Sunday Night

I know a lot of you look here for market ideas and directions, so here is my view as of Sunday night:



As the above chart indicates, not much has changed. The Stanley Cup Champion Detroit Red Wings remain the class of the NHL and I am expecting the market to make new lows this coming week.

As far as the World Series goes, I cannot name a single player on either team, even though Game 4 is on my TV about 10 feet away. But it gets worse, if I didn't have the TV tuned to the channel, I wouldn't know which two teams were playing. From the annoying sound of the crowd, it clear that a team from the obnoxious Northeast corridor is playing (and probably winning).

Speaking of which, the Michigan Wolverines lost to Michigan State yesterday, like for the first time ever (or so it seems). Gives East Lansing something to keep it warm this winter above it's God-forsaken frozen tundra of a college town.

Don't forget to turn your clocks back this weekend, or is it next weekend? Arizona doesn't participate in daylight savings time, yet I still don't get the clock thing right. I didn't know you could opt out of it, anyway. How do you do that, do you write a letter to the President saying your state is not going along with it? Didn't the South try that once?

Anything else?

Oh yea, Californication is on tonight. The highlight of my week.

That should do it, except for this: I saw Joni Mitchell perform in a little coffee house in Ann Arbor in 1968. After her second set, I went back stage to meet her. Fragile, beautiful, young and so appreciative of this college boy telling her how wonderful she was. That was the Joni Mitchell in the video, unequivocal talent and grace.

Who knows where the time goes?


A

Cactus Tree

Chart of the Day

Chart of the Day
For some long-term perspective, today's chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, the inflation-adjusted Dow is now less than double where it was in 1929 and trades a mere 29% above its 1966 peak. Not that spectacular of a performance considering the time frames involved. However, the magnitude of the bull market of 1982 to 1999 (even when adjusted for inflation) was truly of historic proportions. It is also interesting to note that the magnitude of the current bear market (when adjusted for inflation) is greater than what occurred during the dot-com bust of 1999 to 2003. As a result, the Dow currently trades at 12-year lows.

The Great One

He was invoked over the weekend in the NY Times piece by Warren Buffett. Wayne Gretzky, the most prolific scorer in the history of ice hockey, now coach of the Phoenix Coyotes of the NHL. Here is what WB had to say about The Great One:

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

Sound reasonable? I don't know if any of you have been reading the Elliott Wave articles to the right of my Blogs, but in case you missed this one table that turns WB on his behind faster then a Gordie Howe elbow, here it is:

Cash is what Buffett calls, "a terrible long term asset, one that pays virtually nothing and is certain to depreciate in value."

Except for the past eight years? Except in Bear Markets? Except in Grand Supercycle Bear Markets? Then he insults The Great One by suggesting that buying falling stocks blindly is akin to prescience on the ice.



Prices are coming down across all markets. A comment in the previous blog asked me, "if I was nibbling on anything long here." I don't nibble. Nor do I buy stocks, gold, oil, corn, or anything in free fall. Triangle Trading from Market Club is holding Short here. Elliott Wave structure requires a new low in the DJI (for this move) before any tradable rally can be identified.

As for the slandered Gretsky, I shall apologize to Wayne personally, or at least through his actress wife, Janet Jones:That is as soon as I spot where she sits at the games. These are some clues, if anyone catches a Phoenix game locally.

A

(Looking at these photos I realized I was wrong, yes, sometimes I do nibble.)

Depression

No, I'm not talking about the kind of depression that comes from getting kicked in the side of your head by an old girlfriend. This kind is an economic depression, brought about by, well, by what?

How about social mood? Here is a chart reproduced from Google's Preview of Robert Prechter's 2002 treatise, Conquer the Crash.

From Conquer the Crash :

"Major stock market declines lead to lead directly to depressions. Figure 2-1 [above] displays the entire available history of aggregate English and American stock price records, which go back over 300 years. It shows that depression has accompanied every stock market decline that is deep enough to stand out on the long term graph. There are three such declines, which occurred from 1700 to 1784, 1835 to 1842 and 1929 to 1932."

Notice how the 1987 stock market crash does not stand out on this chart. Unlike the wise counsel of Warren Buffett and the CNBC cheerleaders, this is no 1987 whereby the sooner one bought back into the market, the better the ultimate profits gleaned from the fervent bull market of the 1990's.

THIS TIME IS DIFFERENT!

Back in the late 1970's I was a wet behind the ears attorney in Atlanta with a strong addiction to the stock market. It wasn't long before I discovered another young addict, Robert Prechter, just up the road in Gainesville, Ga. He was my first (of many) market gurus, introducing me to a novel form of technical analysis deemed, The Elliott Wave Principle. Using Prechter's book and his thrice a week telephone updates, I made my first small fortune in the stock market.

After the 1987 crash Prechter got out of the market and he handed his short term advisory service over to a succession of less competent advisers. Before the current guy, Steven Hochberg came on board, I was long gone as a subscriber and as a Wave student. It wasn't until Prechter's greatest accomplishment (in my opinion), his 1999 book, The Wave Principle of Human Social Behavior and the New Science of Socionomics
did I return to the fold, this time not so much as a way to trade stocks, but as a way to understand life, society and economics.

As I read over the Internet this Saturday in October, 2008, I can't help but be amused by the near total obsession with getting in the market at "the lows" "the bottom" "the turn of the screw". By order of no one else but the Emperor Warren himself, the market has been commanded to stop it's decline and soar to new heights. Everyone is pointing to previous lows in the great bull market of the 20th century as their example from which they are taking their current marching orders. In the likely face of an economic depression, I don't think so.

"Stocks are not registering a Supercycle top like that of 1929 but a Grand Supercycle top....That means that the ultimate---if not the immediate---consequences will be more severe and more confounding than the consequences of the 1929-32 crash. As Chapter 5 of At The Crest of the Tidal Wave explains, the entirety of the Grand Supercycle wave IV should last a century and comprise two or three major bear markets with one or two intervening bull markets."

--Conquer the Crash, Robert R. Precther, Jr.

It is not Robert Prechter that is saying it's different this time, nor is it Allan Harris saying it's different this time. It is civilization itself, it's history, it's psychology, it's the tide of economic life-death-life that is saying, yes, it is different this time.....and, if course it's this guy:


The line it is drawn The curse it is cast The slow one now Will later be fast As the present now Will later be past The order is Rapidly fadin'. And the first one now Will later be last For the times they are a-changin'.

A

Buffett versus Trade Triangles

By now you know that Warren Buffett is buying the market here, as per is his Majesty's missive published this morning.



As I commented on David Gordon's Blog earlier today,

Great long term strategy, for a bull market. Neither Buffett nor any one of us alive today has lived through a Grand Supercycle Bear Market, the likes of which we are encountering today. By his own measurement of success, stocks will be higher in 10 years, something that even I do not discount. But I would rather enter my positions closer to the lows, which are likely to be significantly lower and months, if not years from now. What will change my mind? Prices. Just as they took me out, they will get me back in. Whether lower or higher from current levels, I don't care. As long as I stick to what got me this far, it will be the right thing to do.

Buffett's Berkshire Hathaway is down about 25% year-to date. This puts Buffett in the ranks of market performers. Yet the world swoons when he talks about stocks. I guess that is better then Cramer, but still, a guy who does no better then the average index fund isn't exactly the kind of market guru that appeals to me.

A few months ago I introduced Market Club's Trade Triangles as a purely objective, mechanical and profitable way to move in and out the markets. Here is an update on how well the Triangles are trading the Q's:


Note that for the past twelve months, without leverage, the Triangles are +76.21%. During the same time frame, Buffett's Berkshire Hathaway has dropped from approximately $120,000 to it's current $113,150, a decline of approximately 6%.

Triangles = +76%
Buffett = -6%

Doth the Emperor be in need of some clothing?

[photo of naked elderly man omitted]


A

Crash Warning - Part II

As I occasionally do, I send out PUBLIC Notices of BIG market events on the horizon. Earlier today, ALL of our NEoWave Trading customers Shorted the S&P near the highs (around 1040 and 1019 in the Dec. Futures). 

Based on current, short-term wave structure, the S&P is now at risk of its LARGEST, FASTEST, MOST VIOLENT DECLINE IN HISTORY!!!

PLEASE protect yourself and don't get caught in the "bargain hunting, and the market is bottoming," mentality.

Good Luck,
Glenn Neely
NEoWave, Inc. 

Mea Culpa?

I missed the largest rally in stock market history. With all your eyes looking to me for guidance in these turbulent times, I remained alarmist and resistant to admitting the market was in bullish mode, due to my stubborn refusal to see what was unfolding before us all.

Raise your hands if you believe that crap.

Yes, it is all true, but there is a method behind my madness. HEALTHY MARKETS DO NOT RISE 11.5% IN A SINGLE SESSION. I have been alerted to an Elliott Wave count that has extremely bearish potential for the next two weeks. Monday's rally and even some carry over rally into Tuesday is consistent with a fall-off-the-cliff decline before Halloween.


You may lower your hands now.

Probabilities favor at a minimum a retest of last week's lows. Possibilities include the incredulous, that the "Crash" first mentioned here on September 10, 2008, has yet to hit. Instead, it is just ahead and if the past few weeks are any indication, it will take no prisoners.

Right or wrong, that's tonight's road map. Be careful out there.


A

Iceland Cometh?

This article in today's Washington Post might very well portend what is coming next in the market's road to a Wave C low. Warning - it isn't pretty.

ICELANDIC MELTDOWN
The Next World War? It Could Be Financial.

"The global financial outlook grows more dire by the day: The United States has been forced to shore up Wall Street, and European governments are bailing out numerous commercial banks. Even more alarmingly, the government of Iceland is presiding over a massive default by all the country's major banks. This troubling development points not only to an even more painful recession than anticipated, but also to the urgent need for international coordination to avoid something worse: all-out financial warfare."

Wave C Personality - Page 78 of Elliott Wave Principle

"Declining C Waves are usually devastating in their destruction. They are third waves and have most of the properties of third waves. It is during these declines that there is virtually no place to hide except cash. The illusions held throughout waves A and B tend to evaporate and fear takes over. C waves are persistent and broad. 1930-32 was a C wave. 1962 was a C wave. 1969-70 and 1973-74 can be classified as C waves."

Remember that this C wave is one fractal higher then any of the C waves described above. Meaning that my all standards of measurement, it will be a degree higher, i.e. worse point decline, worse percentage decline, worse log scale decline, it fact, it should be the worse decline in the lifetime of any market participant, since the last decline of this magnitude was in the 19th Century. Keep in mind that the stock market races ahead of the underlying fundamentals by at least six months. Thus the worse news stories, much worst then what is linked above appearing in today's Washington Post, are still down the road. Also down the road, sadly, is something that accompanies virtually all bear market bottoms: Another war.

The market does not travel in a straight line. There will be rallies within the confines of the wave C structure. They will be sharp (like the 1000 point rally in the DJI last Friday), but fleeting. All of them, every one, to be followed by new lows.

All probabilities favor the downside, until further notice.


A

Invincible

                   

I am no longer invincible.

The strength that came by her,

Feeling, touching, loving her

And in a moment, losing her

Gone, gone, gone.

In the vigil left behind

Treading water

Not daring to stop kicking

Not wanting to go on.

Drifting, drowning

In a narrow wake of time

No longer caring

No longer mine.

Hope and dreams

Silhouette

Against the northern sky;

Breathing softly,

Her heart upon me,

Gone, gone, gone.

I am no longer invincible.

Falling melancholy,

Down, down, down.

A