Epic post -
and this is just the first part of it:
prudentbear.com
If I was a bull, the biggest concern I would have is the S&P index. First there is a nice head and shoulders that was broken. Second, 1190 is the top of the 1996-1998 swing. That
point, more than any other point in any index is one I see that cannot be violated. The S&P is the capitalization of the market and if the market enters into a territory where it is less
valuable than it was at that point, it is sure to take all the indexes with it. It and the Nasdaq are almost in direct sympathy with each other and both are threatening that high July 98.
This is important because the Dow makes up about 30% of the value of the S&P at this point and still has a nice cushion above it. I think a break of 10,000 gives us a great
chance to have a crash, based on my Elliott count and the diamond top. THIRD WAVES OF THIS TYPE ARE ALWAYS CRASHES AND THIS ONE WILL BE 2000 QUICK POINTS AT
LEAST.
There are a few other interesting things going on. The long bond has moved up in yield and is 10 basis points higher than on the day the fed cut rates in early january. We are
also having currency crises in places like Turkey, a sign there is a lack of liquidity in the world, which always shows up in countries with weak internal economies first. The US is
the money machine in the sense that we have the money machine, but we have extreme exposure. There is going to have to be an asset sale to keep the dollar up. I would sell all
stocks right now as chances are great there will be a 20% or more drop in prices quickly.
The alternative is we rally off these bottoms. I don't expect that to happen, due in part to the action in the Nasdaq. I don't believe the Nasdaq was supposed to do what it has done
in a 4th wave and this would mean we are either in the 5th wave or the 5th wave of the third wave, which I give little chance because of the size of the rebound in the Nasdaq in
January. It looks to me like these high priced tech stocks are now in the process of seeking more reasonable values, as there isn't much likelyhood for growth and maybe even
massive losses this year in that industry. Prices based upon high growth rates (20 to 30 percent a year) melt when there is no growth, as literally that one factor is worth about 20
to 30 percent of the value. In fact, PE's above 50 discount the idea that there could be a no growth year to the point that it isn't supposed to happen. I would put the adjustment in
those companies to a PE of 15 to 30 upon realization that the no growth only going to happen but is happening.
We are about to find out about the money on the sideline. I don't think there is enough. One thing that was published in Investors Business Daily 2 weeks ago was the ratio of
public shorts to specialist shorts. It was supposed to be bullish that the public was more short than the specialists. Maybe both of them were massively short, but if Wall Street
wasn't short that massively up the, then there is a possibility they may have been long all the way down. I think Wall Street has been short on every top if one does their research
and they have been able to reverse position and hold the market in the past. If they weren't substantially short at the top and been the ones selling this market down, then they
may be getting to the point the cannot only not buy stocks, but are required to sell themselves. Remember, these are kids that have lived their entire lives in bull markets or at
least the portion of their lives that they can remember outside of a cyclical bear market. I'm finding the early to mid thirty somethings don't believe the world can get back the way it
was and stock traders are generally pretty egocentric.
Anyhow, we have the makings of a crash coming up pretty quickly. If it happens, there should be a rebound before, but not necessarily. We may have already had the rebound in
January. If my speculation of the street being long on the top holds true, then their hands are tied as to how to reverse this animal. This means more fuel to the fire of what made
this thing go up so much is the same thing that is going to make it go down, borrowed cash and proper market timing by the street. The $30 billion that came into mutual funds in
January won't buy the stock traded on this market for a day. We are getting into an area where there could be massive call money liquidation, draining billions of cash from the
market. I would also gather, $30 billion won't cover what wall street is now taking out of this market a month in fees, meaning the market mechanism itself is destroying the
means of keeping the market up. |
