Last Chance Crash Calls

I don't see a crash coming - indeed, a new high seems more likely - but a growing number of ewavers have put out crash calls. "It's 1987!" No, it's not. Maybe this is because today is the anniversary of the peak in 2007?

Crashes are rare and calling them is risky punditry. Of course, if you get it right, you look prescient. If you miss, who remembers? Some of these calls are coming from pundits I respect, so here goes. 

Hank at Elliott Fractals sent me this chart and posted a crash call. He has gone "all in" - 100% short. You gotta respect someone who puts their money where their opinion is. (I hope he has stops!) 

His fractal approach is the next step in ewave, and although I don't know if he has yet created a multi-dimensional fractal (time/price plus momentum indicators) it is worth watching how predictive his approach turns out to be. 

Ned Bushong puts out a crash warning, not quite a call, comparing the setup now to the one a year (and a bunch of points) ago. 

JG Savoldi Of BAM Investor has been on a crash call for a while, and now says it is imminent. His chart is the second one. 

Even Carl Icahn put out a warning!

On the other hand, Neely has gone short term neutral to bullish today. He has moved his count to a developing triangle where Mar6 as the end of A and we are still in B. Under his system, the end of B is unpredictable (a truly honest pundit!!); stand aside!  Often the best advice. You can download it here. I plan to comment at greater length on it soon. 

Marty Chenard of StockTiming puts out this analysis today (the third chart) which shows institutional investors have been accumulating. As he points out:

When the Indicator moves above the zero line, day-traders should not be short because Institutional Investors are moving in the opposite direction. 

My take on this is the focus is on the wrong markets. Given the Dollar Demise stories of the past two days, something else seems to be about to happen: might the Fed be preparing to raise rates, and begin its exit? Bernanke's speech last night caused a Dollar rally. Yet the Fed went ahead with QE by buying a bunch of agency paper today. No exit yet. 

If not handled well, any such start would like spook the market and drive a serious break down. Crash? No. But swan dive, yes. Watch the forex and bond markets for clues. 

Comments

[Mamma Boom Boom]

>>something else seems to be about to happen: might the Fed be preparing to raise rates, and begin its exit?<<

Funny you mention that. I read somewhere today, can't find it right now, that an unnamed insider said that is brewing. The fed has been practicing all week with primary dealers. Talking about a large repo of some kind.

[Mamma Boom Boom]

Here it is: http://www.bloomberg.com/apps/news?pid=20601103&sid=anw1RguZxm9E

[yelnick]

Bernanke made a speech last night where he discussed that the Fed would have to raise rates - this has caused a bit of a buzz. He wouldn't say it unless he was preparing the market for it. But timing is uncertain. if you hear anything new, please post or email me!

[Mogy]

Fractal was cofirmed at the close !

We Tumble starting tomorrow !

Hank

Yeah, right!

[knapp]

The Fed may indeed be preparing to raise rates - but there is very little to suggest they are anxious to do so.

1. Unemployment - the risk of political backlash from raising rates is too high with jobs so few, and headline inflation under control.
2. Bernanke has repeatedly shown assymetric concern with regard to inflation/ deflation -quick to ease, slow to hike.
3. Gold - Bernanke and Romer blame the gold standard for worsening the Great Depression. In fact they built their careers around this idea. This is why, under the cover of Treasury's "strong dollar policy", they have used a weak dollar to mitigate US deflation risks.
4. Europe - The Europeans are complaining that a strong Euro is hurting their exports. But this should be put in context, the weak dollar has helped take pressure off European bank balance sheets and Europe too has benefitted from the Global Stock boom. They don't won't to screw that up.

So if a crash is dependent on Fed tightening, I'm not sure its coming. A crash needs something else.

[JR]

Yelnick - ALL of these "crash-calls" are absolutely worthless because they come from "Perma-Bears" like the Daneric's of the world that have missed the entire rally up from the early July lows in the S&P at 870.

Why are you "littering" your blog with this crap?

If you are going to post someone that is calling for a significant down-move, I would highly suggest in finding someone that has actually made money off of the LONG SIDE of the MARKET over the past 6 months . . . that might actually lend itself to some CREDIBILITY!!!

Ever think of that???

[Upstart]

The bearishness and crash calls were my hint to stay long, along with the market bottoming on the bad employment news and "Olympic failure" last week. I'm sticking with the measured non-extreme outlook of Carl Futia - that there's no sign of a top in the sentiment or technicals yet, but we should top later in the month or early Nov. for a big correction before heading higher well into 2010. Similar to yelnick's outlook, I believe. Like min says, the trend is up.

[Mogy]

If you are going to post someone that is calling for a significant down-move, I would highly suggest in finding someone that has actually made money off of the LONG SIDE of the MARKET over the past 6 months...

I couldn't agree more. This board is filled with self-proclaimed experts who don't know what they're talking about. You can include Prechter and Neely in this group as well. I think most traders who consistently make money through their trading keep a low profile and don't sell their services or go around boasting about the next big rally or crash.

[Jing Chen]

Today DJIA closed at a new recovery high on closing basis, which is not confirmed by any other index I know of. This is the kind of breadth divergence I was looking for, and now I am finally seeing a bit of it.

I am looking for the rally to continue next week, with DJIA and SPX making new highs that are not confirmed by any other index. I am waiting for these new highs (and their little pauses) to round out a nice top, probably after next week.

My advice to every crash caller is that you need to have evidence for divergence in momentum, divergence in breadth, bullish sentiment extreme (and optionally completed Elliott Wave patterns). These are the classic indicators taught in every technical analysis book.

So for your own reputation, you might want to be more conservative and gather as much evidence as possible, before making a bold call.

[Mamma Boom Boom]

Going into the weekend with a ton of divergences.

[DG]

In defense of Hank, whose work I don't know all that well and am skeptical of in general (I think it is just a bit too convenient that the fractals reside so closely in time. Why isn't the fractal of yesterday's market found in June of 1956, for example?), I would not call him a perma-bear at all. He has made long and short calls.

In terms of Neely, I don't think that taking 6 months out of a 25-year trading career and calling him a failure on that basis is valid criticism, especially when he has been named to Timer's Digest's top 5 market timers many times over those years. Obviously, people can do and say what they want, but there's an objective context to consider as well. What if someone took 6 months out of your 25-year career where you were doing badly on the job and said you were a failure on that basis?

[knapp]

Ned,

The volume divergences were pretty stark - check out the NDX.

[yelnick]

JR, Mogy - makes sense to include the bullish side. I went bullish last Nov20, and was premature; but repeated that in late Feb. I did not go bearish after the Jun11 high. I began to go bearish in late August. Right now I think the odds are pretty good (but under 50%) that my scenario 2 happens - higher highs. I do have a bet that the top was Sep23, and it is hanging on by a thread. Many of the people I know who traded this rally are lightening up.

As to the crash, in 1987 it came pretty much out of the blue. The cause seems to have been Dollar Drama: Treasury had orchestrated a fall in the USD in 1986 to fend off the Japanese, and it fell more than they wanted (50% down in a year!). Right before the crash the Europeans had signaled a change in monetary policy to unwind the deal with the US. A similar dynamic is running around in the background right now - everyone is trying to devalue their currency! I suppose if the Chinese RMB was running up 100% like the Yen did in 1987 the situation would be a very close match.

So while I do not buy into the crash, I do think it worthwhile for my readers to be aware of opinion, particularly since it picks up on the Dollar Demise thread of the last several posts.

In retrospect, I should have made the connection to the Dollar Dynamic in 1987 and now more clear in the post.

[JR]

Yelnick -

The "Crash of "87" did not come "Out of the Blue" as you claim.

While our esteemed Treasury Secretary James Baker was indeed involved in a "pissing-match" about how the Dollar would have to go lower given our trade deficit ( comments that were leaked out via unnamed sources at the US Treasury before they actually came out in print in the NY Times on the day of the Crash ), you conveniently IGNORE the fact that there was legislation coming through the House of Representatives that was about to deal a severe blow to all of the LBO fever that had "bid" up a number of glamour issues on the NYSE over the Summer of 1987. This legislation sought to eliminate the deductibility of interest used by LBO firms in their acquisitions.

[yelnick]

DG, just a methodological comment re Hank. I am unsure if a 1956 fractal is as good guidance as a 2006 fractal since financial markets have changed fairly dramatically: fiat money not gold, financial deregulation, globalization. Sure, the patterns of behavior back then that the wave fractals represent haven't fundamentally changed, but the shape and character of the fractals may have morphed due to the changing context of the trading environment. 

[JR]

Jing Chen -

I wholeheartedly AGREE with you that we need to see some significant divergences come into play before we get a trade-able top in this market.

I've been blown away by so many incredibly NAIVE bloggers out there like Daneric, Kenny, Binve, etc., that continue to see PREDICTIVE value in using such indicators as RSI, MACD, VIX, and $BPSPX - - - yet they haven't the slightest clue about what they are talking about.

More often than not, they simple use these indicators to "see" what they want to "see". The use of all of these indicators ( especially the $BPSPX ) by these bloggers strikes me as incredibly naive and/or biased.

I wonder how old these "kids" are?

Whatever they do, I hope that they keep their day jobs ( like Daneric ) because they are CLEARLY LOST when it comes to actually putting together an actionable trading methodology from their technical analysis. Anyone that can send me an e-mail telling me that they don't care about missing the next 100-120 points to the upside in the S&P ( because they are so obsessed with catching all sorts of fame and Internet notoriety in calling the top of P2 and beginning of P3 ) is absolutely worthless in my opinion. These kiddies obviously DO NOT TRADE FOR A LIVING. For them, Elliott Wave Theory is some sort of academic exercise or "hobby".

More to your point...

The cumulative NYSE A/D line has not even come close to "narrowing" or showing any divergence whatsoever and this classic technical indicator CONTINUES TO CONFIRM the price action that we have seen this week.

Anyone that has ever charted this most valuable indicator ( and I'm not talking about the upvolume to downvolume ratio of advancing stocks to declining stocks, which many bloggers tend to highlight and which is totally worthless in my mind ), knows full well that it has to diverge for days, if not weeks in order to set-up a trade-able top.

We aren't there yet.
:)

[yelnick]

JR, what I find pointed about 1987 is that the many pundits who have tried to find the cause haven't found it even 20 years later. Consider these sources as a start:

http://hnn.us/articles/895.html
http://en.wikipedia.org/wiki/Black_Monday_(1987)
http://www.docstoc.com/docs/12202840/The-1987-crash-–-what-was-that-all-about

It may be your explanation is causal, but if the pundits didn't see it then and can't explain it now, it sure qualifies as a Black Swan out-of-the-blue event.

Just prior to the fall (which began on Friday and continued on Monday) Greenspan stated he was going to continue to devalue the Dollar. And this came as a response to the German central bank's concerns over the Dollar. The Accord that James Baker had set up was unraveling.

Fast forward to the recent G20 meeting and statements since, which look ominously like back then.

[da bear]

after the dollar bottoms out, any sustained move by the dollar will put pressure on stocks and gold.

DOW 10,000 is probably the psychological equivalent of DOW 300 back in 1930.

da bear

[JR]

Yelnick -

With all due respect, I was on the floor trading stock-index futures for my own account on the NYFE on Broad Street during 1987. If you want to be naive about the causes of the Crash of '87 and take the word of Wikipedia "pundits", then be my guest. Perhaps you might want to do some homework and read the "Brady Report" circa 1988.

And for what it's worth, the "fall" did not begin on Friday as you claim. It began on Wednesday morning when the news media reported that the House Ways and Means Committee had filed legislation to eliminate tax benefits associated with financing mergers.

The trade deficit announcement that SAME day for the month of August didn't help either because it was notably above expectations. As a result, the dollar declined and there were expectations developing that the Fed would have to tighten policy.

http://www.federalreserve.gov/Pubs/feds/2007/200713/200713pap.pdf

The S&P was down 9% for the week.

[Jing Chen]

JR:

Thanks for your kind reply.

Mirroring your argument, here is an honest bear that covers breadth in a pretty honest fashion:

In stark contrast to the 2007 July and October peaks is the present situation in which NYSE net new highs has confirmed each new rally high in the S&P 500 and NYSE net new lows remain deafly silent at 0.03%, which would indicate a healthy market rally in terms of participation and breadth.

Posted on Oct.07.2009
http://www.financialsense.com/Market/daily/wednesday.htm

I don't really like the website and many of its experts. But this writer struck me as brutally honest by citing evidence that is emotionally difficult to face as a bear.

In the end, we may need a bigger correction to generate the breadth divergence that is enough to bring down this rally.

[yelnick]

JR, I appreciate your experience and accept that the Wed morning report out of the bill you refer to began the slide. Also that day had a bad trade report. The recent Fed review you link to was helpful for those data points. Friday was a deeper drop (100pts?) and then Monday hit. But the Brady Report? My recollection is it was all about the specialist system crumbling under the volume, the evils of portfolio insurance and program trading, and the need for circuit breakers. In other words, why the slide was so dramatic rather than better understanding of what led to the crash. If you have a link please share. But the Dow had already dropped from 2700 to 2400 before the Wed events, and something broader was afoot. Did you find the drop 'out of the blue' or inevitable at the time?

[Rodney]

How's this for credibility? I went 90% long on March 15 2009 and tapered to 60% long over the past two weeks.

So you can follow me in real time: I will be going neutral tomorrow morning. As soon as the markets drop 3% in one day... an event I expect to occur within the next few weeks... I will be going 90% short. After the first reopening of the markets after the FIRST circuit breaker triggering, I will be getting out and buying physical gold. I may miss out on more downside, but I can live with that.

Hard as it is to believe given the mediocre records of many "crash callers" and the rarity of a "crash", I believe we will indeed have a crash in the next few months. It should be a doozy and result in a prolonged shut-down of the markets. Basically, Prechter's right but he doesn't seem to realize that you won't be able to make money off a crash of that size.

The bottom won't be visible because the markets will be closed, closed, closed. The hyperinflation will come after this long, long closure.

This is going to be nutty. Lots of legal squabbling and colorful diatribes and scapegoating and, in the end, everything will be papered over with inflation and make-work programs and we'll be poor again.

Tis man's perdition to be safe when for the truth he ought to die.

The same goes for companies and special interest groups. "Safety" is an illusion. If some don't die then the whole economy dies!

[G2]

Don't forget the hurricane in London that closed the LSE on Friday October 16th which meant there was a lot of pent up selling to be released on the Monday morning. All in all it was a perfect mix of factors for a C wave crash.

Incidentally, the market actually peaked in mid August with the B wave peak following in early October (55 TD).

By all accounts Prechter did send out a crash note but only on the Monday when the market was already in freefall.

[JR]

Yes, you are correct that the Brady Report was more about the speed and rate of the decline.

My recollection of the Crash of 1987 was that the market had made a peak in August which was followed by a correction into mid-September that wound up creating a very oversold condition. I was actually charting a 10-day MA of the TRIN back then and still remember that it had registered an incredibly high "oversold" reading with the Dow Jones around 2500 in mid September.

What ensued was a very sharp rally at the end of the month of September, complete with lots of short-covering. However, the market only got back up to about 2640 and was nowhere near making a new high. A rally in T-bond prices since the end of September "fizzled" and on October 6th the Dow Jones dropped 3.47% to 2548 on a whopping 175 million shares. Two days later, the Long Bond was yielding 9.91%

If there was ever a fly in the ointment during the Summer Rally of '87 it was the terribly high yields in the 30-year Treasury. In fact, by the end of July they had climbed to 8.8% and this was due in large part to the tremendous rise in yields in the Japanese Govt. Bonds to 4.6% from only 2.6% in mid-May.

On October 14th, the day that the August Trade Deficit was announced, along with news reports of legislation being proposed in the House Ways & Means Committee to eliminate the deductability of interest used on debt by LBO firms to finance takeovers, the Dow Jones tumbled a record 95 points to 2412. The following session (thursday) it dropped yet another 58 points which left it down 12% from it's recent all-Time high hit on August 25th. On Friday, October 16th the Dow dropped another 108 points ( to 2246 on record volume ) as Iranian missiles hit a US flagged tanker off the coast of Kuwait. The yield on the 30 year Long bond hit 10.12% that day.

It didn't take a "rocket-scientist" for the average Portfolio Manager to save his butt ( and performance bonus ) to figure out that he should sell his stocks and lock in that 10% Treasury yield!

[JR]

The '87 Summer Rally had a lot of froth and speculation as I recall.

Portfolio managers were piling into the Blue Chip names even though the market breadth was "narrowing. They felt a sense of "safety" not only from the quality of those companies, but also the large trading volumes and liquidity in those publicly traded stocks. Meanwhile, the whole corporate takeover game was fueling massive speculation and LBO activity. There was the Robert Bass Group, Drexel Burnham and Kohlberg, Kravis, Roberts.

As a result, there was a whole host of natural resource stocks that were sky-rocketing on takeover speculation. The legislation that was being proposed ( in the House ) to eliminate the deductability of interest on corporate LBO debt certainly effected these names. I recall many of them springing "leaks" all over the place in the days leading up to Monday's Crash. And when I say "leak", I'm talking big percentage down. It certainly created for a "Get Me Out" atmosphere. The 9-10% Long Bond yield was just icing on the cake!

[G2]

One thing you can say for certain is that crashes do not come along in pairs as one of the essential ingredients is that no one really sees it coming until it happens. Or to put it another way, when every blogger and his dog is predicting a crash it ain't going to happen.

[JR]

G2 - One of the problems is that most of these "bloggers" who consider themselves well-versed in the principles of Elliott Wave Theory are barely old enough to have been out of diapers during the Crash of '87.

:)

[min]

>>I couldn't agree more. This board is filled with self-proclaimed experts who don't know what they're talking about. You can include Prechter and Neely in this group as well. I think most traders who consistently make money through their trading keep a low profile and don't sell their services or go around boasting about the next big rally or crash.<<

You don't know how close you are to the truth about this Mogy, so so close.

They also don't jump in first or care much if they are the first to make the call. That's only useful to attract attention for marketing purposes which is ok as everyone has to make a living somehow. The point is, that kind of thing doesn't necessarily give you better returns in the long run.

Like I said, this market will run in both directions longer than bulls and bears will understand until after the fact. It's a Grand Super Cycle event for god's sake. There is a time to trade like a mad dog (like in second half of 2008) and that time is not now.

Sit back, relax and act like a big shot wearing your fedora hat and sporting your 2 trophy girlfriends, Prudence and Patience, at your side. Most are trying way too hard.

There is plenty of upside and downside to make money with or to make up for big losses if you must. Just don't start doing too many stupid things. Seriously.

There is a correction coming up and I have a modest short position today at the close with a somewhat loose stop but as far as the main trend changing? Man, I won't know until after the fact. It seems we have one more high coming but it could also truncate or end in a strong surge. I don't like that kind of uncertainty, you?

So then sit back and let it sort out then, you put your money on the line.

TA tools (including Elliott waves) are just TOOLS that measure PROBABILITIES. They are not the actual, flawed, greedy, scared, usurping, cheating, lieing, mis-emotional people making the market move one way or the other. If Prechter were to fully understand that he could actually make his fundamental premise work.

[trader]

jeez these crash calling idiots are so off base... cultish perma bear freaks

[trader]

Rodney: if your claims are corrct you do seem to have a good hand.. what's your view for the bottom number of the spx when you cover shorts and buy gold.

[min]

Rodney:

RE:
>>Prechter's right but he doesn't seem to realize that you won't be able to make money off a crash of that size.<<

Actualy this is one of the few things Prechter does realize. He states it in some of his books and mentioned it numerous times from 2001 - 2004 when he was forcasting what has yet to happen in 2009.

Do you really think someone who's timing is off by more than 10 years is "right" though?

To me, a prediction cannot be right unless it is somewhat correct in terms of time.

Anyone could make any hair-brained prediction and chances are at some point in time it will become true but was it useful or right?

[Rodney]

Good point, min.

trader, I dunno. 500? Just a guess. Whenever we come back from the first market shutdown.

We may hit a few circuit breakers or just one. My guess, obviously, is more than one. But then it closes for a while while the lawyers try to sort things out. No fire walls this time. Everybody owes everybody. :(

[trader]

Rodney.. I expect 400... so why will being short not make you money??

[yelnick]

JR, great history! I was doing LBO advisory work at the time, and was in London on that Monday. I remember the 1000 pt decline Friday. Late in the day Monday (London time) someone came in white faced and said 'the Dow is down 160 points'. Everyone stopped work and got to the phones (no Internet!!). As we went out to a late dinner, we eventually were told "the Dow was down 5 and change." We thought it had come all the way back, and found out otherwise the next morning.

[george]

i was watching cnbc this a.m.
friday and sue herrara was
quoting pretcher as saying
the dollar had bottomed and
stocks were about to decline.
i listened to an interview
with pretcher on bloomberg
from earlier in the week and
he was discussing the mutual
fund cash positons were
averaging 4 per cent like
the tops of 2000 and 2007.
he was saying these cash
positions of mutual funds
have only occured at tops.

[Golum]

Trader:

You're falling victim to your logic: Your expectation is that the markets close for four days and then they open in an orderly fashion, whereby, you cover your your Shorts and celebrate.

Others see it a bit differently:

The creature on the other side of your trade says he doesn't have the money. The "lender of last resort" says: Go to Arbitration and then Pass Go.
In the real world, winning a case and then collecting damages is quite different. (Exactly what do you plan to place a lean on?)

P.S.
The shorting is still relentless. Relax and enjoy the ride.

[OracleLurker]

so in seven days we've gone from proclaiming the top is in to claiming that sentiment has gotten too bearish - pitting neely and marty chenard against the crash calling straw men. Before putting to much faith in Chenard's intitutional buying index consider this quote from a column of his that appeared on SafeHaven on March 20th -

"More importantly, the Institutional Index shows no sign or confirmation of a new Bull Market rally starting. If fact, the index has not even reached its Bear Market resistance line shown in green."

I have a lot of respect for Neely but at the moment he is just another datapoint for me, another pundit with a tendency for bearishness that seems to have had a change of heart recently along with Tim Knight (who has gotten at least "relatively" bullish for him) and Tony C. I'm no elliotician but to have gone from declaring primary B "likely" over to having us in the first of 5 waves up in Minor wave C is, to me, reminiscent of when he declared Primary B to have started with the Paulson surge on the 19th of September last year. And all this with the s&p closing BELOW where it closed 17 days ago.

As for A/D - does it appear healthy right now? Absolutely. Did it appear healthy at the I/T top in May of '06? it looked pretty health to me when i decided there was no reason at that time to fight the trend. At the July 07 top there was a pretty slight divergence which could easily be created from where we are now with just several days of upside on light volume. My point is that what i find interesting is the focus on the indicators that support the bullish case rather then those that do not - such as the equity p/c ratio. A 10DMA that has stayed entirely over .65 and mostly over .6 for a period lasting over two months has been much closer to the end then the beginning of any i/t advance in stock prices (in price, more then time) when looking at the last bull market as well as the bear market of the past year.

But while i am 70% short I will concede that a run to 1100 is quite possible - I suppose at that point we will see long time bears turn bullish without reservation - even with the sought after divergences becoming more evident.

[Free]

Yelnick, agree with you that there should be no crash in sight yet. since the 1990s till now, for about 20 years now many of the EW folks have been calling for a top and major decline.. never happened.. not a good track record.. and for the recent calls from may this year till now there have been numerous calls for a major decline to new lows, from neely, yves, prechter... never happened.. the market just continued upwards..

then there are folks on how the fundamentals are so bad dow must fall to new lows.. however the market throughout history has been able to move up even when fundamentals are bad or getting worse..

[trader]

golum:
the darn thing went from over 1570 to 666 and the "system" worked ( i.e. you made crazy money on being short)... ok if you assume complete anihilation of the "system" i will understand your point...you really think if we go from 1100 ( or whatever ) to 400-500 the system will get destroyed?? Me thinks not...

[yelnick]

Oracle of Lurkers, good comments. I think Tony C's count is best interpreted as I set forth: we are in the final C of the zigzag off Sep2, and it will end the whole wave 2 from Mar9. That means it doesn't go much beyond Dow10K and Sp1121. And it it turns north it should end fairly quickly.

[trader]

If im wrong what's the alternative...cash in my closet??: those with the hyperinflationary view would say no way... the deflationists would say : yes...
point: how do you get to say spx 400 in an inflationary environment????
if the move to 400-500 id deflationary you get killed with gold.
so what the f...ck ( lol... just venting)is the right answer???

[trader]

yelnik : I agree Tony Caldaro's work is the best of all of those pundits out there.. he's measured and has the finger on the pulse of the market.. no one impresses me more than him

[Golum]

Trader

You will make money in an orderly decline; In a time-compressed crash of major magnitude, however, unforeseen problems will arise. A two-day closure will create massive fear and a disorderly environment.

(This scenario will create casualties and no victors.)

[mannfm11]

I am not going to debate most of this other than to say that the market will roll over. The talk of recovery in light of all the carnage going on worldwide in the labor markets is nonsense. They have been bulling the unemployment claims numbers for 4 months now and they are still above any number we saw prior to December 2008. Supposedly the recession had been going for a year. The talk of unemployment continuing to rise after recovery starts is downsizing nonsense. Normal economies have roughly 310,000 a week meaning the 530K we had this past week (several in a row have been revised upward) is adding 220,000 people a week roughly to the unemployment rolls or on an annual basis, 11,440,000. Granted the economy at 310K weekly creates roughly 2 million jobs annually, leaving a loss of around 9 million at the current pace. This is a depression pace of unemployment filings and this doesn't count the normals going bust.

There is much more, but for the most part, I constantly see them dusting off measures I have never seen before, one being the weekly numbers for that index that has been used for years on a monthly basis, the LEI.

The biggest plug for a crash is the fact the stock market is a bubble. It was a bubble on the top and it is still a bubble, selling for a price that has never produced gains over 20 years in excess of inflation. Thus we are now selling for a return that is at best 1% below treasury rates. Some think the stock market is a hedge against inflation, but they fail to take into account the massive risk in holding stocks (think AIG, GM, GE, ENE, WCOM, LU, etc) and that stocks require a risk premium. Portfolios deverisify away from risk, but when the market price becomes a risk free rate of return rate, portfolios only mean you are guaranteed to suffer below real rates of return.

In this matter, I suspect we will see something more akin to 1930 to 1932 or more like what we saw on the first trip down. We are in a deflation and as the deflation goes on, there will be less credit available for anything. And, the money supply will begin to shrink as people and businesses pay cash to banks for liquidating assets. Yelniks post after this showed the needed credit expansion to keep the economy going and that is merely to float the market sideways at where it is now. A good EWP tech knew that once the market passed the lower 7000 range that it was headed higher. It will turn bust, as there are too many wildcards and the financial system is mimicing a $5000 millionaire.

[mannfm11]

The EWers made 7000 Dow points the last 2 years. IN fact they made it in 17 months and some turned around and played most of this rally. Being the Dow had another 1000 points manipulated into it, the top was actually around 13,000 and the current market is more like 9000 and the bottom was about 5500 and the point being that if you held the representative stocks in the Dow over the last 12 years, you have made a real 2000 points. Merry Christmas. The EWers, who missed the trip to the top, made 3.5 times as much in 17 months. The next trip down is going to be brutal. Do you really think the US gets off easier than Japan? That would be equivalent to 2000 if Japan should repeat here. CRash or a 10 year trip, that is going to be ugly for stocks and it is almost guaranteed to occur.

[mannfm11]

There is a lot of testosterone here. For one, I too have a clue what caused the 87 crash. The trigger was excessive bullishness that begun when rates on treasuries fell from about 9% to 7%. You might recall Merrill was running commercials about how much lower they thought rates would go when their trader got caught with a billion dollar loss (back when it was real money). The 30 year bond had bottomed at 7% the last week of March that year and that pretty much short circuited the rally, though it did have its dying gasps later in July. Then along with rapidly rising rates there was a massive devaluation going on. By the time the market crashed, the 30 year treasury was about 10%, a massive capital revaluation against risk free to say the least. From what I had read, the portfolio insurance was to sell 10% of your portfolio every 3% down, so once the market had fallen 30%, the entire portfolio was hedged. I had read something a big time trader had written that he knew to buy the market at the 30% down spot because that was where the market had 100% downside protection. It makes sense and there was plenty of talk about the depth of the decline being the widespread use of the SPX short futures as a hedge. You can imagine the futures being down 3% overnight and having to absorb that much selling on a trigger like that. Not much else would explain such a decline, but I believe the dollar and the rise in bond rates was the igniter.

As far as Prechter goes, I believe he has had this thing nailed as well as it could be. The bulls point fingers, yet they haven't made a dime in stocks in 10 years themselves. Most pros can't beat the SPX in either direction, so the claim that bears who bought 20 year treasuries 15 years ago are stupid and bulls are absolute geniuses is off base. I believe you could get near 9% 15 years ago and the market was already at 4000. I concur that he has said that the odds are great that once wave 3 has gone on for some time, the chance is that the dealer you are working with will be broke. It almost happened last year and we are in a perfect set up for it to happen this time. To big to fail and the fact that this rally has absolutely nothing to do with public participation and is nothing more than Goldman and others throwing stocks back and forth. The loud sucking sound will be the market collapsing soon.

[Miguel]

SILVER
SOme other indicator that is leading my thoughts on the market is the silver market.
Silver has reached its'trendline of 17.8 on thurday.
The three last times silver has reached the trendline it crashed down for the next two weeksand continued the drop after a 61% correction form then on.
Silver is behaving in a copycat way since over two years.Perfect rhythm. The swings of the last year were just more extreme.
It points to over 50% decrease in the next 6 to ten months.
SO i think there is a real chance for a serious downturn starting with a significant drop in the next weeks.

[min]

>>The bulls point fingers, yet they haven't made a dime in stocks in 10 years themselves.<<

I guess you mean the PERMA-BULLS right? But then it's the same with the perma bears. Many went broke (especially if following Prechter blindly) by the time their opportunity arrived in 2008.

I made money in 2004, 2005, 2006 and 2007 as a bull then in 2nd half of 2008 a boat load more as a mad trading grizzly bear. 2009 so far has been good again as a raging bull. Not until yesterday did I get even a hint of a claw starting to grow.

Somebody earlier on this thread posted this:

"I have a lot of respect for Neely but at the moment he is just another datapoint for me"

Precisely! That statement gets real close to the essence of consistent trading results. Gurus should ALWAYS be just that —data points and no more than that. EVER! Don't ever bestow powers onto them they factually don't have.

There is no substitute for you knowing your own craft expertly and gaining an ability to execute without hesitation based on your own certinty of what you truly know and don't know. That takes a lot of hard work and making a lot of mistakes (hopefully with token bets until you get the hang of it).

And yes, people who have this game figured out for real are rare and for the most part, do in fact keep the "Essential Active Ingredients" to themselves and not particularly because they don't want to share with others.

Those making a living at helping others trade better have the same pressures as any other businessman and those business pressures are actually quite distracting and couter-productive to consistent trading results.

Famous gurus will never be as good as they would be if they were dedicating all their energies to exclusively developing their trading talent.

You will never be as good as you could be as long as you think a famous Guru has some extra special powers you will never be able to acquire. BULLSHIT!

The best interchange in a forum like this is becoming aware of a large quantity DATA POINTS you might not come across on your own for lack of time or because your thinking is just in another realm altogether. You then use these data points to furthur refine or redirect your own core research.

Easier said than done, I know, yet that is the road that needs to travelled like it or not.

Like I said, this market will run in both directions longer than bulls and bears will understand until after the fact. It's a Grand Super Cycle wave 4 event. This statement in itself paints a particular picture different from what PRechter paints but that's another story.

There is a time to trade like a mad dog (like in second half of 2008) and that time is not now.

1. Sit back, 2. relax with your 2 trophy girlfriends, Prudence and Patience, at your side. 3. Listen (to other's viewpoints) 4. Look/Observe (other people's actions demeanor,what they are promoting,hyping up etc) 5. Compute (TA and FA and other such charts). 6. Connect the dots (how are 1 to 5 likely to impact people and therefore the economy) 7. Repeat 1 to 6 above; 8. Then stick one toe in the water and see if it's to your liking and ease in some more or or get out and do 1 - 7 again.

One last thing.

When you are doing #3 and #4 remember that those writing and selling the story and providing the fancy lip service are paid by people with a lot more money than you and me and although people are generally well meaning, when it comes to money and economics, they are flawed, greedy, scared, usurping, cheating, lieing, mis-emotional and self-serving. This helps to connect the right dots (#6 above).

[Buddy Glass]

>>If not handled well, any such start would like spook the market and drive a serious break down. Crash? No. But swan dive, yes.

Yelnick, can you clarify the distinction between 'crash' and 'swan dive'? What degree decline do you see ('if not handled well,' as you say) and over what time frame?

I'm in the camp that expects a decline over the coming months, but not a 1987-like 2-day 20%+ drop. I could easily see a return to the 200-day simple moving average which would put us at 905 SPX, or a 15% drop from current levels, before resuming the advance. Most of the pundits calling for a 'crash' don't seem to be saying we'll have a Black Monday type event (with the possible exception of BAM).

[N.E. Melendez]

I thought this was an Elliot Wave camp and not a gossip blog about the fed did or Bernanke said. The Elliot pattern shows the 1019 to 1072 is a perfect .62 fractal of the last wave from 992 to 1080. Combine that with the doji at 1072, looks like one long rope.