Thursday Aftermath

Thursday Nov 10, 2011

The major indices all dropped as we suggested yesterday morning in our pre market comment. 

The Dashboard

Investors are clearly on high alert and fearful that as on comment o the blog suggests, the BIG Decline has begun. 

- In the main panel VIX jumped 31.5% in one day

- at top TLT, the long bond, jumped just over 2%, a big day for bonds

- at bottom UUP, the US Dollar, jumped 38 cents or 1.76%

these are all defensive measures. This is our position. Bear moves do not start with everyone taking defensive measures. Bear markets or moves begin amid complacency with the VIX under 20 and on one wanting a government bond. Headlines like Cash is Trash are typical of market tops. 

We demonstrated that yesterday showing that TLT moves exactly opposite of QQQ, the NASD 100 proxy. 

in this article Peter Brimelow asks if it is January 1972 again?  The answer is not quite yet. 

Bob Prechter's recollection of the Barron's headline reminds us of what has to happen to create a top. 

A really scary comment from Elliott Wave Theorist’s Bob Prechter: “In my judgment, the situation is very like that of 1973. …The market has been in a two-year bear market rally, per our interpretation of the Elliott Wave model; and a broad bullish consensus had developed on stocks, recalling January 1973’s ‘Not A Bear Among Them’ headline from Barron’s.”

The dramatic move by the VIX yesterday is a literal bear move to safety, ore perceived safety. 

 We are still in the seasonal low period of Sept-Nov. 

QQQ Update

This is an update of the QQQ chart we posted yesterday. The two  blue circles at left mark the two previous lows in August and October. I suggested a re test of the 65 day MA line now at 55.03. We are already half way there after one day. The market is staging dramatic pullbacks to shake out the longs. Then when the market regains its legs small investors are scrambling back into the market and taking it up again. 

In the bottom panel MACD on this daily chart is overdone. Let us remind you that is not the case on the weekly chart which we showed this last weekend. We are transitioning to a weekly buy signal. 

I mention the article above about January 1973 as I was in duPont Walston's training school on Wilshire Blvd at the time. As Bob Prechter points out, there was not a bear in sight, in January. Nixon had won a sweeping victory over McGovern, he had a 'plan' to end the Viet Nam war, and the DOW had regained its 1,000 1966 top. What could go wrong?  Plenty as it turned out. The DOW lost half its value by December 1974 bottoming at 577. 

We expect a similar meltdown over the next couple of years, but first everyone has to kick themselves for being out of the market as it reaches higher. 

I did not draw in the uptrend line from the August bottom, but look and you can see it. The Oct pullback violated that uptrend for exactly five days. We are one day into this violation. Could the market stage another 1,000 point collapse here?  Yes but it is doubtful. We are above the MAs and VIX is already over 30. 

I had buy orders executed yesterday in a succession of lower prices. Europe is  modestly up this morning. I have other orders at successively lower prices. 

The top will occur, I expect, in the first quarter of 2012. It will be accompanied by headlines like

Euro Leaders come together to Save their Currency

White House confirms Iran is not seeking nuclear weapons

California and Rhode Island control their Municipal Contagion

DOW climbs to new recovery climbing a Wall of Worry. 

 

Contrast that with the finance yahoo headline yesterday afternoon as the DOW zoomed down  350 points. 

There is no Solution for Europe. (Note -  people have lived in Europe for thousands of years).

That is not how the bear will begin. 

Socionomics

We have tirelessly attempted to prepare you  for the change in mood to the negative. The 400 point down day in the DOW was accompanied by the sacking of the most famed college football coach in modern America, Joe Paterno. You can read the details elsewhere but Paterno is only guilty of a 'moral failure' or so say his accusers this morning. He reported an incident to his superiors but not to the police. The assistant coach is already assumed guilty. What happened to the presumption of innocence? We are not here to debate that issue but bear markets are famous for taking down reputations. This one has already taken the reputation of Penn State, its coach, and administrators. Once the bear really gets underway, no reputation will be safe. 

And that's not all - other negative mood events yesterday

NBA outside counsel accuses NBA Commission David Stern of treating players 'like plantation workers'

Montgomery Co, AL filed the largest bankruptcy in municipal history

Italian PM Resigns

 

 

 

 

Comments

[valentin tristan]

Look at the Dows volume yesterday Nov. 9, and compare it to today Nov.10. The selling is not over yet.

[Dennis Elam]

Move over Jim Cramer, Valentine has arrived!