Tuesday, March 17, 2015

[FAZ] update

My prior model on FAZ suggested that a bottom was in, and that turned out to be true.  However, the broader markets were not ready to reverse yet and so the FAZ chart went into a holding pattern that resulted in a slightly lower low as shown in the first chart below.

Now the chart has formed a large falling wedge and has thrown under the 5th wave.  SO FAR, that throw under is a double bottom.  If you buy it at the open, just set very tight stops for anything lower than the recent low.  You risk almost nothing in doing this and you have the added bottoming potential that comes with a double bottom.

The first confirmation of breakout will be the taking of the center tine of Andrew's pitchfork.  The second confirmation will be the breakout of the top rail.  The last time I saw something that looked like the chart below was during the bottoming of the dollar.

What I'm about to show will be shocking and unbelievable to many so I think it is important to remind people that nothing has been fixed since the Great Bailout began in 2002 with a second helping of corrupt Wall Street Welfare being dished out since 2009.   These bastards have blown the biggest financial bubble in the history of man, and it's global.  I know this, all the smart moneymen know this and the government knows it.  As soon as the gamblers sense that the system is working against them they will take their money and run.  But this time it will be much worse than before and several big name US banks simply won't be nimble to get out of the Ponzi before it collapses.  They will BK taking the money of many, many people back to fiat currency Hell from whence it came.  Not everyone can get out whole because getting out means selling and that forms its own weather if the herd is afraid.  Fear is the strongest emotion.
Those of you who have been reading this blog for some time have seen how the EW principle is in fact a real phenomena even if reading the waves is not always easy.  The herd is a living breathing entity and thus it can change course in real time.  There are many possible ways to move from the watering hole to the the feeding ground and the herd will take the path that it thinks will result in most of the herd surviving.  But importantly, what does not change is the absolute need to eat and drink and breed.  In other words, the herd can forestall the next move but it cannot do it forever.  Also, the longer it pushes off a required move, the more violently it will move when it does begin to move.

Because of this, the next target location remains fixed no matter how far off the beaten track the herd might go in getting there.  In the case of FAZ, the banks have been on a tear since they got bailed out again in 2009.  Many banks are up from $9 to $70, $80 and $90 bucks.  This kind of move is just crazy for something that is supposedly in charge of trillions in assets.  But the herd was a true believer in the Wizard of Ozt running the fed and so all the pensions and a lot of foreign money along with a Hell of  a lot of margin leverage were all piled into US stock and into US banks.  All of this is built into the system now and so all of it is going to turn into a liability for those involved when the big crash begins.

If you held FAZ since 2008 you would have suffered a 5 wave breakdown that would have wiped out 99.999% of your assets.  But for those who get in at the bottom, the EW principle says that we should return in a retracement bounce to the level of the prior 4th.  Everything higher than that will be lost in options time value.  With non options based stuff, that bounce often carries to the 38.2 which often lives at the level of the prior 4th.  But here the 38.2 is $15.4k.  So that is not going to happen folks.   But a 3 wave bounce in the form of 5-3-5 to the level of the prior 4th?

Yes, it will likely happen.  Blue 4 is at around $325.  I know that a run from $12 to $325 just sounds like completely impossible bullshit but I didn't create this model and that 4th wave looks very much like it was counted correctly.  Look how 2 was a vee and thus 4 was more sideways and complex.  I wish I had more chart data to look at but this is what I have to go by.

If you think these kinds of gains are not possible, note that FAZ's opposite, FAS, skyrocketed from $6.50 back then to today's price of $133.  Both are options based, both have time value in them.  So, holding FAS from 2009 until today without any trading at all was a great idea.  I might be one small wave early here folks given the falling wedge on FAZ of late but we will know that the crash has likely begun when that red support line of FAS breaks down.  Once it begins to fall it will be a chain reaction.  Remember, derivatives will go bust this time as well and some large sovereigns will default.  This is how FAZ will get boosted so high.  Expect FAZ to bounce A-B-C the same way that FAS did.  Expect FAS to decline 1-2-3-4-5 the same way that FAZ did.

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