like the bulls couldn't muster much of a short squeeze. Maybe I'm wrong. This has been a feature of the market for the last several weeks, though.

[Gus]

Good post as usual, Mr Yelnick. While I don't grant EWT any epistemic privilege, it's possible to use it as one tool among many.

Your comments about the the direction of the economy are spot on. I would also add that the Fed is now finished its treasuries buy back program so we can look for a more genuine reading for the appetite for debt -- and risk -- in the days ahead. My guess is your assessment of dollar up and everything else down will be proven correct.

Full methodological disclosure: I also use astrology when the mood strikes me. Beware the approach of Mars retrograde in December since it is correlated with down moves. Double dip, here we come!

[Ron Stein]

Shame on you, Michael, for not showing more humility and appreciation. Do you think every single one of Einstein's models panned out? Why hold Prechter to a higher ideal? Prechter is probably the most scintillating mind of our era and it is our ridiculous fortune to find ourselves privy to his innermost thoughts and visions. I read At The Crest every night and pray that the world will find a way through the oncoming storm. I know that Prechter will keep our bow pointed to calmer waters and, if he does not make me rich at this exact moment, he will. He is without equal not just in the realm of prediction and trading, but in the realm of the Moral and the Fair. I wish our so-called political "leaders" would make At The Creast and EWT their literary staple instead of the garbage that religion and academia has put out.

It is my hope to someday thank Robert Prechter in person for the selfless and incisive contributions he has made to civilization and to me and my family, personally. I know I will be nervous, but not too nervous to shake the man's hand and, perhaps with a catch in my throat, share my blessings for him and HIS family.

Best of luck.

[John Smith]

The biggest question is who will buy the 2.38 Trillion worth of treasuries in the next 11 months. That is nearly 200 Billion a month. With these type of numbers will the FED be able to raise interest rates and make the situation even worse. I mean the uptick in interest rates by only 2% will increase the interest payment by more then 40 billion. That is all the Medicare cuts that have been proposed for the next 10 years. Can you image what will happen if they will have to raise it to 10% or 20% to stop inflation. It really seems the US economy is in a no win situation.

[Michael]

Ned - How old are you and how many years have you been trading the stock market? How many times per week do you trade?

Just curious.

[Free]

The strongish GDP report was based on gimmicks

----------------------------------------------

The rally since Mar has been on gimmicks. The bull market from 2003 - 07 was on gimmicks. The US has been on gimmicks for decades. What is important is to flow with the gimmicks.. rather than like the perma bears keep blasting about how the economy is going ot fall apart, the markets are going to crash. What have they accomplished since the early 1990s calling for a market crash while the tide keeps moving up?

P.S. A crash is possible, but the question is - when?? So many folks are calling for a crash.. everytime the dow corrects, as per what we see now.. the are calls for crash. and dow has responded by prompty exploding up 199.89 points.

[Michael]

Ron - Your post was "dripping" with SARCASM.
Quite funny! But in case I misunderstood your glowing "praise" for Robert Prechter, you might want to take note of the fact that even Yelnick has waxed poetically about Prechter's failures . . .

"Despite Prechter's Lost Decade (1994-2003) he has noticeably improved in his prognostication recently. I think his failure stems from (a) stubborn belief in his correctness, (b) desire to make a call as prescient as his ewave predecessor, who pegged 1974 to the level and time in 1970, and (c) mis-count from 1983 to 1994 of 1932 as the bottom and 1987 as the end of the Kondratieff Wave. In At The Crest of the Tidal Wave he began to open up to a new view, which I don't think he fully embraced until 2004."

Did you hear that Ron and Uncle Jim?
Did you hear the part about the LOST DECADE???

Following Prechter during that time frame wanted to make you look for a slow freight train to lie down in front of because it would have been far more pleasant than being slowly ground to bits and losing ALL of your capital over a 10 YEAR period!

[Ron Stein]

Michael how dare you?

How many financial revolutions have you launched?

How many tangled mysteries of human progress have you unraveled?

Have you been excoriated, ostracized, and minimized as Prechter has? Have you suffered a tenth the outrageous slings and arrows? Have you weathered the storm of Prechter, like Churchill in the 30s, speaking and writing to a pusillanimous public drinking the pablum of complacency and spitting it in the Good Man's face?

Prechter is not God, perhaps, but he is God's sent messenger of direction to steer the ship through the trouble. Get on board. Pony up for your subscription. Cradle Crash the Crest each night and read it to your children. You are the Damned if you do not repent.

The Dow is about to Plummet as the Great One has foretold in rigorous scripture with the power of the rock and roll he so gloriously brings forth into the world with his AWESOME DRUMSET of PSYCHOLOGICAL SOCIONOMICAL FIBONACCI MASTERY.

Listen to the beat. Listen to the beat.

It will Take You HIGHER as gold and stocks and real estate, yea, as human progress takes ONE BIG SUPERCYCLE WONDERFUL STEP

backwards.

[Mike]

>Did you hear that Ron and Uncle Jim?
>Did you hear the part about the LOST DECADE???

Who gives a shit?
Does that help you making money?

[Ron Stein]

I give a sh*t.

Life is about more than money, Mike.

[psycho_puppies]

I’ve been visiting Yelnick’s site for years and this is the most I’ve seen it appear as a Yahoo! Message board. That in it self speaks volumes for social mood.

[joe pacheco]

great take on the situation Yeknik

[Trailblazer]

If it wasn't for Prechter none of us would be here discussing EW. Everyone makes mistakes, no on is perfect. The guy is a genius and very unique in his thinking.

[Michael]

Ron - Tell me, how much money have you lost over the past 3 months following Prechter since his initial call to go short around SPX 1000 on August 5th?

[nagger]

Michael

What business do you have whether Ron lost or made over the past 3 months?

This is a free country. You choose not to use Prechter; Ron does.

Don't you have anything better to do? Stop nagging on everything.

[Mamma Boom Boom]

Michael, you asked me a couple of questions: 1)63 years old 2)been trading 30 years, since 1979 3)varys every year, as little as half dozen trades a year to 1 or 2 a week. I'm not a day trader unless I see something I can't resist. My work doesn't allow me to hang at my computer all day every day.

http://www.bushongbusiness.com/index.html

[PL]

“………the current count on the Dow Jones as 1,2, i, ii just had their count invalidated today as the rally pushed back up into the Wave 1 low of October 22nd at 9917.01…”

Michael

Don’t fall into the trap of starting a count from the high. I realize this is not your count proposal, but it is extremely unlikely (if we are indeed starting Primary 3) you should start counting with the high on 10/21, or even the high on 10/23.

These highs were retraced far too much to ever consider them as the start of something powerful to the downside. In my opinion wave 2 (even at this very small degree) will be very lucky to retrace even 50% of the initial thrust down. One third is more likely, and wave 2 could well finish far below the end of wave 1 is some sort of running affair.

I don’t know what the experts out there have as there favored counts, but this past Monday (around 11am) may be the best location to start “counting scenarios”. You must start with a bang, and have a reaction that retraces less than 50% of the initial thrust.

My 2¢

[DG]

PL,

100% agree with your .02.

[Alex]

Oh yeah! Oh yeah! It's happening! The big big one is happening!!!

maybe not

[M]

Michael - Tell me, how much money have you lost today?

Ron - Tell me, how much money have you lost over the past 3 months following Prechter since his initial call to go short around SPX 1000 on August 5th?

Posted by: Michael | Friday, October 30, 2009 at 06:38 AM

[Ron Stein]

I love Prechter. I hate Elliott. I wish Neely and Prechter would put aside their differences and leave Elliott in the dust. His ideas served their purpose and now they're useless. It's time to realize that waves are not the 3-5 structure we thought they were.

If you do your thing well, it's sweet. I have lost no money (to answer my detractors). I have, however, and unfortunately, made no money.

I'm about even over the past 4 years. :(

[Mamma Boom Boom]

October 30, 1929: Dow 230.07 -30.57 (11.7%)

Market wrap: “Necessitous liquidation” resulted in further bad breaks in “the main body of stocks.” Wholesale margin calls were sent out overnight due to the extraordinary decline in Monday's session; this caused heavy early liquidation for those accounts “unable or unwilling” to add funds. The market ignored positive morning announcements on lower call rates and margin requirements. An avalanche of selling proceeded through the morning, leaving no stocks untouched, though the decline was again orderly; bankers were said placing bids to prevent “demoralization from overwhelming the market.” Ticker quotations again fell far behind. Bankers were reportedly urging affliliated interests to buy stocks at current levels. In addition to banking support, substantial buying was reported from investment trusts, utility operators, large individual investors, and odd-lot (small) investors. This support finally checked the urgent selling in early afternoon, and some good recoveries from the day's lows were scored by leading issues.

[DG]

I love Prechter. I hate Elliott. I wish Neely and Prechter would put aside their differences and leave Elliott in the dust.

I'm sure Yelnick would include Zoran's (RIP) ideas in there, too. I have no personal beef with Prechter, but, to be honest, with the exception of having played a part in introducing Neely (among others) to Elliott Wave, I don't see him as having much to add to the conversation at this point. Even on such a basic thing as "How do I construct a chart that is useful for counting waves?", Prechter fails. Neely's method of charting data is much more useful and the irony of it is, Neely published his methods for charting over 20 years ago! No method of charting is perfect and the ideal way to do wave counts would be for someone who has a perfect memory to watch every tick, but that's impossible, so Neely's got the next best thing. Same thing with the rules for Impulse waves. The counts I see with Impulse waves everywhere, when those waves are not formed according to the stricter NeoWave rules, make me realize that there are a lot of people out there doing wave counts with basically minimal discipline. Those sorts of wave counts can still lead to robust risk management relative to those counts, i.e. no matter how "off" my Impulse wave structure is, I know if wave 2 violates the top/bottom of wave 1, my count is wrong. But, the decreased accuracy of my counts is still going to lead me to have fewer good entries.

His ideas served their purpose and now they're useless. It's time to realize that waves are not the 3-5 structure we thought they were.

One thing that Elliott never addressed was the idea of new patterns and new variations on the patterns he identified. The fundamental rule that Impulse waves are 5-wave moves is sound and I would not alter it, except to layer in Neely's additional rules, but the new variations on Corrective moves that Neely has identified have proven themselves to have predictive value, in my experience. Again, Prechter never addresses these new discoveries, as far as I know, and he certainly doesn't appear to have ever integrated them into his wave counts. But, I can sort of see why he wouldn't want to, in the sense that they would show Neely is better at discerning wave structures, in which case, why would anyone want to listen to Prechter over Neely? So, a strategic omission of Neely's discoveries is a convenient way of avoiding the issue.

[Mamma Boom Boom]

>> Prechter never addresses these new discoveries,<<

I thought he was a purist.

[Mamma Boom Boom]

A peak at America's future:

http://www.bushongbusiness.com/webbbs/index.cgi?noframes;read=18289

[DG]

I thought he was a purist.

There are times when being a purist pays and times when it doesn't, though.

[Michael]

An exceptional day for TRADERS.

And I suspect that going forward only TRADERS who are nimble and base their entries/exits off of classical price T/A will be successful exploiting the upcoming moves, unlike all of the "kids" here that enjoy "counting waves" as their hobby in between college classes.

[M]

Michael
Nothing you have said is intelligent or impressive. Sounds like you are another kid (mentally).

[Michael]

Ned, Thanks for the background info.
Hope you had a good day today!
:)

[Mamma Boom Boom]

UPDATE: http://www.bushongbusiness.com/opinion.html

[joe pacheco]

You have a great blog here Yelnik. You are doing a hell of job - keep it up.

Joe

[DG]

Michael,

It sounds like you are bringing baggage over from other sites to this one. You continue to mention people who never even post here as though this blog has something to do with those other people's blogs.

[Michael]

DG

Does not this website and many of the posters here hold Prechter in high regard? I think that is pretty obvious given some of the "cheerleading" comments above that embrace Robert Prechter as a "genius". Have you not noticed this, or does your reading comprehension conveniently ignore this?

Ever notice that the majority of the Elliott Wave bloggers out there on the Internet wind-up "mimicking" the count by Steven Hochberg at EWI? Ever notice that this count has changed more often than Charro changes clothes?

Ever notice that successful TRADERS have used these "counts" as a contrary sentiment indicator to huge gains over the last several months?

Guess not.

[Michael]

DG,

I guess you've never noticed how many Robert Prechter Elliott Wave "cheerleaders" there are on this website, nor have you noticed that there are a ton of EW bloggers out there on the Internet that wind-up "mimicking" the counts of Hochberg and Prechter at EWI only to wind-up changing their wave counts and "interpretations" more times than Charro has changed clothes or gone under the knife for plastic surgery.

These blogs have been a great CONTRARY sentiment indicator for successful traders over the past several months. Too bad you haven't realized this.

Good Luck to You.
:)

[DG]

Michael,

I think respecting Prechter for reviving Elliott Wave is the primary reason most of the people posting here talk about him as a "genius", as well as a general sense that perhaps this is his time to shine as a forecaster and not just as a theorizer. I am not in the camp that says let bygones be bygones in terms of the mistakes EWI has made, but if Yelnick says he can discern an improvement in their latest forecasts, I take him at his word, even though EWI still doesn't get any business from me. As for Yelnick, beyond his affiliate relationship with EWI, he posts much more broadly on economic topics of interest, regardless of Prechter. Even so, Yelnick clearly isn't just a shill for EWI, as shown by his announcement of a software project that completely ignores EWI to focus on two other wave theorists.

I have never said one positive thing about Prechter's market timing skills and I never will, in all likelihood. I don't care about other bloggers who mimic his count or how many times they change their counts. Also, I never use others as "contrary indicators", since I prefer to trade based on my own conclusions, not by going contrary to conclusions others reach, which seems like an odd way to make trading decisions to me.

Aside from that, I'm pretty sure that nearly everyone here is out of college, so I don't see why you need to lump in this site with other sites that have a bad reputation with you. So, aside from the general question I ask many of the people who post here bashing one guru or another, which is "Why waste your time bashing something when there must be things you enjoy and websites dedicated to them?", I'd say you're misreading the group here.