The Dreaded Triple Top Cometh

The market seems to be in its final run to an epic Triple Top back to 2000. Chris Martenson supplies a nice piece of analysis, expecting a 40% drop after we top.  His chart shows this in the S&P:

Zoran Gayer, whose analysis updated Wave Theory with Chaos Theory, demonstrated how triple tops are good indicators pf trend changes. The Chaos Theory view, which is based on Thermodynamics, is that markets move in Thrusts and Plateaus, where a Plateau is the market on the edge of chaos, seeking order. A Thrust is order.  All non-linear chaotic systems show this behavior, including weather and market economics.  The formation in the S&P is a classic Plateau after a really strong thrust up in the '90s. The Plateau does not pre-determine the next Thrust, but Zoran found that after a triple touch of a trendline, the Plateau usually was showing exhaustion and the Thurst coming out of it would be the other way.  In 2002-3, for example, we had a strong Thrust down, then a triple bottom in what he called the Iraqi War Triangle, followed by a Thrust up into 2007 that marked one of the largest asset bubbles of all time.  

The timing of the triple top looks to be within the next few months. Seasonal patterns usually top around April or May, followed by a correction into September. Some pundits (like Neely) expect a sharp rise towards SP1600 in March, with a top in early April.  Whichever it is, expect a bit of a throw-over at the end and then a really sharp "bifurcation" move down to mark the top.

The Plateau since 2000 marks a huge experiment with economic history, where all of us are the guinea pigs: central banks are trying to apply the lessons learned in the Great Depression to reflate the global economy. Problem is, they first created a terrible asset bubble in real estate, and after that corrected, they are now putting the global economy on central bank life support. As more fiscal borrowing is pumped out into the system, nominal GDP levels atrophy as the ever-increasing debt puts pressure on continuing this flow of monetary oxygen into an increasingly-moribund economy.  As the system approaches the Rogoff Level of 90% debt-to-GDP, economies began to sag. Europe is already entering recession, as has Japan; and the US is skipping across the 0% GDP level, skating on very thin ice. Worries abound about China as well.

The Triple-Top Plateau therefore reflects markets at the edge of chaos on whether this huge central bank experiment will work.

Looking forward, history says this long secular bear market should last 16-20 years.  The last one from 1966-1982 was 16 years; the prior one from 1929-49 was 20 years, and we saw a similar long plateau around Dow 100 from 1901-1921. The Depression of 1874-1896 was even longer, as was the one from 1837-1859. This puts the bottom out to between 2016 and 2020. 

Comments

[Paul]

I seriously doubt that we've topped. We'll probably have the seasonal correction of 10-15 percent and then off to new highs. The Dow Industrials and Transports have both confirmed each others high and have been in confirmation since the `09 bottom. The breadth all across the board has been extremely good in terms of percentage of stocks above their 200 day MA, percentage of stocks making new highs, high BPIs, etc.

[Paul]

Prechter has a special double issue coming out. From the EWI site: "You see, the latest Theorist is 120% longer than the standard issue, spans 22 pages and contains 31 charts." The folks at EWI are yet early (i.e. wrong) once again. I don't think these guys ever learn.

The one thing I'm concerned with is gold and silver. They've been going nowhere but down.

[Hockthefarm]

I'm inclined to agree with you. March and April are usually pretty good months. If we do top in May, nothing says we can't just chop until September. Everyone knows we have to correct the run from the 2009 lows, the real question is when. I think there is lots of money entering the US from abroad. Seems to me that is a no brainer.

Hock

[yelnick]

Hock, Paul - I have been waiting for the triple top for quite a while.  It is a technical call, based also on external factors (such as the coming recession globally), and yet with the continued liquidity pump of the central banks, may turn out to be the wrong pattern.  It may be the whole pattern from 2000-17/20 ends up like a triangle; but then the drop from 2000-09 counts as a model of a flat, and so this uptick would be an X wave connecting to a new corrective pattern. It looks a lot like an X, a simpler pattern than the prior, and yet not impulsive like the breakout of a new bull market.  Normally in such complex corrections, the X would not breach the scale of the prior flat.  We'll see, soon.  

“Predictions are hard. Especially about the future.”  - Yogi Berra

[Hockthefarm]

" The folks at EWI are yet early (i.e. wrong) once again. I don't think these guys ever learn."

If you look at the spx, EW as practiced by Prechter has zero predictive quality in terms of the movement of this index. As I recall, he was telling folks to get short as far back as the Fall of 2009. My conclusion is that EW requires free market capitalism to work. Interestngly enough, I still subscribe, but have never, ever followed his advice in terms of future stock movements.

Hock

[Virgil]

"There are three basic methods of trading. The first is based on FUNDAMENTALS. The second is based TECHNICAL, STATISTICAL & BEHAVIORAL and the last is on STRATEGIC or TACTICAL. At any one time all three are at play. Since we are creatures who love ORDER, both FUNDAMENTAL and TECHNICAL/STATISTICAL/BEHAVIORAL analysis is very appealing. Both give meaning and order to the markets. Whereas, STRATEGIC or TACTICAL trading is based on exploiting any facet of market action, be it fundamentals, technical or behavioral. Thus, in a way, STRATEGIC or TACTICAL trading is the CHAOTIC component in markets. It disrupts the expectant order."

Zoran's analysis was extremely great. Thanks Yelnick for introducing us to his work.

"The speed in markets is nearly always caused by short covering or long liquidation. IT IS NOT CAUSED BY NEW POSITIONS ENTERING THE MARKET. That starts as the majority realize there is a new trend well after the move has developed. If there is no speed there is no resolution of the non directional pattern. The speed is the major determining factor that the pattern is complete. With that speed there is also a need of a pattern break or a breach of an effective support trend line."

Since the 2009 low, we're following roughly the same slope as a trendline drawn from the beginning of 1995 (start of the "Bubble Age") to the 2000 top.

Right now we've gone through about 75% of that run in price and about 75% or so in calendar days.

75% of the dot bomb run was late '98. To put it into historical perspective, this was when the last installment of the Greenspan Put was cemented into place

http://money.cnn.com/1998/11/17/economy/fomc/

right on the heels of the largest first day gain of any IPO

http://news.cnet.com/2100-1023-217913.html

Is it now Christmas 1998?

[Bears roasted again]

Prechter! LOL

Market fools him every time, lol.

[Hockthefarm]

Everyone seems to be taking a poke at Prechter:

http://wavegenius.tv/blog/2013/3/5/elliott-wave-forecast-video-30613-5-of-3-targets-for-the-indices

Virgil: How does August/September 1999 sound for your time clock?

Hock

[Hockthefarm]

In the summer of 1999 we took a big trip with some alum from bschool (KL, Bali, Egypt and Japan). No matter what time it was, cnbc was on in every room. By the time I got home I was so ticked at my relative performance that I threw my entire 401k into fdgrx:

http://stockcharts.com/h-sc/ui?s=FDGRX&p=D&st=1999-01-02&en=2000-12-29&id=p78952239763

If you stumble across a ski hut near Breck with fdgrx wittled in the door, you will know who owns it.
Not expecting the same thing now but March and April could be pretty interesting. I expect Sy Harding to be early with his macd call this year and right on the money.

H

[Virgil]

Hock,

Caldaro has got us in nested 1-2, 1-2, 1-2
With the 3rd of 3rd of 3rd of 3rd completing at 1530
It's the only bull count that can make any sense as far as I can tell,
with all the overlapping waves over the past few years,

So you would expect the 3rd of 3rd, etc would be accelerating out of the price channel, at a greater slope. Similar to 1955, 1986 and in 1997.

Hasn’t yet -
To rise out of the price channel formed since the Jun 2012 low would require 1600 by the end of the month.
To rise out of the channel formed since the Oct 2011 low would mean S&P in the 1800s by summer.
To rise out of the channel formed since the Mar 09 low would require an act of God.

Now maybe the channel isn’t valid from the ’09 low because it skewed too low in the panic.
I posted this chart last year with the brown channel.

http://oi50.tinypic.com/rvc0li.jpg

Yelnick’s response was:
“Fractal Finance would say that if we had a throw-under of your channel, we should expect a throw-over before the end”.

Well here we are – with either acceleration or overthrow.
And emphasizing the critical level price is now at is the bottom prong of the blue fork.

So to answer your question – I believe it’s either Mar 2000 or it’s morning in America and we’re about to find out real soon.

[Paul]

Interestingly, the EWI website does not even mention the fact that the Dow made a new all-time high. I think they're pissed because their wave counts got messed up.

Hock, I'm curious, what does the latest Special Issue say?

[dlu]

paul, Yelnick may be knowing what the latest special issue says. I expect yelnick to post something special after Prechter count got busted.

[Hockthefarm]

Test

[Hockthefarm]

Unable to post here.
H

[Virgil]

Yelnick's X wave has a small wrinkle that Prechter's alt count from "At the Crest of the Tidal Wave" addressed.
This was where he predicted an impending deflationary depression almost immediately before the market tripled. It was his best book.
Excuse the bad scan:

http://oi48.tinypic.com/2vaxfm9.jpg

I guess it isn't really Mar 2000 if you look at the Q ratio valuation:

http://advisorperspectives.com/dshort/charts/valuation/Q-ratio-overview.html?Q-Ratio.gif

This is Q3 2012 data, so it's likely over 1 now, a level which at which the market has been pulling back from recently.

[yelnick]

Virgil, interesting analogy to his 1995 book given the timing of the next tech boom. Faceplant IPO seems to have slowed the current tech boom, but a bunch of venture-backed companies are lining up to go public over the next year, and the bell may ring as it did in 1998.

The 3 of 3 bullish scenario comes from a rotation into US assets as a flight to quality (EUR and JPN to USD) while macro fundamentals are poor.  This market would show breadth and buying volume increase as this 3 of 3 develops. Many pundits think locally when they should think of global money flows. Would mean Treasuries stay at low yields and foreign money is in a Global Scramble for Yield. Most plays are done, including China (near the end of a huge real estate bubble) and the commodities countries. Where does the fickle finger of fate find yield?  In a re-emergence of whacky tech IPOs. 

[Yelnick]

Virgil, interesting analogy to his 1995 book given the timing of the next tech boom. Faceplant IPO seems to have slowed the current tech boom, but a bunch of venture-backed companies are lining up to go public over the next year, and the bell may ring as it did in 1998.

If this were a 3 of 3 of 3 we would see buying volume accelerating, whereas isn't this final pop rising on light volume? And weak breadth. Signs of a narrowing of rising stocks and waning momentum.

The 3 of 3 bullish scenario, if it happens, may come from a rotation into US assets as a flight to quality (EUR and JPN to USD) while macro fundamentals are poor. This market would show breadth and buying volume increase as this 3 of 3 develops. Many pundits think locally when they should think of global money flows. Would mean Treasuries stay at low yields and foreign money is in a Global Scramble for Yield. Most plays are done, including China (near the end of a huge real estate bubble) and the commodities countries. Where does the fickle finger of fate find yield? In a re-emergence of whacky tech IPOs.

[Virgil]

Yelnick,

What about the venture capital crunch that I see your compatriots talking about lately?
Is that a sign that we're in the late innings so to speak?

[Hockthefarm]

Test, test, test.

[TERA_BAAP]

If you take a weekly Fib time series and begin with the week of 9-11-01, and connect through 10-21-08, the VIX-spike height of the financial crisis, you hit next week. We will likely top at 1560-ish tomorrow or early next week and begin a horrific decline. IMO, wanted to post this for the record as I also called the bottom and the rally to all time highs many moons ago on this very forum. We shall see.

[Hockthefarm]

test

[Hockthefarm]

Terra:

So for the record your call is that the market highs are in next tuesday at the latest. Then we have a horrific decline.

I have no idea when we top. But I think we rally here through mid April as a minimum. Then I expect chop until the fall to get everyone on board. We could start to correct this run from the 2009 lows some time in the Fall.

I say this because the fed has done an excellent job of stabilizing the markets and stabilizing housing. We may just see an improvement in employment over the next few months as well. Uncle Ben will not give this all up without one heck of a fight imo.

So, til next Wednesday,

Hock

[Hockthefarm]

virg:

http://www.safehaven.com/article/29055/spx-follow-up-of-the-short-term-ewp

H

[TERA_BAAP]

Hock, its a weekly Fib series so sometime next week. Also look at the 68-73 fractal, its almost identical to what has transpired the past five years.

[Virgil]

Hock,
I don't look at the McClellen Oscillator much, but I'm not surprised breadth has been up. It looks they're saying the same thing as Tera up there and some other internet analysts - this rally is due for at least a pause next week.

The thing that bothers me about the bullish side is the dollar. It's held up pretty well in the face of the stock rally.

Yelnick's last post about the GBP got me thinking. The pound actually looks like it leads the Euro down, which then leads stocks down. It doesn't lead as much up. Seems on the way down Britain is the tail that wags the dog, but on the way up it's usually Germany.

The last time the divergence between stocks, pound, and Euro was this much, the resolution came at the flash crash.

[Paul]

"I say this because the fed has done an excellent job of stabilizing the markets and stabilizing housing. We may just see an improvement in employment over the next few months as well. Uncle Ben will not give this all up without one heck of a fight imo."

The Fed's done an excellent job of bailing out their crony buddy bankers at taxpayer's expense. All they've done is create a bigger bubble which will end even worse than four years ago.

[Hockthefarm]

Hi Paul:

While I agree with many of the points you raise, they have absolutely no bearing on the points I made. How he got there was not my point.

But now that you have raised the issue, let's focus on Mr. Obama's role in all this. How many Wall Street bankers did he prosecute during his first term? Why was he not grilled continuously about this record by both the media and opposition?

The answer, to paraphrase Noam Chomsky is because the president of the United States is just like the Queen of England. A figurehead to be trotted out at appropriate times. He wasn't green lighted to clean up that wall street abomination.

Hock

[Virgil]

http://peakwatch.typepad.com/.a/6a00d83452403c69e2017d4191998e970c-pi

http://goo.gl/gc3Qu

Here's another divergence courtesy of monetary & fiscal stabilization

[Hockthefarm]

When I looked at that production chart all I could see was good old Yankee ingenuity. And it is just getting going. Oil production here is set to soar.

Agree that monetary and fiscal stabilization has had a big role in keeping crude prices up.

Hock

[ManavA]

i agree with some of the comments about EWI here --- they have been sounding stupid for so long now I wonder how they look at each other in the eye in office every morning ::: no good being eventually right...sometime or the other, everyone is right !!

I think their best guy is Mark G who has been adamantly bullish Asian equities against I would imagine serious inhouse opposition !!!

[TERA_BAAP_KA]

I was off by a week on a long term chart, crash begins now

[CrabyPaxy]

you have a great weblog here! would you like to make some invite posts on my blog?


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