Finally something useful from EWI

Market Observations - parabola

I have not been posting much for personal reasons but did want to post something about this market situation.

1. Everyone and their brother went short when trendlines were broken
2. Those people feel hoodwinked again
3. The dollar pattern failed
4. Big fractures in the market
5. Extremely low volume

I am going to restate my thesis from quite a while back. We need an emotional bottom for the dollar. With a dive below 74.50 the market can panic people into buying and covering inflation assets and dollar longs can capitulate. I hear people looking for a positive seasonal move and this and that...however, volume is weak, the dollar sucks and conditions are ideal for fumes to be lit...we need this little parabola to complete to the upside...I think it is very difficult to set an exact level to short here since we could see a one day spike that could be dramatic.

Apparently, EWI may be about to retract their P3 thesis. Hochberg has certainly had his challanges calling the rally from the lows. First he waited until we got to the 800's on the SP to call P2 and then he promptly used the whole trip from 800 to 920 looking for wave B down. In July, I believe he called P2 complete also, but handled that rebound much better. Recently, his bearish bias (which I can certainly rationally understand) is so strong that nearly every squiggle on the Dollar chart down from 80ish is a bottom and every pop on the markets is a top. And finally, just when a little potential parabola sets up he's addressing folding the forecast...Hochberg has been (and generally is) too bearish in opinion and thusly interprets his forecasts in that light rather than objectively. His interpretations have impacted many a waver - I am sure. It is important to remain detached from the market and convictions - apparently this is something that Hochberg needs to do better.

Elliotwave Freeweek

A reminder - our collegues over at Elliott Wave International are hosting their occasional free week - so this a great chance for all of you to take advantage of this opportunity to register (yes it's free) and have access to the authoritative Elliottwave site. It is easy, fast and you get their Short Term Update, Monthly Financial Forecast and Prechter's Theorist. Good Stuff.

EWI Free week 

Quotes of the Day

The hardest part of dealing with a bear market is selling weakness. At this point, we need to ensure a set of rules and a trading paradigm is in place that can allow one to contradict normal emotions and sell a market everyone else is looking to buy. For me today for example, I made money long...but made most of it short. But, from a day trading perspective...I needed to be much less impacted by the gap down and shallow bounce rather than focused on the expected counter-trend bounce back to yesterday's upper range that I would have preferred to see...It is quite possible that there will not be much of a bounce at all. However, I do believe that the dollar and the VIX will have a pullback for a few days next week before continuing their uptrends. We need to be ready to make the most of what ever the market serves - even if the bounce I think is reasonable to expect does not materialize.

"Psychologically, the steepness of the decline makes it harder for market participants to do the right thing and sell into the decline. The steepness of the decline also belies the underlying change of character seen at a change of Primary degree. If our analysis is correct, an important market juncture has been crossed...We suspect that people who are now waiting for a bounce or a pause to get on board this new trend will find that the train is leaving the station without them.

Again, the most important tactic now is not to miss this new long-term opportunity by using too much finesse and waiting for a bounce that never comes.  

We believe is strong evidence in support of the conclusion that an important high has been seen."  - Chris Carolan EWI

Spiral Fib Time Projections

From Chris Carolan...If you are wondering, I think he is the best analyst at EWI hands down.

Noteworthy Quotes of the Day

In a clear echo back to the salad days of the Great Asset Mania, the Wall Street Journal reports that day trading made a big comeback in August. Trading volume surged 14 percent or more last month from July at online brokerage firms Schwab, TD Ameritrade and E*Trade, according to the article. It also cites a Michigan money manager who is responding to requests from his high-net-worth clients to re-enter the market “because many are frustrated watching the rally pass them by.” If wave 2 (circle) is not ending now, the pressure to “get back in” will only intensify as the final subdivisions of the bear market advance trace out. People see the market close higher and naturally become more excited with each up day. Many cannot believe that prices can top amidst such growing optimism and good news. EWI subscribers know better. It is exactly these conditions that create market tops. Succumbing to this temptation, on the cusp of the start of the next Primary-degree decline, could ruin one’s financial life.

Short term yields were plunging last fall, even briefly turning negative last December, as investors clamored for “safety” in the wake of the vortex of selling pressure throughout the stock market. But that’s not what is occurring now in stocks, as prices persistently rise in Primary wave 2 (circle), the big bear-market bounce. We are not exactly sure why short-term government paper is plunging (yields), but it does bear watching since a slew of investors (or an investor with “big money”), for whatever reason, want to be safe and liquid.

--Steve Hochberg, Elliottwave International 

[My comment: Regarding the bid for treasuries, meaning the persistent bid for them. The money market guarantee is set to expire in the next few days. This may be people exiting money markets trying to get into "safety"... Notwithstanding that, it seems like this could become another problem for the financial system...that much cash departing money markets can not be good. P3 anyone?]

Central bankers have no clue. In the first place, the financial crisis was not a black swan. It was perfectly predictable. They ignored the phenomenal buildup in leverage since 1980. They acted like airline pilots who'd never heard of hurricanes.  

Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.  

Ben Bernanke saved nothing! He shouldn't be allowed in Washington. He's like a doctor who misses the metastatic tumour and says the patient is doing very well. The first thing I would tell Chinese officials is, how can you buy U.S. bonds as long as Larry Summers is there? He's a textbook case of overconfidence. Look what happened to Harvard's finances. They took a lot of risk they didn't understand, and it was a disaster. That's the Larry Summers mentality.  

It's good to have more than one profession, in case your own profession goes out of style. A Wall Street trader who's also a belly dancer will do a lot better than a trader who winds up driving a taxi.  

--Nassim Taleb

"Both the United States and China are members of the [Group of 20 nations], and the G20 has taken this stance that they shouldn't have recourse to trade restrictive measures during the crisis" 

--Pascal Lamy, World Trade Organization 

“We are going to see harsh reality in September. U.S. industry results are a disaster.”  

--Sergio Marchionne, the chief executive officer of Fiat and Chrysler

H.R. 1207 is one of the simplest bills imaginable. Unlike the healthcare bill which is over 1000 pages, H.R. 1207 is a page and a half. The bill lists the existing exclusion of the Federal Reserve from oversight by the Government Accountability Office (GAO) and allows the GAO — an independent body — to audit the Federal Reserve Bank. I am very sure the bill will pass — possibly by the end of September, but more likely by the end of October.

They are performing a truly remarkable, surreptitious transfer of wealth from public to private hands. They are taking their ability to print money and shore up failed banks. They are simply stuffing money into the pockets of private interests.

In the case of the half a trillion dollars, they stuffed the money into foreign private pockets. In the case of another $230 billion, it has been tracked as a secret bailout to Citicorp in the US. The fact is the Federal Reserve continuously puts all of us on the hook for decisions they make to play favorites with private interests to the tune of trillions of dollars.

These are not conspiracies. The Federal Reserve’s own website has some incredibly interesting information about the general state of the US economy and the distribution of wealth in our country. I was recently reading our national wealth capped out at $62 trillion two-years ago has crashed to $50 trillion since. Those are Federal Reserve statistics on their website.

--Congressman Alan Grayson