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25 Reasons We Will Not Have a Depression

We are still gropping in the dark.

Not too badly hurt, but somehow, the market seems to know where it is headed despite massive opposition by many who either do not believe a recovery is underway or had simply been left behind holding empty bags.

Baby steps. We are retracing where we had come from. Somewhere along the way we will face the old demons that plunged us into this darkness and face them head-on.

That will require the participation of the majority to win this war against the Great Recession and possibly avoid another Great Depression.

The emerging markets are clearly in the recovery mode having retraced 2/3-rd or more of their loses incurred during 2007 to 2008/9 including the BRIC. Some of them suffered worse than the US such as China's Shanghai and Szenshen indeces going down 72% as compared to 58% by SnP500. But they forged ahead and recovered more than 62% of their massive loses.

US who is the one responsible for this "Made in America" financial crisis of the century is still in self flagelation mode unable to recover even half it's loses and help the whole world recover faster. Much less lead the world as it used to be.

A faster recovery in the US will give more hope to others around the world who look to the brighter side of life and the re-establishment of co-operative lifelines despite each other's shortcomings in the past.

Another major drawback in the US stock markets and the whole world will suffer again but hopefully not as bad as before as they have already recognized that the american-made crisis need not be their own - and the severance further of what had been achieved during the last 2 to 3 decades before the current crisis reared it's ugly head.

Hopefully, more americans will see through the dark side of the equation and treat it as it is, a bad side not worth forging ahead.

Market Volume: Still an Unanswered Question

You really have to study volume in the context of Elliott Waves analysis.

During rallies and selloffs, maximum volume happens during the end of the 3-rd wave and spike again during the the 5-th wave with less amount than the 3-rd.

Study the monthly chart of SPY which is one of the easier to study and which is the one that represents the broader index SnP500.

The highest volume spike happened in Oct 2008 and price went lower in Nov 2008. That means the iii-rd of the 3-rd happened in Oct and the 3-rd ended in Nov.

There is also a volume spike in March 2009 but of less quantity than that of Oct 2008. Then followed by tapering of the volume in succeeding months during the bear market bounce or recovery depending on which side of the fence you belong. It means the 5-th and final wave down has been completed. Some call it divergence which happens most of the time at bottoms.

On the monthly and quarterly charts; SPY is clearly a double top pattern. We call it one of the several forms of Flats or A-B-C patterns. SnP500 is a Normal Flat while Indu or Dow Jones is an Expanding Flat.

Flats do have violent C-waves with expanding flats having more violent C-wave than that of normal flats.

More than 70 percent of charts do produced violent vertical C-wave downs in the past in any timeframe, in any market, and in any country. And violent C-waves do produce violent volume spikes too. That is where the maximum volume happens, at or very close to the final bottom of a secular bear market or any particular stock for that matter that went through a progressive sequence of corrective sell-off (A-wave which is years 2000 to 2002 for SPY, bear rally (B-wave or 2002 to 2007), and final capitulation sell-off (C-wave or 2007 to 2009) to complete the A-B-C pattern or a Flat in EW terminology. C-wave is the double dip, technically speaking for flat patterns.

The ensuing bounce or recovery after March 2009 is being hampered by low volume. That was, is, and will be the usual case in most recoveries after a violent C-wave sell-off. There will be some volume spikes but they will be far from as strong or stronger than those produced during the C-wave.

Violent C-wave creates massive shock waves that stun market or stock participants that can last for a long long time. It happens all the time in stocks and indeces in different time frames and with different degrees of impact. But we can't seem to recognize and learn them despite years of experience.

True volume comparable to those produced by the C-wave down will appear only far far above the double top or the last high of an expanding flat when the 3rd wave rally happens. We are presumably still in the 1-st wave up with perhaps 70 to 80 percent probability. Some A-B-C patterns do morph into triangles, complex flats, or complex corrections when problems don't get solved within certain time limits.

But for the sake of trading or investing, buying the C-wave of an A-B-C is one of the highest probability ways of making money and the most common or the most frequent occurence.

But then it requires a study of Elliott Waves to learn and can take years and thousands of charts to finally learn a simple pattern such as what we have now for Dow Jones and SnP500 due to the complexity of the other 20 to 30 percent corrective patterns that intrude with the recognition of a simple pattern. Only after many years and thousands and thousands of chart patterns do we recognize that the simple patterns dominates over the complex ones. K.I.S.S. we say.

So don't expect volume to pick up commensurate to Oct 2008 and March 2009. Volume spikes of equal or greater magnitudes will happen far above 2007 levels during the 3rd wave part of an ongoing rally. Consider 1932 as the start of the count when Dow Jones practically died at $42 and resurrected toward $14,200 then suffered a heart attack.

For August to Present volume conumdrum; please see my previous comments.

Hope this helps.

Dr. Copper Spots a Monster Crash

China has one character trait mostly not practiced by the Western World:

Patience.

They buy, they stockpile, they have patience. They have huge land mass. No problem with stockpiling. Some giants do have patience; and China is a giant waking up after several decades under Mao-Tze-Dong communism.

Centuries of confusian patience.

No JIT or Just-In-Time B.S. for them.

At 8 to 11 percent proven to be sustainable GDP during the last decade or so; they do not want to run out of non-perishable commodities just-in-time when they needed them most in the near and far future.

They have cash now. What is wrong with buy low at or during major global stocks and commodity market crises? Buy when everything has just crashed down.

Stockpile and use them later, but don't buy high later on when the whole world reaches new boom times like 2006/7. Remember, China is already the consumer goods manufacturing country of the world. Also, those US global manufacturing companies who have just re-located to China will not go back to US soil in a hurry. They and China's local industries will need basic materials for decades to come.

They spent lots of money for the 2008 Olympics, did'nt they? Buying lots of commodities at sky high prices in 2006 to 2008 in preparation for the Olympics. They must be stupid enought not to learn their lessons. Obviously, they learned their lessons the hardest way regarding buying non-perishable commodities.

They had been in a buying frenzy since early 2009. It is only now that their purchases are being noticed with increasing scrutiny with commodity prices going up.

A pullback maybe, a crash maybe, we still don't know.

A global economic revival will most likely prevent another commodity price meltdown. China, most visibly, is the first to buy commodities in huge volumes; who will be next?

Wanna buy from the Chinese later at high prices? They may not sell you a few tons of copper. They will need them more than you do.

Buy the pullback after China slowed down their purchases.

Why The Market's Set to Move Lower For the Rest of the Month

There was so much skeptism for this rally in August, September and October.

This was attested by the low volume rallies and high volume selloffs and the "unusual" rallies of VIX in Sept and Oct during rally days. Investors were buying protections during rallies and selling as much stocks as they can during selloffs at that time period.

At this stage; perma-bears should be running out of capital already with the repeated short squeezes they suffered if not many of them bankcrupt already.

Perma-bulls, at the same time, will be running out of cash and holding lots of stocks and may run out of patience if a vertical rally does not happen soon. They may decide to sell and take as much profit as they can while the going is still fairly good if not great at all.

Most TA's failed to recognize that the volume spikes during sell-offs are divergence signals. During normal lower high lower low corrections; high volume sell-offs sustain further downsides. From August to Oct, high volume sell-offs resulted in higher prices later on. Those are the divergence signals.

Those undecided investors will be the deciding factor.

They kept reducing their holdings and many of them too disgusted with themselves by now that the markets are still going up. They are holding too much cash for nothing and can't buy at lower prices since the stock market just simply and plainly kept on going up.

Any sign of volume pickup during rallies will start a stampede of those left-behind investors too tired of waiting for the market to give them a reasonable 10 to 20 percent pullback or discount.

If we get a strong stampede; then 1270 to 1330 not too far away.

Why The Market's Set to Move Lower For the Rest of the Month

Correction: the last low of 1029 was Nov 2 not Oct 2.

Why The Market's Set to Move Lower For the Rest of the Month

We will know within the next week or two if Spx will have a good chance to rally more into December and early January or we start melting down or just waste time doing nothing but defining a new trading range.

Probabilities in that order.

Highest probability is still the consolidation range of higher highs and higher lows that has formed since August is either a regular flat or a running flat. An A-B-C pattern with the C-wave down finalizing at 1029 for SnP500 which was the last low in Oct 2.

Target for a normal flat will be 1150 to 1182 range while a running flat scenario can support a rally toward 1270 to 1330 range.

My comment of Oct 31, 2009 still stands as is.

Running Flat failure can result in 957 as the most obvious support for the bulls if panic selling happens on the weekly chart. Vertical selloff usually happens when the running flat results in traders and/or investors running out of patience with the prolonged period by which the stock or the market not being able to produce a vertical rally despite their repeated attempts to drive it higher.

Timing is everything when this type of higher highs higher lows start forming on the daily chart after a potential bottom has been established such as the one we had in March 2009.

So far; my analysis at 1020 when Spx first tested the daily 50ma had been correct and at 1030 area on Oct 31.

Either we go vertical rally on the weekly chart or traders and investors will run out of patience at this critical time period.

The 12 days of rally will require 12 to 18 days consolidation range preferably a shallow one and not too much time doing nothing with the run from 1029.37 of Oct 2 low to the last high of 1113.69 as the defining range. An attempted rally toward 1121 fibo extension resistance is also not out of the question but more likely will result in a headfake.

1081 and 1071 are the most obvious fibonacci supports on the 60min chart with the current wavecount structure. The daily 20ma can also provide a viable support for the bulls.

As long as the bulls can keep preventing a sudden death meltdown and/or a prolonged indecision trading range; we are good to go for 1150/82 range and if time permits 1270 to 1330 range before the next earnings season starts January 2010.

A potential panic selloff after the re-entry below 1101 is the last best hope for the bears for their meltdown agenda.

UNL: A Better Natural Gas ETF than UNG?

Maybe good for the moment while contango is still in effect.

What happens if and when Nat Gas goes into backwardation?

UNG will shine a lot better than UNL with backwardation.

Charlie Gasparino: Another Crash 'Has to Happen Again'

Life is too short!

Those who invested during the 1929-32 stock market crash are long dead already if not few are still living their last gasps of life. Dow Jones went down 470 to 42 at that time and is now hovering at 10,000 levels these days.

Those who invested during the 1965-80 secular bear markets saw Dow Jones unable to break 1,000 level and went down 470-500 levels before ramping up to 12,000 of year 2000 and 14,200 of year 2007. Many of them are still living but will die soon enough.

I will be long dead or in my old age, and will have better knowledge and wisdom for the latter if not senelity, in order to enjoy the fruits of my labour long before the next "financial crisis of the century" comes along.

Why wait for the next CRASH to happen?

Friday Roundup: Commodities, Emerging Markets

The markets are devilishly incomprehensible most times.

That is just the way it is; otherwise Dow Jones could be at 100,000+++ by now or be close to zero if it was so predictable or too easy to understand.

Another analysis could be this:

The SnP500 has a high side of 1300 at the start of July-Sept 2008 quarter. Before the earnings season started in Oct 2009, it was able to reach 1100. A 15% difference YOY high on a QxQ comparison.

Viola! SnP500 is on tract for a 15% YOY drop in earnings.

Big investors had been pricing in the 15% difference before the start of the earnings season or was it co-incidence? And on the high side of July-August 2008 quarter?

This bodes well for the next quarter stock market run from an investor's point of view.

Going forward:

If they believe that the Oct-Dec 2009 quarter will get better; then move the parameters back YOY going back into April-June 2008 QxQ SnP levels which has a high side of 1400. Then SnP could be at the 1300 area just assuming the 15% profit differential will narrow down to half or be at 1400 if their estimates show full recovery within this year.

Then SnP could be at the 1300 to 1400 area before the start of the earnings season in Jan 2010.

On the downside; if something realy bad happens like that of 9/11 episode. Then backtract YOY going forward to Oct-Dec 2008 QxQ then SnP could drop hard to the 800 area before the next earnings season starts in Jan 2010.

Does this analysis makes sense or what?

Reality Hits: Q3 GDP Growth Breakdown

You are wrong!

There are 2.5 Billion consumers in the developing countries alone including the BRIC. That is 2,500 Millions of potential customers by international based manufacturing companies that are US-owned that has re-located into the developing countries since the early 2000 to take advantage of cheap labor abroad and be able to compete anywhere in the world without the shackles of exorbitant US labor costs.

And that will funnel back to the US government tax receipts in the future as the developing countries start their recovery sans the "Made in the USA" financial crisis.

2.5 billion consumers vs. 300 million they used to cater to.

Ask the US government for a commonwealth policy once those giga-corporations start repatriating their profits in perhaps 2 to 3 years time since the US will remain shackled with high unemployment rates.

Those giga-corporations are not coming back to the US after spending trillions relocating their operations to the developing countries.


On Oct 31 10:07 PM DormRoom wrote:

> Most of you bears use a 'stack the deck' argument. You pick and
> choose data to suit your argument, while ignoring leading indicators,
> which point to a recovery.
>
> Look outside the U.S (except Britain), and most of the world is in
> a modest V-type recovery. But SA commentators are so U.S. centric
> they ignore the other 750 million+ consumers outside the U.S.
>
> S&P500 @ 1214 by year end. see you there.

Reality Hits: Q3 GDP Growth Breakdown

Most analysts attributed the 3.5% GDP growth to the stimulus program and once the stimulus is removed, GDP is still positive but not stunning. Underlyings, even by removing the stimulus lipstick or makeup, is now improving with consumers started to spend as much as they did last year.

The question is: When will the stimulus program be removed?

As far as I know, the $787B package is for 2 years of stimulus program that has started last April 2009 after it was approved under the Obama Administration, if my memory serves me right.

Q2 stimulus kick off was able to turn GDP from negative to positive. Q3 stimulus turned it into a stunner.

Two quarters with 6 more to go.

Bye, bye Great Recession!

Friday Roundup: Commodities, Emerging Markets

We are now at an inflection point since the grueling run from Aug 25 toward Oct 30, 2009.

Either we keep breaking down toward the 992 area for SnP500 as indicated by the volume spike on daily chart by DIA, SPY, and QQQQ last Friday;

Or, we go straight up toward 1270 to 1330 area if a reversal happens by Monday and a strong rally starts unfolding on Tuesday to Wednesday by using the daily chart.

For the bears, they may still try a Head and Shoulders pattern with 957 downside target if the volume spike last Friday failed to sustain a vertical selloff.

For the bulls, a potential Running Flat has formed last Friday on daily chart after the very confusing run from late August has started.

A running flat (as opposed to the most common counter-trend lower-high lower-low flat correction) is a dream pattern for the bulls during the process of recovery rally after an 18-month selloff from 1576 high of Oct 2007 to 667 of March 2009.

Running Flats usually result in a vertical run and mostly found during rallies and much less so during sell-offs. This type of hesitant run before the decisive rally is most likely the main reason why they call recovery rally as climbing the walls of worry. It goes higher highs and higher lows. But then a very precise technical pattern has to be satisfied which Friday has provided and only if we reverse Monday and a vertical rally follows.

For the bulls, the Running Flat that has formed since late August should not worry about a potential bearish HnS pattern. Bigger problem is the 1150 to 1182 area by using the daily chart.

On the weekly chart, a sustained run above 1196 will give considerable high probability of at least 1285 to 1384 run rate before SnP will require several months of correction and go for the last rally toward 1384 to 1542 range.

After that, a year or two of technical correction or a garden-variety type of recession should follow before the next multi-year rally can be sustained.

1573/6 is the triple top for SnP on the monthly chart and is the usual patern that develops after the double top of Oct 2007 resulted in a run down toward 667.

Timeline is still on or before Sept 2013 for a triple top price target after the 667 bottom.

This type of rally is among the less common occurence during recovery rallies; initial bounce off a sustained selloff usually results in a deep pullback before the next decissive rally similar to that of Oct 2002 to March 2003 for which most traders are accustomed to.

This time around, Indu, Spx, and Compq failed to provide more than 38.2% retrace from March to May rally toward July low before going for the 3rd wave using Elliott Waves price and time analysis. The subsequent rally becomes too tedious and hesitant.

But this type of pattern is among the less common type and usually requires pricise chart formations and subsequent price actions to be successful.

We will know by next week if this pattern is dead wrong or has a good chance to succeed after several weeks of price runs if a reversal happens Monday.

Friday Roundup: Commodities, Emerging Markets

In August 11, 2009, it was almost certain SPX, INDU, and COMPQ would be on the way toward lower lows that would break their last lows of March 2009. That was supposed to be the capitulation sell-off everybody who believes in a final bottom was waiting for.

But then daily chart pattern went as crazy as can be to most traders since August 25.

By Sept 11, a new chart pattern started forming very few TAs know: that of either a running triangle or a terminal triangle and the scenario kept forming up to Oct 21 almost predictably toward the 1090 level for SnP500. Maximum limit run from Oct 2 1020 low was 1108 and it proved that that limit run was not violated with SnP only able to reach 1101 before going down to last Friday

Market: Spooked Today, But Panic Attack Is Likely Temporary

Basically, dollar did not move much to be the cause of this panic run today.

However, before the open, the news of CIT impending bankcrupcy again started the selloff and the later news of Carl Ican rescue started another rally attempt only to be dashed down when the rescue was not a rescue after all.

Could CIT be another silent killer Bear Stern type of bankcrupcy?

BS bankcrupcy was not supposed to start AIG and FNM failures that led to Lehman collapse.

What will happen if CIT goes BK? Will it cause another domino effect in the banking and finance industry?

Why is this bankcrupcy not being analyzed at all? This is supposed to be bigger than Bear Stern bankcrupcy and more people or industries will be affected specially small and medium ones?

Thursday Outlook: Commodities, Global Markets

Also look at the weekly charts of $TRAN, $SOX, and $BKX:

They are being hindered by their very obvious resistances on their weekly charts.

Transports is being prevented from executing the 5-th wave rally by the weekly resistance of 4033 but has served enough time consolidation to support a rally toward the 4479 area before it will require multi-month correction.

Semi-conductors is being prevented from going further up by the obvious resistance of 338.10. $SOX next run target will be in the 350 area but can potentially run much higher for 400 to 423 extended range if has already formed a running correction.

Financials is figthing hard against the 46.52 resistance and is able to use that resistance as a pivot instead. $BKX can go 5 to 10 weeks meltup after the last 10 weeks run up and has more than enough consolidation time to support the next price rally.

In all cases; the three sectors are not bucking down against their strong weekly resistances and are challenging those resistances again and again. Like hammer blows; a few more blows and those resistances will crack and $TRAN, $BKX, and $SOX will be on their way toward the next rally on their weekly charts.

Therefore, $INDU, $SPX, and $COMPQ will be going into another several weeks of rally once their primary sectors crack thru their weekly resistances.

What's more; with developing countries' stock markets needing much needed rest and will have to consolidate for several weeks; international investors will start looking at the US equities once the US trio goes into several weeks of rally while Emerging Markets, Brazil, Russia, India, and potentially China stayed in their required corrective ranges for several weeks.