Planet Yelnick

Backtest this week

Whne a trendline gets breahced, the market typicaly comes back to test it from below. Will it kiss it goodbye, or show the break to be a False Break?  Chart courtesy SlopeofHope:

Symmetry Bespokes Final Thrust Up

Bespoke notes how the recent drop is symmetrical with the prior summer drop - 42 days top to bottom. This suggests a bottom with a final leg up still. Tony Caldaro further notes that the recent drop "retraced 61.8% of the previous uptrend [which] fits within the parameters for the typical wave 2 corrections during this bull market."

On the other hand, Zerohedge points out that today's action betrays the signature of a serious short squeeze. When we broke below the lower trendline of the big rising wedge, short interest increased; and often when the market comes back up to kiss the trendline goodbye, it denotes a short squeeze. 

Usually the stub week of Thanksgiving is positive, and the following Cybermonday is down, so look to several days action next week to get a read on this market. We came up near the tops in 2000 and 2007, close enough to argue for a triple top, but typically the triple top would be closer (ie. around SP1550-1600). It wouldn't surprise me to see a final thrust up. Given the false break below the trendline, this thrust would likely have a false break above - another short squeeze of players betting on the upper trendline - before the end. So SP1565 is still on the radar.

The primary elliott wave counterview is that this rally is a counter-trend rally in a larger move down, and using the math of Caldaro the other way round, should go back 62% before reversing down. So far the Friday thrust got us 38% back, which is usually the minmum retrace; and now we might see a down move (wave B of the countertrend rally) followed by a final move up towards SP1430 (Dow15K). At that point one of the two scenarios will meet their end; this Shroedinger Cat bounce will either be found dead or alive.  

Yves Sees The End of the Great Bond Bull Market - With a Risk of Hyperinflation

I have posted a number of articles of Yves Lamoureux, President at Lamoureux & Co.. In Oct 2009, he predicted the 30 yr would fall to 2.5% when most pundits - including the then-inestimable Bill Gross -expected a rise to 5%. Yves was right, and I christened him the New Bond Guru. On Friday he published his new prediction, that the Great Bond Bull Market from 1982 is now over.  Summary:

Bonds have tended to act as expected as risk preference shifted. However, bonds now have neither a credit risk premium and nor an inflation risk premium. Our proprietary model is clear: treasury paper of 30 years has the correct valuation of 3.50% and above. That is the level we would feel confident as buyers.

He makes an intriguing additonal observation, of a type of hyperinflation, but not the type that is commonly bantered about, a Wiemar-Republic style inflationary collapse. Instead, as we risk more of a deflationary environment from too much debt (deflation arising as that debt gets written off or washed out faster than central banks can print), this time it will emerge from increased credit risk in what heretofeore have been the most risk free instruments - US Treasuries. 

The harbinger of this may be Japan, which (as John Mauldin has put it) is a "bug seeking a windshield." The expected new Prime Minister wants to go to extremes of monetization to reinflate their moribund economy. As money has bailed out of Europe, it has found Japan, and the Yen has risen. Now it is being purposely weakened, and has hit a seven month low with the USD.

As the WSJ puts it:

Investors have been selling the yen since Japan's prime minister announced last week that an election will be held Dec. 16. Polls show Shinzo Abe, leader of the opposition Liberal Democratic Party, as the leading candidate to emerge as prime minister. Mr. Abe has been calling on the Bank of Japan to enforce bolder policies, including unlimited printing of money and setting reserve interest rates at zero, or even in negative territory to stimulate lending. 

The MMT view has circulated in financial circles, with the core belief that a currency issuer never need to default. This of course flouts history, where fiat currency after fiat currency has gone down in the sort of credit collapse envisioned by Yves. While it seems almost unimaginable that the USD might suffer such a fate - and it is years away from such a crisis - the Yen may become the first major currency to test the MMT approach of extreme monetization.  

Financial observers spend undue attention on stock markets.  Bond markets are an order of magnitude bigger.  It is now time to watch the bond market.  

Free Week Gets into the Good Stuff

Now they're talking - posting the STU and the recent Financial Forecast.  Click here for free week.  

Neely has also gone bearish after calling this really well for months.  I know Free Weeks often end up being bullish signals despite (or maybe because of) all the bearish predictions, but this time the broken clock may catch it. 

Post Election Free Week

Before you go into withdrawal post election, try out Free Week for more commentary on What It All Means for stocks. As they put it: 

Now through noon Eastern time Monday, Nov. 19, your audience can have access to charts, videos, forecasts and analysis pulled from our three most popular services for U.S. Investors - Bob Prechter's Elliott Wave Theorist, The Elliott Wave Financial Forecast and The Financial Forecast Short Term Update (which makes up our most popular subscription package, the Financial Forecast Service, which sells for $59/month). Your audience can experience it all for free!

This Year IS Remarkably Like Other Election Years

From Raymond James.