I model WMT shares as having peaked last November, completed wave 1 down of the new bear market in February and peaked wave 2 back up (dead cat bounce) in early May. Waves 1 of 3 nd 2 of 3 have now played out and so very, very soon I expect a swoon in June. Not just for WMT but for all stocks. WMT is the USA lower middle class which, by the way, is most of us. This recent Forbes article shows that everyone knows it. The chart you see below is typical of the smart money trying to sneak out the back door without being noticed. But during the 3rd wave, too many triggers are set off and everyone takes notice. Knowing that shares are nothing more than a Ponzi scheme, the smart money leaves as quickly as possible in order to leave fellow gamblers holding an empty bag. The wave structure in a 3rd wave is generally a lot more visible and Elliott-compliant than other waves so I suspect that it will be hard to miss. A clear wave structure down provides confidence in the new direction which is one aspect of how 3rd waves bring with them "the moment of recognition". Gaps down also tell smart people to run away.
This being the peak of a long bull market since 2009, the herd does not want to change directions easily. That is how we end up with "vee" second waves as shown below. The 2nd wave was clearly an ending diagonal with 5th wave throw over which subsequently broke back down both the top and lower rails in one fell swoop. An a-b-c move back up to kiss the lower rail good bye from below was a clear indicator that bad things were coming as seen by the subsequent gap down from $79.50 to $77.
While that small gap might not seem like much to most people, let me explain why it is in fact a big deal. In a word: leverage. Because the market has been going up, up, up since 2009 as a result of government intervention, market participants have taken on a "can't lose because of the Bernanke put" stance. If they think they are invincible, they get bold (complacent) and leverage up. This is how they get big when others are growing at a few percent per year. This is how they get a huge something for doing nothing.
Because WMT is considered a safe bet (hey, everyone needs cheap products and cheap food, right? We all have to eat, right?), the market has likely leveraged up based on WMT performance. It can be done in many ways including the use of options but I suspect that it also includes the use of OTC (Over The Counter - AKA unregulated) derivatives whose notional value in the US (last I checked) was $600 trillion with a T at the start of 2013 according to the BIS. The leverage there is world-ending should even 20% of those bet go bad.
Bottom line, the stock markets are important but their real value is as a broader indicator of the state of the real pump and dump economy - that of the elite - which is what determines whether there will be massive infrastructure breakdown, civil unrest, war, pockets of famine, or even civil war depending upon just how much leverage was actually in use by whom. Keep in mind that at some point if the guys at the very top lose in a fair fight they will fall back to the military which, as I have explained and proven in these pages through the words of Smedley Butler, is nothing but the enforcement arm of an organized crime syndicate called the US military industrial complex. Their system of control over the people is mainly based on a fraudulent money supply consisting of fiat currency and fractional reserve lending. When it begins to collapse we can only expect them to play the military card at home and abroad. It's pretty much all they have left.
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