JMac's  Instablog

I believe the market has started its last leg up to correct the first leg down correcting the Unitied States Grand Supercycle.

The current leg up will probably continue until sentiment turns overwhelmingly bullish.  We need to get all the players who were late to the party in the pool before the next leg down begins.  That next leg down will probably result in the end of the "Civil Society" known as the United States.

The battle between deflation and inflation momentarily appears to have been won by moderate inflation.  But, I don't think the battle is over.  To fight deflation, the US government lauched massive fiscal spending programs along with "quantitiative easing" unlike anything the United States has ever seen.  Creative destruction has been replaced with government intervention in nearly every aspect of the economy.

Just as in the Great Depression, government intervention will result in significant misallocation of resources and continued lessening of the United States ability to compete in world markets.  The United States doesn't have the reserve capacity to fall back on as it did in the great Depression and the majority of the electorate today supports a goverment that is more  socialistic than even the government in the Great Depression.  The United Sates economy will worsen with the continued misallocation of resources to achieve politcal rather than economic objectives.  Increased government power and intervention will eventually result in the government owning or controlling the allocation of nearly all the factors of production in the United States.

The current administration and congress believe socialism has not succeeded in the past because it was never instituted properly.  They point to Democratic Socialism in Western Europe as a success.  Western European leaders are cautioning us about the failures of socialism.  Western Europe has been a "Nanny State" since World War II and has been incapable of defending itself.  When the United Sates succumbs to "Democatic Socialism" and it fails, there isn't another United States to come to our rescue.

If the US is incapable of saving itself, the world will abondon the US Dollar.  Dollar Inflation will be rampant, real growth will plummet in the world economy, especially in the United States.

That's where I think we are.

Elliot Wave and Fibonacci numbers seem nuanced and crazy until you see the light.  If there is a God, one way  he, she or it reveal themselves is in Fibonacci numbers and Elliot Wave.  It's the Tao Te Ching of the markets.

The market advanced to S&P 500 intraday 1576.09 on October 11, 2007.  I believe that was the completion of the Grand Supercycle that began with the formation of the United States.

The market then declined to S&P 500 intraday 666.73, on March 6, 2009.  That was exactly 61.8% retracement, the Fibonacci Golden Mean, of the advance from the August 1982 bottom.  Some may remember Joe Granville, the then market moving guru, and how wrong he was about the August 1982 bottom.

The market then advanced to S&P 500 intraday 930.17 on May 8, 2009. Drawing a Fibonnaci Fan up from the March bottom is useful.  That advance hugged a 38.2% Fibonacci Fan line as it topped. We are now in the 'c' wave down of an 'abc' correction of the 'A' leg of an 'ABC' advance from the March 2009 bottom.  I would expect the 'c' wave decline to penetrate the green support line drawn on this chart and end at the 61.8% line of the Fibonacci fan.

If the S&P 500 does break support, I expect massive selling volume, the shorts to pile on, and the bottom of the 'c' leg of the 'abc' correction of the advance from the March bottom to be complete and for the market to resume the 'C' leg up.  The 'C' leg up will end when sentiment is bullish again. The pundits on CNBC will be saying the bear market is over and the monetary easing and fiscal bailout policies are working.

The market should then begin another massive 'C' leg down for the second leg down of the 'ABC' correction of the Grand Supercycle.  It could get very scary. That may destroy most financial systems and our 'Civil Society.'

Put on equal dollar amount long and short of the Ultra S&P ETF and watch your account grow while taking little market risk.  It doesn't matter when you put them on.