The
big picture
I’ve
gone back to the daily charts in order to get it all to fit, unfortunately this
obliterates the Diag II’s that I showed you last week in the hourly
charts. The large roman numeral III & IV represent the last two end points of
a large diagonal going back a year. Assuming we have one final Diagonal
triangle leading to the final Spike, there is always an a-b transition required. Given the magnitude
of these, the (a) and corresponding (b) fit the bill. We’re expecting
the current structure to look a lot like the diagonal triangle within wave (a), just a degree of trend higher.
Notice
that the 1- 3 of (a) can be labeled a,
and the subsequent a-c labeled b,
since a diagonal triangle is a variation on the a-b
theme. What’s more, for wave 3
to be proportional in Fibonacci terms, it would reach a new high for the
Dow…. Likely our exit and reversal signal.
Meanwhile
both the financials and X are in a wave 2
correction. In the left diagram below you see the entire 5-wave Bear Market
progression. We are in c of wave 2. We have just completed an exaggerated b wave and have only wave c to left to complete wave 2. As you see below, wave 2 is a correction of wave 1, and therefore a retracement to the
upside, meaning that the c wave has
to climb backup quite a bit in order to be a correction. Wave c is usually the longest of a-b-c and often approximates 1.618a. Once 5 waves down get started, the max upside
correction is the beginning of wave 1.
That’s
why we are just looking for a bounce, albeit a big bounce of about 30%
unleveraged in financials. From this level a leveraged ETF looks very
attractive.
Now here are some of our
stocks, as always diagonal II’s indicate start of a big move!
Summary & Conclusion: Gold will
plummet and stocks take off.
Everyone
seems to be betting on recession, however very few have contemplated the
possibility of a slowdown that does not go negative. If we’ve been in a
mild recession say since October, markets factor in the end of recessions with
a “V” shape, which should be starting once we complete the b wave. In the past, gains of 10-33%
have been recorded even before the economy had begun its recovery.
Its not recession we need to be concerned about…..it’s Depression
and that’s still a ways off. On this final pullback, is likely the best
time to buy, when all optimism has been squeezed out of the market. While
there can be 3 sets of a-b to extend
the downside (or the upside) once the count is
complete, in most stocks we are at that limit now.
At
today’s prices the market has factored in 70% of all sub-rime debt will
default, a bit extreme, so early in the game.
The
traditional hedge against recession is gold. The US Dollar is on the
rise, when everyone is still holding on to last year’s expectation of a
continued slide….this coupled with recession expectations are the primary
contributing factors to gold’s recent glitter. However, once it becomes
clear that there’s no recession on the horizon and that the dollar will
not repeat last year’s performance, gold will plummet and the market take
off.
Regards,
