Friday, October 31, 2014

EWI changes wave count to match mine (and other important stuff).

Since the horse has now left the barn, EWI's STU changed its count today to reflect that the ending diagonal was actually the 3rd wave which is what I suspected back in posts such as this one on the matter.  I followed that up with several posts indicating that the pullback looked like an a-b-c retracement and that the recent move up looked decidedly motive.  I warned people in a "hyper-critical trading alert" that crossing back up into the channel should be viewed as a critical breakout event which shorts should not ignore and that such an event would cause me to reclassify the current wave as the real 5th.

I did hold out hope that it would be a short stroke 5th for the DJIA thus leading to the potential for a Dow Theory sell signal on the next big wave down.  However hope is not a plan and it never was intended to be one.  Today the DJIA closed marginally higher than the Sept 19th high and so did $COMPX even though the S+P 500 just missed the mark and the NYSE composite ($NYA.X) actually only made it to the 78.6 fib.  Keep in mind that $NYA.X actually began its breakdown a couple weeks before the major indices.  I believe that $NYA.X is ahead of the major indices by an entire wave.  $NYA.X experienced wave 1 down and the recent bounce was really just wave 2 back up.  It's next wave down will be a wild ride because unlike the DJIA and $COMPX, it will be a 3rd wave down.

One of the most important charts you will ever see is presented below IMO because it will tell you when the great stock market crash of 2014-2015 has officially begun.  Look how $COMPX gapped up today above both of the ending diagonal rails and it did it right at the vertex of the triangle.  I model that confluence of trend lines to now be critical support.  You can just sit on the sidelines until that support gets broken and then buy into TVIX for rapid gains because breaking back down through it will VERY likely signify that the market has stepped into an elevator shaft.  Nothing is of course guaranteed but this is really one of the highest confidence models that I have ever presented. 

To be safe, if $COMPX falls below that vertex and then stops falling at ~4525 and subsequently re-takes that point then get out of TVIX because it will likely mean that this wave that just played out was possibly just 1 of 5.  I do not see that to be likely at all, especially given the telltale state of $NYA.X already likely being into wave 2.  But never say never and always have triggers. 

Here is the big count for $COMPX as I see it.  Expect more upward action to be likely into next week before some "unexpected event" hits the news which sends the herd southward.  Maybe it will take up to 2 weeks but I think not more.

So, bottom line, sell TVIX above the vertex and buy it back below.  Once the collapse begins it will have to be strong enough to shock Yellen into questioning her cut-off of the QE.  It is possible that she will do this if stocks peak in the next 2 weeks and then reverse into a free fall wave 1 down.  Remember, we can still have a 2nd wave vee after 1 is complete because we have not even begun wave 1 down yet.  But if that happens then I model it to not be as strong as what we just observed and it will eventually result in a lower high no matter if the bat faced disposable fed turns QE back on or not. 

I personally believe that the market's "taper tantrum" will not only test her (as I indicated several times in these pages that she must face her 6 month test soon), it will likely force her to reconsider the shutdown of QE.  In other words, she will be so afraid of the stampede that she will try to signal that she will reinstate QE.

But this is where things will go completely south on her because interest rates will begin to skyrocket and she will completely lose control of the bond market.  So it will become a choice of saving the economy or saving the government's ability to attract creditors at low rates and she will choose the government because there really is no fed independence.  As a result, she will have to back down from her QE(infinity) hopes, just like all the other liberals I have been reporting on have had to back down on their recent oversteps.  It is all related folks, there will be no decoupling in this matter. That is the socionomic aspect of it but Greenspan himself gives us the fundamentals behind why this will happen and the details are in this article in the form of two passages found therein. 

The first is a quote from "The Maestro" which is short and sweet and to the point: The Federal Reserve is sitting on "a pile of tinder.".  Well, if the fed is supposed to engender confidence, let me tell ya, I'm not feeling it from Greeny.  It's almost like he's trying to create a controlled burn with these types of comments.  I mean, when one of the most respected fed chairs says something like that, who can have confidence that the fed has any tricks left up its sleeve??

The second is just as revealing: "Politically... Fed independence ... will continue to be, the subject of one-sided political pressure, thereby significantly limiting the FOMC's range of discretion. In the early 1990s, for example, Senator Paul Sarbanes proposed legislation to remove FOMC voting power from the admittedly hawkish presidents of reserve banks. And earlier, during the years 1980-1983 when the Federal Reserve was acting to reign in an explosive inflationary imbalance, then-Chairman Paul Volcker was under severe attack. If it weren't for the support of President Reagan, anti-independence legislation would certainly have been forthcoming."

Greeny is warning us that as soon as the fed outlives its usefulness to the con men running the show, CONgress will take over the money supply as Japan's Abe did.  At that point, get the fuck out of the dollar because CONgress will use it to buy votes in a way never done before and CONfidence will be lost in the green paper, forever. 

So first we have to have a 9-11 style collapse of the banking / debt system and this will be massive deflation.  Then government will eventually massively inflate or even hyperinflate the currency.  These things are coming because they have been baked into the pie a long time ago.  When I realized this years ago I even gave it the name "supernova economy" to account for the collapse and then the massive expansion of inflation, most of which will simply be caused by people giving up on the already inherently worthless dollar.  Now you know why my life savings is in gold and silver coins even though I know that there is presently a strong model which suggests that gold could deflate to $750 before the massive inflation begins.  Models are just models!  But gold and silver coins are not models or fiction or dreams.  They are money because society has always said that they are money across civilizations and through out time.   By choosing to own them, I refuse to comply with the government's pump and dump plan to leave me penniless in my old age!

Liberal overstep diminishing returns update: Houston mayor gets the smack down.

In this post I noted that the Mayor of Houston (a flaming liberal and obviously gay) tried to get several pastors to pony up their sermons and emails which might contain negative references to her gay agenda.  Obviously she meant to attack them with their own words somehow either with liberal "gay hater" propaganda or potentially with civil penalties such as this type of thing.  She went so far as to try to use force of law in order to achieve her political goal.  My view was simple: it was a liberal overstep that would fail.  So today's update is that it did indeed fail; the mayor rescinded the demand under intense lash back by the people.

Not only did it fail, it failed loudly.  It's failure is sending a message across the lib-o-sphere: "don't overstep anymore, it's not working and will do more harm than good".  Again, I couldn't care less if Houston mayor Annise Parker is gay.  But I do care intensely that she is using her elected position as leader of ALL the people in Houston to drive her personal gay agenda and impose it upon all free people.  That is NOT what she was put in office to do and she either needs to stop or the people will stop her now that the pendulum is swinging right.

Each of these events sends a message and as the message grows louder and more frequent it emboldens more people.  Increasingly, the people begin to say "I will not comply".  That's step 1.  If government doesn't get the message, it rapidly turns into step two which is "I will not comply and furthermore I'm going to do what I want to. So what do you think you are going to do about it"?  In other words, common people begin to directly challenge the overlords not just with words but with actions.  If the government fails to back down from its authoritarian, "zero tolerance" hard line then that's when the trouble starts.  The crowd is itching for a fight now.  Step 3 is the riots and the spilling of blood.

Here is another interesting case of the same kind of thing: a nurse who had been in Sierra Leone was ordered by state authorities upon her return to Maine that she must "submit" to "direct active monitoring".  She told the powers that be that she would not comply and she shoved it in their faces by taking a bike ride.  The governor, flabbergasted at her insolence, vowed to use the "full extent" of his authority to make her submit

In yet another sign that the herd is moving to the right, the courts struck down the quarantine order and declared the woman free of the judgement of the "zero tolerance" crowd.  Again, the decision was quick and decisive, again sending the message to overstepping liberal government that they are not really in charge of the people.  I mean, look at the signals that got sent there.  The governor just proved how much authority he has to make kingly proclamations on free people: ZERO.  Politicians take street cred hits when they lose battles like this and so the message again goes out to other would-be liberal oversteppers: it's no longer worth the personal political damage it could cause.
What's most interesting about this is that the case involved "scary ebola" yet still the woman's rights prevailed.  NO WAY would that have happened 1 year ago.  They would have beaten the crap out of her and bound her to a bed and put her in a medical coma had that been required to make her "comply".  Why?  Because it's more about being in control for the liberals than anything else.

Greenspan is not a short term market timer but he likes gold right now.

Greenspan is out and about flapping his gums for a good reason: he knows that SHTF pretty soon and wants to be on record with how he saw the risk in advance, etc.  Such statements are more important than people think because when the herd gets very mad it WILL go looking for heads to roll or even blood.  So while we could not trust Greeny as far as we could throw him while in office, I tend to listen to his "hints" pretty closely now that he is a sidelines commentator.

In this article, Greeny says two things worth considering:
  1. Paraphrased: " is a good place to put money these days given its value as a currency outside of the policies conducted by governments."
  2. "... real pressure is going to occur not by the initiation by the Federal Reserve, but by the markets themselves”.
These things are related IMO.  The only reason to own gold is if you don't trust government controlled money.  Greeny's reason for owning it is exactly that: he suggests wisdom in owning wealth that is beyond government's control.  As for point number 2, he is telling us that the fed won't raise rates on its own.  It will lose control of the bond markets.  This is just as I have discussed many times.  People who think that the fed actually controls interest rates are going to be shocked to see interest rates going up even before Yellen increases the fed funds rate.  The only reason she will increase FFR is to maintain the appearance that the fed is controlling the rates.  But if you look at the data and compare the 10 year treasury rate to the fed funds rate you will always see the treasury rate move first.  The fed, at the end of the day, is actually a trend follower.

GE indicator update - critical near term inflection point

I got a reader question as to whether the bull is still alive or not.  Well, isn't that literally the $64,000 dollar question!

Clearly the wave count shows that the ending diagonal was not the end of the bull in terms of EW count although the jury is still out as to whether it will be the actual chart peak for at least some of the major indices.  I have been suspecting that the "5th wave in progress scenario" could turn out to be the case for some time now and there are abundant warnings on this blog to that effect, all of which began with discussions of my proprietary "wedges=3rds or Cs" indicator.  Still, that does not mean Dow 25000 IMO.  This market will very likely peak within a week or two.  We have to expect volatility at the major turns.

Because of this volatility, gut feeling is of little use during the big turns.  If you go by gut you get screwed over and over again to the point where it will feel like the market is singling you out personally for punishment.  If you are a trader, I know you know the feeling.  This is your herding instinct controlling you and you have to fight it if you want to win.  You have to use chart data, not gut feel, as your guide.  You have to form models and then let the market either confirm them or piss all over them.  You have to be willing to get stopped out for small amounts so that that you can re-enter the trade confidently at lower prices when the chart tells you an opportunity is available.  Getting stopped out for small money is not a bad thing; it is an intrinsic part of my EW based trading system.
One key model I am looking at right now is the GE model.  As mentioned in several prior posts like this one, I saw a 4th wave triangle forming on GE and wondered if that meant that the DJIA ending diagonal into Sept 19th was really a 5th or a 3rd.  I can now safely say it was a 3rd and that the drop into Oct was a 4th and we are now working on a 5th.  There is no "6th" folks...  Once the 5th plays out we can with high confidence expect to see panic enter these fragile, margin pumped markets.  In case you didn't see it, even Greenspan is out telling people that QE failed to ignite the real economy and that he doesn't think it's possible to unwind the stimulus without causing "turmoil" in the markets.  Greenspan might be early in his call but unlikely to be wrong.  After all, he was the architect of the con.  He is clearly out there trying to protect his legacy by telling people the truth now that the damage is already done.

The 5th will either be completely finished today or today's action will just complete 1 of 5.  I do not claim to know which it will be!  But I do know that it is going to have to "out" itself soon.  Right now, GE is kissing the upper channel of its 4th wave triangle.  This exactly matches the model at the bottom of the link above.  I reproduced that chart below and added the purple arrow so that there is no doubt that I am referring to the "5?" at the top green rail.

A break above the top rail tells us that 3 of 5 has likely begun.  Failure to break out suggests that it was a short stroke 5th.  Beware holding TVIX over the weekend if we don't get our answer because it could gap up on Monday as part of the 3rd of 5.  If the DJIA closes at a new high (thus killing the Dow Theory nonconfirmation which could lead to a Dow Theory confirmed sell signal then I think we must expect that 3 of 5 is about to unfold as being the most likely outcome.

Odds, people.  Never certainties, only odds!

Conversely, a break below the lower rail of the 4th wave triangle tells us that wave 5 is over.  I suspect we will have to wait until next week to get our answer.  The market will likely want the weekend to think about it.  The smart money does not hold over the weekend if the DJIA closes at a higher high than the Sept. 19th peak.

Either way, I expect the markets to peak soon.  The loss of fed support in the form of QE has been announced but not implemented until October is over.

So what's it going to be, market:  The blue pill or the red pill?

Stops on JNUG now 4.19

This has become a winning trade, guaranteed.

I don't intend to post like this all the time but I do want to show people how to use EW to set entry points and stops.

JNUG stops moved up to $3.95

Max loss now limited to 1 cent.

JNUG: In at $3.96, stops @ $3.90

Chart to come later.

I'm very skeptical that this selling in the miners is just "A" wave action.

Thursday I bought JNUG just around noon.  The shares had finished a motive wave count down and then put in a double bottom.  I paid $5.51, stops at $5.49.  With that kind of tight stop, why not give it a try, huh?  After all, $5.50 seemed like psych support as well.  Well, for the next 30 minutes the shares caught a bid, eventually trading as high as 5.67.  It was clear that I had caught "a" bottom but I wondered if if I might have nailed "the" bottom.  So I just closed the chart window and went on about my day. 

I checked back after work and all I could think was "woah".  The bottom had fallen out of JNUG yet again.  Did I mention that I love the stop market order?  It executed flawlessly and automatically limiting my loss to a negligible 2 cents + commissions on the round trip.  I would have gotten completely screwed by the end of day finish had I not used stops.  Properly used stops are your friend, especially on these hyper leveraged take-no-prisoners ETFs. The last trade was $4.91, down a mind boggling 25% on the day.  Note that despite this massive 1 day drop, JNUG volume was 5.4 mn shares whereas the 3rd wave bottom in early October was nearly 8 mn.  I think we are very close to a bottom in the Juniors and the bounce should be mighty-mighty indeed.  If this is 1 of 5 then expect 2 of 5 to be a vee style recovery as shown.  However, because of the capitulation type volume there is a nonzero chance that when the smoke clear this bottom is not only just the bottom of this 5 wave sequence but also the bottom of the whole metals bear market

Taking these ideas separately, we now have a clear 5 wave down wherein wave 5 threw under the lower rail.  Those who are afraid to trade will simply wait for this to break back up into the channel again but when it does you best believe that the momo crowd is going to pile into this fast and furious.  
If we bottom soon and then get a bounce to kiss the lower rail from below but cannot break out of it, then this is likely not 5 of 5 but rather only 3 of 5.  The further this dips below the lower rail before catching a large retracement bid, the more likely this is to be a major, major bottom and perhaps "the" bottom (as in this is the 5th of C and not the 5th of A as every seems to believe).  Again, already being down 80% from the top and now with rising exponential volume, it's starting to make less and less sense that this is only A.  And if it is only A then I think we should expect a massive B, perhaps even a 61.8 fib retracement type of B and if that happens then it will last a whole year or more and it will feel like a new metals bull.

According to conventional wisdom, gold is a commodity that should trade (for now) in opposition to the dollar.  I have been a dollar bull for some time now but given the capitulation action in the juniors, perhaps it's time to look at the dollar chart with more scrutiny.  The conventional wisdom is that the dollar is tracing out wave 5 of a new bull market.  This has been a weak wave to be sure but it makes sense given that wave 3 was such  a strong, extended wave. 

The vertical pink bars show that wave 5 is about the length of wave 1 which is a common stopping point for a motive wave when the 3rd wave was the extended wave.  Of course, the current pause could simply be A of 5 of 5.  That is why the red oblong model price target is allowed to go above black 3 a bit.  But if she kisses the top rail or slightly throws over before reversing back down into the channel then there is a good chance that the dollar is reversing and if so M+M will skyrocket.  So be patient, be standing there with your Gatling gun, and open up on the herd with the 50 cal if you see this happen.  Whatever you do, use intelligently selected entry points with predetermined, leave-no-room-for-emotion stops.  If this peaks out tomorrow then I might even hold JNUG over the weekend.  Not because it certainly will win but simply because I will like the odds.  Intelligent people are too smart to expect anything more from a trading system than better than average odds when gambling.

The exponential rise in selling volume for the juniors should not be ignored.  We are mos def seeing some kind of BIG capitulation going on there and folks, that is where you are going to find your best values.

I continue to believe that, while wave counts a always subject to interpretation or morphing by the herd, my trading strategy for using them is strong.  Never enter a stock without some wave count to back you up.  Thus, the sell trigger is set right after the trade because you know the stop loss point going into the trade.  I cannot tell you how many times this has saved my ass.  You still assume risk for holding overnight of course but nothing in a gambling situation should be considered to be risk free.

Thursday, October 30, 2014

The new conservative hits just keep on coming. Carly F calls the "war on women" bogus.

The liberal way is to claim offense at everything and then use the fake offense set up government laws and organizations to control the offenders.  This is propaganda 101 and if you have fallen for it then you might just be a Patsy.  These passive-aggressive techniques seem to be able to mesmerize the herd for years at a stretch - generally when there are no real threats and mostly full stomachs.  But all of these trumped up situations are looked at with a much more critical eye when times begin to turn bad.  And folks, despite the Ponzi pump in the stock market, things are turning bad quickly around the world.  No, the US will not decouple from it.

During good times, if you point these propaganda messages out to people you are called a conspiracy theorist.  But in bad times, you actually begin to see major, visible players say the exact same things.  Not only do the get away with it, they are praised.  Why?  Because the herd is ready for a change, plain and simple.  There is a time for pasture, a time for the watering hole, a time for the breeding grounds and a time to bed down at night.  This is the cycle of the herd.  The cycle also includes drought and famine and danger.  What is normal during times of good pasture is not done during bad times.

And so I present to you a nice write up on Carly Fiorina's dismissal of the liberal victim card by saying that the war on women is bogus.  Yes, the liberals tell women, gays, blacks, hispanics and anyone else who they can pitch it to that they are disenfranchized members of society; they are getting ripped off somehow and generally a bad shake in the deal.  Then they use promises of free stuff stolen by force of law (which is to say, physical force and if needs be deadly force) from those who actually produce the stuff in order to buy votes.

What Carly is really saying is that the liberal hand has been overplayed and it is out of gas.  The producers have been robbed in order to provide for the consumers but now the producers are hurting.  There can be no consumption without production first, no matter what any Keynesian government a$$hole tries to spew on the matter.  Once you kill off or demoralize the producers there is nothing left to take and the whole society collapses.

Carly's statements are completely in line with my expectations which have been in place for about a year now: the pendulum is swinging away from the extreme liberalism that our society and economy has been laboring under and now it is going to over-swing to the conservative side.

Look how Carly points fingers and talks about organized propaganda movements using "professional activists".  Well, the plain way of saying the same thing is that is is a political conspiracy using paid agents.  Paid for how? WITH OUR TAX MONEY you better believe it.  Not with campaign donations folks. Tax money.  Unless you think operations like the IRS targeting conservatives was paid for with campaign contributions.  Again, wake up if you don't get it: they use our tax money against us like a weapon.  It is mos def a conspiracy and not just a theory.  Carly says it so matter-of-factly too.

""Women and men are realizing that these gestures and these slogans are not serious and that we're living in serious times. People are undergoing serious issues [ed: times are hard, lots of empty stomachs in the herd...] and we need serious leadership." ... "On top of everything else, this war on women propaganda the Democrats have been throwing out there for the last couple of election cycles is insulting to women. Every issue is a women's issue....Much of the rabble-rousing against Republicans is created by "professional activists" who seek to hijack political discourse".

So there you have it and we should expect more and more of "Carly-think" as the pendulum continues to swing.  You will see it in real life as manifested by things like:
  • fake political correctness will get tossed over a cliff and things will go to the other extreme of being downright vicious and public.
  • the war on [put liberal target here] will all be cut back dramatically and that includes the fake war on drugs and the even faker war on terror.  If there is a terror threat to the American people, it goes by the name of big liberal government who, by the admission of its own key operatives, believes that all crises have value because thy can be used to control the people in ways that people would not normally allow.
  • the prison system will be massively curtailed and the trend toward making everything and everyone a felon will reverse course.
  • etc.

I have to tell you, the juniors look to be putting in a major capitulation bottom

Look, I know that conventional EW wisdom says that gold is just tracing out A.  There are many good and smart people saying this, including the folks at EWI.  In fact, they think this is only 1 of 5 of A.  But look at this chart of GDXJ.  Keep in mind this is not leveraged with options, this is the junior miner ETF.  Usually when these things fall, they give back about 90% of the peak.  GDXJ is already close to that.  If this is just A then C will have to be  negative number and I just don't think miners are going away.  Gold is already selling for less than the cost of production of many of the juniors.

So that's one thing.  But also, look at the volume:pretty much nothing until the start of this year when that old exponential hockey stick reared its head.  That exponential peak in selling happened during the 3rd sub wave of the current wave, not in the 5th wave.  That makes perfect sense because even though 5ths can go lower or higher than 3rds, it's during the 3rd that the moment of recognition occurs that something is going badly wrong and so everyone heads for the side door at once.  That ridiculous volume suggest to me that this wave is much more important than the conventional wisdom is indicating.

It's not that the price got lower and thus cheaper cheaper shares enabled more volume, either.  Where was all the volume during the last dip to this same level??  It was a shadow of its current self.  I think it's time to consider the possibility that the conventional wisdom is wrong about the current wave count.  I know capitulation volume when I see it!

I'm just now considering this new possibility but what if the dip to $70 was A, the run to $102 was B and everything since then was C?  In this case, that big triangle therefore is not 4 of A but rather 4 of C as depicted below.  It's always risky to bet against EWI but I have to go with the data, not gut feel and that capitulation volume is very telling IMO.  I think I will snap up some small position of JNUG tomorrow for a multi month hold.  $6 was always mentioned by me as a dream trade for this wave.

The new conservatism is taking down the con...

Don't be surprised to read escalating news like this recent article about banks being brazen repeat offenders after already having gotten off with a behind the scenes hand slap before.  The banks literally believed that they were above the law.  That lawless crap worked when the liberals were running the show but the "look the other way because I am connected" game is going to collapse right before our very eyes because the people have had enough.  As written in these pages many times, nothing will stop the con men until they start going to jail and so they will start going to jail.  The gloves are coming off now. 

Real oversight is going to have a chilling, deflationary effect on markets.

Expecting small DJIA AM bounce and then a reversal before noon.

If the DJIA does not close significantly red on Thursday I am going to have to re-think a lot of short term models and admit that the bull is not really dead yet.  But with the RSI in peak territory and with Yellen turning her back on further welfare for the rich, I'm going to have to stick with my view that the ending diagonal was a 3rd and the slump into mid October was a 4th and this motive wave that has occurred since then is the real 5th and final wave of the bull market since 2009.  Since what I have marked as blue 5 could also have been blue 3, it is still possible that we are working on blue 5 right now which means it could go just a touch higher than the peak of 10-29 but it would count better if we got a declining double top (DDT) as shown such that a line drawn through the tiny DDT in the upper left of the model would touch both peaks of the DDT which I suspect will play out today.

A re-break of the lower rail of the ending diagonal would be bad news for the market for sure, especially if it happened with a gap down or some kind of cliff diving maneuver if it takes place during the trading day.

Facebook update

Check out the model at the bottom of my previous post on FB and compare it to the action today shown below.

If you recall, the thesis was that the peak of the wedge was a 3rd, then we should get an a-b-c into a 4th and then 5 waves up that would likely not be able to create a higher high.  Today's bounce only got to the 50% fib so far.   A FB break down below the lower rail on Thursday or Friday would not be a good sign for the markets as it would likely indicate FB's real entry into the bear.

These first 5 waves up can also be 1 of 5 so if this rises to a higher high than blue 5 I would abandon any liquid short positions and let this thing burn itself out. It shouldn't take more than 2-3 days to do that if that is what it needs to do.

Wednesday, October 29, 2014

DJIA shows weakening index price relative to RSI

The RSI on the DJI is again in the extreme overbought territory even though the DJIA has not produced a higher high yet.  That leaves us with a declining double top in the senior index.  Another fall below that lower rail, especially if it can occur with a gap, could finally put some fear into these over leveraged market players.

I may not know much, but I know that the next time we see real fear in the markets it will be accompanied by an elevator shaft for the heavily margined longs.

GE update

I've got a running theory for a little while now that GE is actually printing its 5th and final wave right now.  As of Wed 2014-10-29 (which just happened to be when the fed refused to continue QE like so many in the markets thought they could not do), I think it is now done with 5 small waves up.  This could be the whole thing and that is my primary model at present.

It could also be 1 of 5.  If GE only does a small pullback from current levels (like to blue 4 below), be wary because if it breaks out to a higher high then the markets still need to run a bit further north before finding a river crossing that leads back south.  In other words, we will need to see 3/5, 4/5, and 5/5.  It all depends on whether GE can break out the top rail or not and that should be decided this week from the looks of it.  This coming Monday, latest.

TVIX: Watch for the gap fill today.

Since the broader markets are likely in a 5th wave according to my theory that wedges are 3rds or Cs, it is more than possible that TVIX will create a lower low than $2.50 even while the DJIA fails to create a higher high (failed 5th).  But if this is to happen, they have to keep drawing in new money on the way down and then only reverse upwards when everyone who is going to get taken actually gets taken.

On way of doing this is the gap fill.  We are now well below the support line that I warned about in this post.  While I do not think it will be the case, the markets could treat that breach as a neckline breakdown of a large H+S.  If this is the case then much lower lows are coming for TVIX.  Again, I think the case is weak at present because the right shoulder is not solid but rather contains two peaks.  Still, the break down below that pink line happened with a gap and that means the market knows about that line and that breaking below it was something significant.  So I stick by my prior post that most people should use it as a buy-sell line.

In any case, a typical thing to see here would be a gap fill as shown by the red line up.  That would clearly be an a-b-c move at this point so if you see that happen and if you see it fail to break out of the top parallel line as shown then don't be surprised to see more downside to TVIX.

A break above that pink line would begin to suggest that the northing was done for the markets and that a new downward trend would be taking hold

I held TVIX overnight but will sell it if that gap fill occurs and it can't break out. 

Longer term, we are now in a state of potential supervolatility for the markets.  I'm not referring to the VIX here because that is only the level of volatility that the market perceives itself to be in. I'm referring real volatility as defined by the following things:

  • Longs took a beating into Oct 15th while shorts got excited.
  • Shorts took a beating into today while longs pounded their chests and forgot about the bad feeling that they had in their stomachs just a few weeks ago.
    • In other words, both sides have gotten whip sawed of late and nobody is really sure where the next move will be.  The market likes this kind of uncertainty near the big turns because it stops everyone from making massively leveraged bets on a sure thing.
  • The fed has officially confirmed that it will stop printing money from thin air in order to buoy asset prices.  Re-shoveling capital from maturing assets cannot pump a Ponzi and we know by definition that there is no such thing as a Ponzi plateau.  You have to continue to add new value in at the base of the pyramid (new suckers) or it will eventually collapse. But  even if new suckers wanted to participate, will they have access to credit in order to do so?  It's like buying a house.  The price that many people will pay is only limited to what the banks will loan them.  But if the treasury market is becoming illiquid, how much longer until the debt market experiences the same?  My models suggest that we are at peak credit right now.
  • People now expect rates to stay low for a long time because the fed says it will not change the fed funds rate.  But the fed does not control long term interest rates and at some point the fed funds rate, being applicable only to un-collateralized overnight loans between banks, will lose its meaning as the 10 year begins to move up rapidly.  At some point the fed will have to raise the rates not because they want to but in order to maintain the illusion that they control ALL interest rates.  Alan Greenspan did explain to people on many occasions like this one that this is simply not within the fed's control.  Still, most people still believe that "the fed controls the interest rates".  This misunderstanding is going to hurt a lot of people at some point.
  • Margin debt is at an extreme as is positive sentiment toward stocks.
  • Yellen is a new fed chief and she needs to be tested.  Her 6 month honeymoon period is now over.  Since she is now apparently more worried about the common people killing her in the street than she is about corporations and the welfare of the already rich, the market needs to take its ball and go home to see what she will do to save them (if anything)
If you add all of the above up, it's like a fly landing on the lead horse can set off a stampede (or be ignored).  The important thing to keep in mind right now is that the system is full of instability and at the end of the day, markets do not like uncertainty.  Having the fed basically leave the game and go to the sidelines has to be viewed as increasing the uncertainty for market longs.

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