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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.

Thursday Outlook: Commodities, Global Markets

The fad these days is sell equities and buy US dollars.

But then US$ is more affected by Euro$.

Look at Euro$ weekly chart:

There is a missing v-th wave of the 5th wave of the C wave up. Euro$ will require 2 to 4 weeks of consolidation range before it ramps up again toward 1.522 weekly fibo confluence area or even goes extended run toward the 1.598 double top since the pattern from the last low for this run up for Euro$ can support a run toward double top.

That will provide relief to the US equities specially now that the GDP had been released with better than expected results and GS was able to lower investor expectations with their own report before the government's release.

Once Euro$ and US$ goes into consolidation range on the daily chart for several weeks, that will provide enough confusion on most traders and investors reliant on US equities vs. US$ inverse relationship while the GDP and potentially next week's unemployment report carry the days and weeks ahead.

Hot Money, Hot Commodities and the US Dollar Carry Trade Part 1

There is still a good chance the US dollar can recover on the long run if not the short run.

Most US manufacturing companies had been transfering their operations to the developing countries during the early 2000 before the global economy collapsed caused by the "Made in the USA" financial crisis.

Now that the whole world realized that the financial crisis in the US is not necessarily their own financial crisis; the whole world can recover even if the US does not.

But then if the whole world can recover; those global companies that the US has relocated into China, India, Brazil, etc. will start making considerable profits as they become able to get out of the high labor cost shackle of the United States and compete effectively all over the world.

What happened to those global companies once they start amassing massive profits with low labor costs of the developing countries and expanding their export operations all over the world but funnel most of their profits back to the US of A when the global economy finally recovers and turned into progressive mode (sans USA?)?

Foreign investors will keep buying them and they will most likely buy them from the NYSE.

Then money will flow back to the US.

Will that not make the US$ start appreciating again?

Not today, not next month, but next years and decades ahead as more of global consumerism keep following the footsteps that US consumers have thread during the last two decades and start funneling their hard earned money to US global manufacturing companies and into the coffers of the US government.

China and Japan are spearheading their economic independence from the US consumers by developing their own consumer-based economies. The whole developing world will follow suit and and in less than a decade, consumerism can bloom all over Asia, Russia, the Middle East, Africa, and most others countries who have not yet developed their local consumer-based economies.

US global companies will then reap massive profits out of global-based consumers and the US government will become a wealthy entity despite spiralling unemployment.

Thus, the US government will have to work like a commonwealth to spread the "future" wealth.

Again not today, not next month, maybe not next year but definitely into the years ahead as global consumerism replaces US consumerism.

Bull Market Check-Up

Let's tighten the spread shall we?

Looking at your table, the spread can go between 21.4% to 582%. That is an extremely wide spread, you can throw a dart blindfolded and a higher chance you will be able to hit any of the targets within that spread.

There are 4 possible scenarios for the bulls using the current structure of the SnP500 on it's daily and weekly charts using EW.

Scenario #1. We are now approaching a 1-2-3-4-5 wavecount on the daily chart from the July low with target range of 1090 to 1108. This will be a 1-2-3 wavecount on the weekly chart.

Meaning, IF we go down from here without going above 1108 then it will take another 2 to 4 months of correction or consolidation that should not go below 956 before the next rally can follow toward 1170 area for a complete 1-2-3-4-5 wavecount on the weekly chart.

After a rally toward 1170 area, SnP will need a major correction that can last a year to 2 years and can result in a minor recession or a garden variety type of recession but SnP will not go below 667 again for years and decades to come.

Scenario #2. The 5th wave for a 1-2-3-4-5 run from the March low of 667 is already underway with the July low as the 2nd wave and the Oct 2 low of 1020 as the 4th wave.

This scenario should break above the maximum allowed rally under scenario #1 of 1108 and should result in a rally with minimum target 1112 and normal target 1137 and a maximum allowed run rate of 1169.

Nominal target or highest probability target of 1137 target should be reached in 16 to 17 days from the 1020 low using the daily chart for duration estimate. Scenario #1 with maximum allowed run rate of 1108 has a timeline of 10 to 11 days and we are now 10 days from the 1020 low. We are now at a critical timeline stage as far as scenarios #s1 and 2 are concerned.

Under scenario #2, SnP will have to undergo a major correction or consolidation range that should last 8 to 16 months and can go down with a very wide range. This scenario can also result in a moderate recession or garden variety type of recession as scenario #1 after the 1-2-3-4-5 rally from the March low on weekly chart has completed but will need less time to correct before the next recovery rally toward 1576 high can happen.

3. Running correction scenario from the March 667 low to July low of 869. This scenario will enable SnP to go vertical up breaking above the 1108 and 1169 imposed limits under scenarios #1 and #2. SnP should rally above 1207 under this scenario but less likely to exceed 1396 before it will require 2 to 6 months of shallow correction and go for 1396 to 1560 or even perhaps 1576 before SnP will need a major correction that can last 1-1/2 to 3 years .

This scenario should result in a major correction that can result in a garden variety type of recession but not a severe recession that we had late 2008 to early 2009.

This scenario is the most bullish but will require a longer time to correct before the next bull run can happen and the correction can be more severe than that required of scenarios #1 and #2 but definitely not as bad as that of Oct 2007 to March 2009 run down.

Scenario #4. The running triangle scenario that has developed from Aug 7 to Oct 2. Under this scenario, the whole run up from March 667 low can be corrective in nature as part of an ongoing secular bear market that has started since the year 2000 . It means SnP will have to go vertical up as a vertical as possible on any chart pattern toward 1163 minimum target. Theoretically there is no maximum target for a running triangle but I usually set 362.8% run rate and that rate seldom got exceeded by running triangles I have analyzed. So the maximum allowed "thrust" run for the running triangle is 1339 for SnP500 under this scenario. This will require the weekly chart to have green bars every week until 1163 had been reached and/or exceeded but not breaking above 1339 from the 1020 low which is the start of the "trust" up for the running triangle scenario.

Under this scenario, we may end up going vertical selloff back down to 1020 before the bulls may try to rally again but more likely will fail and we go below 1020 and may even try to go below the March low of 667 before the next phase of multi-decade rally can start.

This scenario is similar to the 1965 to 1980 consolidation range which was a prolonged secular bear market.

Scenarios #s 1, 2, and 3 assumes that the last low of 667 is already intact and SnP will recover back to 1576 high of Oct 2007 within 4 1/2 years from the March 2009 low of 667.

Good luck for the bulls.

For the bears, there are 3 potential scenarios from the current stage if we go down from here and 1108 remains unbroken for at least the next 3 months.

But that is a different matter all-together. One step at a time, the bulls are holding the ball as of right now and they may or may not give the ball back to the bears this week or next or for the next few decades for that matter.

IF we melt down next week, then the bear case scenarios will start kicking in.

Recession Is Over; Depression Has Just Begun

Yes, is that Great?

Look at what happened in 1932 deep recession as compared to what happened in late 2008 to early 2009 deep recession.

The US economy (also England, France and Germany) went into deep recession by 1932 followed by a onset of depression in 1933.

The Great Depression happened in 1933 to 1935 when more than half the banks went under.

Great Depression did not end in 1935 by some accounts and it continued toward 1938/39 where the unemployment rate got so bad in the US it went up to 25% and far worse in Germany it forced them to start WWII in order to escape a 33% unemployment rate.

Dow Jones went UP from $42 in 1932 to $100 in 1935 during the Great Depression years.

Dow Jones went UP from $100 to $300 from 1935 to 1939 during the massive rise in unemployment rate toward 25%.

What can happen to us now, will the Dow Jones follow history or will it create a new one?

Do we learn from history or do'nt we as far as investing in the stock markets is concerned?

The 'Buy Anything' Market

FEAR of being left behind turning into PANIC buying?

Those are the opposites of August/September 2008 when fear of economic implosion turned into panic selling.

This ongoing 2 days rally is attributed to the daily 50ma support which was at 1020 at the time and the supportive role of August 9 high of 1018 or 9439 for Dow Jones. They formed a confluence zone of supports very hard for technical traders to not go long and buy the run down.

This could be the last chance to get long after a long long wait for a reasonably deep pullback that never came as we survive more on shallow pullback diets since March 2009.

That is good.

Regular shallow pullbacks keep us trim and healthy instead of getting obese with time during deep and prolonged pullbacks that tend to end up to the downside as more traders and investors bail out of the markets due to prolonged digestion of time with no rally.

We rally a little at a time and take appropriate price corrections and time consolidations until we are ready for the big one. Meanwhile, we keep ourselves lean and mean by not getting obese with excessive time consumptions going nowhere that usually means corrective or bear rally rather than a bull run - and thus results in further run downs most of the time.

Are we ready for the big one?

Projected target for this run is 1090 to 1110 for SnP 500 before we go for either 2 to 4 months correction similar to what happened in early May high to early July low.

Or, we go into a massive meltdown lasting 5 to 9 months towards 767 to 680 usual target range for a capitulation selloff.

Or, we go into a massive time consuming A-B-C corrective pattern that can last 8 to 21 months that should break below 827 but less likely to break below the last low of 667.

But I prefer the current potential setup of a Running Triangle on the daily chart that has formed since August 9 and has completed last Friday or Oct 2.

This triangle is a rare occurence and is a virtual unknown to most technical analysts.

But it has a potential to giddy up the markets toward 1165 or even toward 1260 minimum if market participants started a panic buying spree off the coming earnings season.

So watch out; maximum allowed rally for this run is 1110 based on usual Elliott Wave counts of 1-2-3-4-5 up from the July low of 870 using the daily chart.

BUT - if we break 1110 with force in the coming weeks, the next target will be 1165 before we get a hang-over and go down as fast as we go up from the daily 50ma support.

OR - if the 1165 got broken again with force; then expect 1260 the next minimum target and the quick and dirty target will be 1318 before we require a major correction that should last 2 to 4 months.

The last scenario is the best scenario for the bulls in order to achieve sustainable recovery rate of the Oct 2007 high of 1576 for SnP500 on or after September 2013 with 2014 limit time run. The longer it takes to recover toward 1576, the more time will be consumed and the more obese the market participants will be consuming massive time with lethargic actions or rallies.

Lethargy is the enemy of a bull run. A healthy rally followed by a healthy correction and appropriate time consolidation is what makes bull runs healthy in the long run.

Excessive rallies with no healthy corrections and also excessive corrections with no healthy rallies are what destroys a healthy market.


Those are the potential scenarios that has developed from the minor rallies and corrections off the March low of 667 and that of July low of 870.

The markets seldom give us only one choice; there are almost always many potential scenarios most of the time and very few of them happens to be the highest probability scenarios.

In that order, the highest probability scenario is a rally toward 1090 target then a 2 to 4 months correction.

Followed by the Running Triangle scenario that can catapult SnP toward 1165 but would also result in a vertical drop back to 1020 if the bulls cannot muster better than 1165 run.

Unemployment Is Likely to Go Higher

As far as the stock markets are concerned; unemployment rate and the main indeces INDU and SNP do not jibe well.

Dow Jones simply kept going up from $42 in 1932 deep recession toward $300 in 1939 during the Great Depression years of 1933 to 1939 when unemployment kept on climbing toward 25% in 1939.

When WWII started, unemployment virtually disappeared and there was massive demand for everything and anything but Dow Jones went down anyway from $300 high to $100 low.

When WWII ended and soldiers came home looking for non-existing work; unemployment shot up and Dow Jones shot up too from the $100 low of 1943/44.

From your chart; unemployment rate kept going up toward 1992 but Dow Jones kept going up too. When the unemployment suddenly decreased remarkably after 1992, Dow Jones rally was still anemic. Only after 1995 did Dow Jones went into parabolic rally but the decrease rate of unemployment started to taper off toward year 2000.

Now, during the techwreck years of 2000 to 2002; unemployment kept going up to mid 2003, but Dow Jones was already up and running since Oct of 2002.

Unemployment started creeping up late 2006 but Dow Jones only started creeping down after Oct 2007.

Now at the present stage; unemployment is still spiralling up, yet Dow Jones has already gone ahead with a bouncing rally since March 2009.

What is the value then of analyzing unemployment rate as far as investing and finding the correct time to buy or sell are concerned?

I tend to believe that the recovery can happen without a jobs recovery as happened in the past and may even be counter-trend, or should I say buddy buddy trends, to each other as in 1932 to 1939.

1932 seemed to have basic similarity with late 2008 to early 2009 although they may have different reasons and their intensity of effects have definitely different impacts - they were both deep recession periods when unemployment kept on spiralling up but did not end as the stock markets found their bottoms and started to spiral upwards.

We will know in the months ahead if unemployment rate and the Dow Jones will play buddies as in years 1932 to 1939 both trending UP.

It may not be different this time around.

The Economic Recovery That Isn't

Great!

At least we are talking now for the last several months on how to have an economic recovery rather than talking about how the economy might implode if the RTC-type $700B TARP package will not be approved by Congress way back August/September 2008.

The stock markets can then keep on going UP just based on that observation.

Remember 1929 to 1932 meltdown history and the Great Depression that followed the market crash?

Dow Jones went down to $42 in 1932 and the economy went into a severe recession in 1932 just like what we had early this year.

The US economy went into depression in 1933 and more than half of banks and presumably other companies went bankcrupt in 1933 to 1935 Greatest Depression years.

Dow Jones went up from $42 on 1932 to $100 into 1935!

Unemployment went so bad during the great depression of 1933 to 1939 the US unemployment rate deteriorated to 25% by 1939 and Germany got 33% thus leading the way for WW II to happen.

Dow Jones went up from $42 in 1932 to $300 by 1939!

Dow Jones then got a major correction $300 to $100 from 1939 to 1944 because of WWII. A major haircut but never break below the 1932 low of $42.

We'll, perhaps we will need WW III for the stock markets to go way below whatever we will go up to in another 8 to 9 years if we use 1932 to 1944 history as a guide?