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Ken Goldberg is the President of TWW, Inc., a firm offering market analysis and risk management consulting services to high net worth and institutional clients. He is a co-founder and Managing Member of Abaci Capital Advisors, LLC, the General Partner of Abaci Capital, L.P., a Partnership... More
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  • Elliott Wave Theory Market Update 9-18-12

    Although the Rut and TF have arguable Elliott, 5-wave declines from Friday's highs, no other major stock index shows anything other than what can be described as an 'abc' correction. This means there should be at least mildly higher highs in Dow, Spx, and Ndx, while Rut may only make a lower high in its corrective bounce toward 864.

    Gold, silver, and Euro appear in similar patterns to the stock indices (no surprise, as these all represent one trade; "risk on"). Crude may have already peaked yesterday, as its mid-day $5 reversal was rather stunning, not to mention shocking to those still believing the "new highs above March" story the media is talking about. My early additions to short gold, silver, and crude yesterday have done well, so I've put in breakeven tstps in most cases, but I have yet to see evidence that major reversals have occurred.

    Graph 1

    T-bonds are already a "handle" and a half above yesterday's intra-day low near 144'16. The DSE has been warning for a couple days to reduce short exposure into this time/price zone, so I did, and became "sidelined" near the exact low. My ladder will get me very assertively short upon a typical EWT/Fibo corrective rise, after a 10 handle decline in two weeks. More importantly, it will also get me short upon a break of 145 again, adding more upon a break of 144. This 144 level is the upper channel line of the THIRTY-YEAR channel that has been containing bond prices. ONLY the last year of herding and FED hopium has created an Elliott "throw over" above that channel line; an anomaly of generational proportion! Upon a close below 144, I'll become extremely assertive, as the next expectation is at least a swift trip toward the lower channel line, currently in the area of 121 through the end of this year, and 123 through the end of 2013. However, the completion of a thirty-year trend, especially terminating in a nearly-year-long "over throw" suggest an eventual break below that lower channel line, and focus upon the Fibonacci retracement levels of the entire rise from the 1981 low. These would be 113 at the Fibo 38% support level, 100 at the Fibo 50% level, and 88 at the Fibo 62% level. In a panic, which is now expected after the FED has joined the ECB in adopting the QE-Infinity program; the lowest Fibo support level has statistical probability of being tested in the next 5 years +/-1 year. This would target 70 at the Fibo 78% support extreme.

    Therefore, the next generational wealth building trade (equivalent to getting long stocks between 1984 and 1994) is to be moving quickly to the LONG INTEREST RATE/SHORT BONDS trade. Another way to build generational wealth is to avoid losing the wealth you have been gifted by being in stocks for the past 30 years. So, if the only thing you do is move your bond exposure to cash, you will be better off than 99% of the herd. This is even more important to consider if you have moved to "high yield" corporates or minus in the past 5 years. Remember, high yield (or JUNK) bonds are paying more ONLY because they are riskier than T-bonds. Under the forecast for T-bonds above, junk anything will approach 20 cents on the current dollar value.

    ___________

    FedEx's warning after Monday's close is NOT suggestive of any recovery that the administration and media has been pushing for three years, solely rationalized by rising stock prices; a clear and present stimulus-generated phenomenon.

    Hiding in AAPL? Great plan for the past four years, but that, too, is about to change, as the long term Elliott pattern is moments from termination. Here, even more than the 30 year bond, a "throw-over" is manifesting with the herd's mania, and going nearly vertical. This sets up a crash scenario, as regression to the mean calculations target the 400 level at a minimum, sometime this decade, with 200 +/-50 possible under strict Elliott/Fibo guidelines. I can't tell if the white or green path is in motion yet, but the blue has been eliminated. I left it on there for learning purposes to see if you can challenge yourself to see where it came from.

    By the way, someone did the math on AAPL's iPhone 5 numbers since announcing it. They got 2 million pre-orders on phones they will sell for around $250. Assuming 50% margin, that is about $250 million in profit. The herd added $7 billion in market cap on $250 million in profit! But, there is no mania here, and objective thinking is governing herd action, right?

    Sep 18 3:14 PM | Link | Comment!
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