Fun, my view regarding a possible blow-off was based on historical precedents...the market is following the script very well so far. the script in question being the late '80's Nikkei. it is probable, but of course not certain, that today was but the beginning of the blow-off stage. the market will kill all the remaining positional shorts before it will proceed to kill the bulls as well, that's my guess at this point. the past few weeks in terms of the SPX have had a high correlation to the '87 topping process - today that correlation was destroyed. however, the correlation with the pre-crash Nikkei is still very much intact, and if it continues would suggest that we are now in the last stage of the game. perhaps the duration of the a/d line divergence, which has already surpassed the previous record set in '29 will continue until a fibonacci multiple of the '29 divergence is reached. likewise the stock/bond yield ratio may be on it's way to reach a fibonacci multiple of the '87 peak, a previous record of note. i have not yet calculated the numbers, but will post them as soon as i have done so. in any event, i have a minimum target of 12,250 for the Dow if the blow-off scenario plays out, and a maximum target of approximately 13,000, which is a fibonacci multiple of the advance from the '74 low calculated by Prechter. IF 13,000 should be surpassed, much higher levels are possible, even likely, as time-honored fibonacci relationships would be rendered invalid. i would take that as proof that indeed a new era in terms of manias has arrived and look for an incredible melt-up to carry us to who knows where.
now before i get too carried away with melt-up predictions let me add that a feature of a late stage mania is that it hangs by a thread...what i mean to say is that the end could conceivably come before the targets i have mentioned are reached if some unexpected exogenous event upsets the apple cart. i will not speculate what form such an event might take, but it could be something that looks unimportant at first blush, sort of like the chaos theory that states that a hurricane in one part of the world can be traced back to the beating of the wings of a butterfly in another.
therefore, you have to stay very nimble in this environment and keep your eyes peeled at all times...don't trust blindly in targets, however compelling they may look. the market will always fool as many people as possible, today being a good example.
btw, i am certain, that when the mania finally ends, it will do so in a violent manner, i.e. a crash. it will happen when almost no-one talks about it anymore, not when scores of investment advisors point to the possibility. as recent statements by prominent people like Eisuke Sakakibara, Kenneth Galbraith, Helmut Schmidt, Milton Friedman, to name a few, suggest, the bubble has by now been spotted by almost everyone except AG <G>. looking back to the Japanese bubble, it takes about six to nine months from the first official statements regarding a bubble to the point where it suddenly deflates. so there's still time, but it's growing short.
regards,
hb |
