Monday market update

First off, congratulations to those who have found these pages and who were able to suspend disbelief in the messages contained herein.  Not all readers are there yet (after all even a broken clock is right twice a day, yeah?) but some of you have made the realizations that will matter.  You know who you are.  I think the market action is beginning to validate our thinking. 

Right now this might seem a silly thing to say - too foolish to even put in print, too risky to be associated with it in any way.  But I'll say it because I believe it:  Before this crash is over, the DJIA will certainly find a lower low than early 2009 (~6000).  Furthermore, I believe it could go much lower and yes, even as low as Prechter's view of "sub 1000".   This is not belief like in a religion.  It is more of an informed understanding which consists of three major components:

1. An understanding of how much leverage is in play in our Ponzi economy.  All of it will unwind with a loud crash in the next 18 months.  It will because it must.  No Ponzi ever lasted forever and it won't be different this time.
2. A working understanding of Elliott waves.  This tells me that the crash has very, very likely begun and that the retracement level will certainly be below the 2009 low and likely much lower still.  
3. The understanding that the 2009 collapse was buoyed by the interference of the Federal Reserve which has now essentially shot its wad.  The fed is not omnipotent.  It does not have limitless resources!  If it did then why did the markets collapse 1929-32?  Did they not have a federal reserve back then as well? (Yes, they did).  Were they stupid?  (No, they were every bit as smart as today's smartest).  Then why did they "let" it crash?  Because they had no choice.  The market is bigger than the government, period.  In fact, knowing that the fed's capacity for stimulus is at an end (lest the pitchfork revolution be unleashed), Yellen recently telegraphed her intentions to use force of law in order to try to stop institutions leaving the markets when it would be in their best interest to do so (AKA capital controls).  Then just the other day as reported in these pages, financial institutions agreed to new derivatives rules which are thinly veiled capital controls.

• Lemme ask you something.  When did bankers ever get together for the purpose of voluntarily creating more restrictions and rules on themselves?  Especially rules which could force them to sit and watch hundreds of billions of dollars of ill-gained profits evaporate into the credit ether from whence they came? Never!  They never did this voluntarily.  Yellen did this. The bat faced Disposable Fed thinks that capital controls can help prevent insolvency.  Man is she a loser.  Just like every other Keynesian con man in the world...

Despite short term volatility, I maintain that it is actually more risky right now for most people (i.e. inexperienced traders) to trade in and out than to just wait for an EW count dip and then throw some money in this baby and let it do its thing for awhile.  I never put new money into the the market without some EW reason for the entry point. NEVER.  You shouldn't either IMO.  For those that were with me as we ground out the ETF lows in the "low to mid $2 range" as was suggested would likely occur, you don't need to trade at all right now.  This is your reward for having gotten in early.  Only latecomers paying 5,10, 20 and $40 per share will be worried because nobody wants to be underwater for even a short period of time.

Yesterday's update suggested that at best we get a small blip to re-test the newly broken support line from below in order to establish it as resistance before resuming its southward migration.  While we did not get the optional "goodbye kiss", after some AM meandering the markets hit the bid solidly into the close.  The selling was strong but not extreme with decliners 3:1 over advancers and volume just a bit on the high side:


These numbers indicate that there is no market panic yet. Not just yet. We can discuss again when that single day 500+ point loss shows up on the DJIA.  That's when you will be able to see some panic.  For a significant amount of time going forward, most surprises will be to the downside.   Count on it.  Technical support has been broken and I am declaring the bull officially dead.  This is not an arbitrary declaration.  It comes from having broken the prior high of $4.20.  It almost completely negates the possibility that everything up until that point was some kind of corrective move.

Below is my current wave count of $COMPX.  The expectation should be that it would take a 3rd of 3rd of 3rd in order to break that long standing support rail so my count reflects this.  So I expect a bit more southing but then a good sized market rally as shown below into blue 4.  However, if we gap down big time below the grey rail then the market will be telling us this count is wrong and that the real count is even more bearish.  Surprises will most likely be to the downside.

Below is my TVIX count which includes extended trading.  Again it counts as a 3rd of 3rd of 3rd (blue one is off the left of the page).  Green 3 might not actually be done yet because 1,3,and 5 are all the same length.  Usually there is one extended wave.  But if we get choppy sideways action tomorrow, perhaps it is just green 4 playing out.  I still anticipate a green 5 (blue 3), blue 4 and then a blue 5 playing out before we really get a big pullback.  But when we do get that pullback it will be 38.2% of the whole run so far.  That is the pullback you want to sidestep, not the minute degree retracements.  Focusing on the smaller waves can distract us from the important waves IMO.

Folks, this sell off is still in its infancy.  Most big players (the "buy the dippers") currently believe that this is part of a normal, expected "5-10% pullback" and then it will be off to the races again.  

This has been working so long for them that they have grown complacent in their leverage.  They are now looking for a good time to buy the dip.  And when they try that it will seem to work for awhile.  The first big retracement should be a vee wave 2.  It will be designed to try to scare the shorts.  But this time it will backfire as telegraphed by the wave count and the longs will be sent into full retreat, bleeding cash across the battle ground as they flee. 

After big wave 2 is in the record books (something which will be prominently discussed on this blog), the smart money just buys and holds for the whole of wave 3 down.  It will clearly be more dangerous to trade out during that time, for any reason whatsoever, than to just ride it out.  Why?  Because of the gap factor.  I expect some massive gaps down in the market during this crash.  For example, wake up to find that the DJIA and S+P have gapped down 5,6,7% at the open and then continue down to close 10% down on the day.  Anyone simply holding TVIX through a 3rd wave panic fest like that will have the market literally throwing money at them.   This is when a 3x or more can happen in a single day.  We won't be in that part of the count for many months but know in advance that it is coming and do what it takes to get your mind right for when it arrives.  Everyone will have to fight their herding nature; their "reactive mind" which seems to work against our best interests during times of stress.