The Tell-Tale Fart

Back in July, I blogged about the 2011 v 2007 pattern being off by a few days.  It struck me then that as the 2011 market approached the edge of the cliff, it slowed relative to 2008.

Perhaps some of the forces propping up the market were aware of the analog and threw more ammunition into preventing a repeat [see: Happy New Year and All Aboard.]  They only delayed the inevitable, as the market fell 57 days after the top versus 2007’s 52 days.

Interestingly, the market caught up to where it “should have been.”  The 2007/8 market bottomed 70 trading days after its 10/11/07 top.  After its plunge, this market found a new bottom at 69 trading days after its May 2 top.

The chart below details day-by-day comparisons between the two markets.

updated to EOD

Yesterday’s low of 1074 could be interpreted as the equivalent of 3/17/08.  It is the 108th day since the top and 23rd since the 8/31/1 midpoint; that would correlate nicely with the counts of 107/22 for 3/17/08.

But, I think it’s more likely that we’re simply seeing the same pre-plunge analog fart that we saw back in July, and before that in June.  If so, we’re at the equivalent of 3/12/08 and Minor 1 isn’t quite over.

I’m looking for a decline to 1040 sometime around next Friday, which is at the confluence of a number of harmonic patterns, head & shoulder patterns, trend lines and fan lines [see: The Path to 350.]

Also, a word to the wise: I’m usually early, and I often underestimate the degree of the declines I forecast.

I had a wonderful lunch with some very close friends the other day.  They’re both off-the-charts smart.  He’s a CFA, former actuary, institutional asset management whiz.  She’s an artist turned entrepreneur turned asset management whiz.

Yet, their jaws dropped when I ran my forecast of the S&P; 500 dropping to 350 past them.  When I mentioned that 350 would be the first wave down of five in P[3], I caught them checking their watches, LOL.  I know it sounds preposterous.  Such a decline no doubt means a Depression.

When I first started talking about another Depression many months ago, most people thought I was ready for an I-love-myself jacket.  Now, I’m hearing it talked about daily in the mainstream press (another reason we’re going to bounce up very soon.)

As my friend reminded me, many US stocks derive plenty of earnings from overseas, and are well-positioned to take advantage of still-strong BRIC economies.  That’s the key question, isn’t it?  It’s pretty clear the US consumer isn’t going to buy as many Cokes and iPhones as in the past.  But, maybe the Chinese and Brazilians will.

Will that be enough to prop up multinational earnings?  And, what about interest rates?   Can we count on 0% bills and 2% notes, or will we see higher interest rates competing for equity investment dollars?  What would that do for PE ratios?  And, what would it do for global liquidity and wealth?

Lots to think about.

More later.


The Tell-Tale Fart — 10 Comments

  1. So true.

    Not a huge fan of EW but some do it well.

    For me it is Elliot Wave your money goodbye.

    I see a pop and drop for tomorrow and then I think it will come down to the jobs #. The market is starved for good news so any surprise (real or not) may spark a big move up.
    If it's bad as usual I think your roadmap plays out.

    FYI…………..I have some sort of bottom on the 17th

  2. Yeah, I know. I just don't have the energy or the EW expertise to figure out the alternative count. I also know that sometimes the correct count isn't apparent until after the fact (if then.) The move down from 5/2 to 6/16 comes to mind!

  3. I see and thank you.

    FYI…………from a EW point of view any move over 1150 would be a 4 over one overlap and negate the pattern.

  4. Just saw the Tom Demark interview on Bloomberg. (Thanks for the link, Yikes.) We call things by different names, but we're essentially on the same page regarding the 2011 v 2008 analog and the harmonic patterns playing out. It'd be interesting to know what his downside target is, if anyone here subscribes… I see that a 10% decline from today's 1347 would take us to 1031, a little below my 1040 target. It would also represent a fib .786 of wave (iii). Also, today's rebound was a perfect .50 of (iii)'s decline.

  5. I discuss 3/17 in the text — and why it's probably not the right comparison. Note from the updated chart that we need 5 waves down from the right shoulder to complete the pattern. So far, we've only had 4.

  6. Great point. How much of what passes for rapid growth is real, and how much is purely a function of the flood of cheap credit? I posted in the China article the other day (IMF report), lot of Chinese developers paying 16% interest to build project projects that sit empty — solely due to "endless" price appreciation. Well, it never ends… until it does.

  7. I live in a mid sized city in sw Ontario with a high unemployment rate. And yet…the roadways are choked with (mostly) newer vehicles at just about any time of day, new (ugly) housing tracts are sprouting where productive farmland existed only four years ago, commercial real estate development is booming (despite a ton of 'for lease' signs out there), nail salons are doing a roaring business, home renovators and yard maintenance firms abound, the nearby Cami (Government Motors) plant is hiring 100 more workers for the assembly lines because the current roster and three shifts can't keep pace with the torrid demand for the Equinox/Terrain model of SUV lite. Forget denial, blissful credit driven oblivion is still alive and well on the edge of the rustbelt.