China Bubble Drop Updated

In my previous article on SSEC falling 5% signalling the change in trend, we may get the sell signal soon. They made the high on 4 Aug and have dropped 12.2% since then. Its now sitting above the 200ma, but below 50ma. Once 200ma breaks, the odds are high that the bear market rally Wave B is over and it will be the first to roll over.

Thereafter, the rest of the markets should start to roll over one by one.

Robert Pretcher issued a bulletin end of February advising his clients to close short positions as the market was in extreme bearish mode (3% bulls) and was tightly compressed. Shorts will be slaughtered if they are not out of the way of the ferocious bear rallies. Bear market rallies had been known to be fierce and fast. This had happened.

Pretcher once again, just released his latest bulletin, abeit a week earlier in order to prepare his clients for what lies ahead. He advised the unwinding of long positions as we await for the nasty Wave C/Wave 3. In his 10 page report, he mentioned the likely disintegration of GE during the next wave down. Besides GE, hundreds more who had remained resilient during Wave A/Wave 1 will be impacted and weakened this time round.

He mentioned precious metals as well, forecasting a US$650 bottom for Gold. USD should start to rally for the next 3 years. Gold/Silver will take a hit as USD rallies. But they will be the buy of a century after the bear market bottomed (2012-2016).

The USD bottom

The USD seems to have completed their correction and bottomed last Thursday/Friday. The rally off Friday's low looks strong. Will it continue and signify a change in trend ? Lets watch it closely over the next few weeks.

Both SPX and USD moved up on friday. For the past few months, both indexes had moved opposite of each other. So, which one is a headfake ? I tend to support a down-move in SPX for the next coming weeks/months. However, though I still believe we are peaking soon, I need to avoid the major pitfalls of a trader. That is, letting your emotions rule.

To be a successful trader, one must cast aside his bias on a specific direction. He must learn to look at both sides rationally and choose the path with the best probabilities till it is proven otherwise. Stops must be in place to prevent excessive losses if a trade goes against you. Failing to adhere to these, a trader will find himself losing control and letting his emotions rule over his head.

Back to the markets, the SPX has retraced 38% of the entire decline from 1576-666, stopping at 1018 last friday. While SPX and Dow both hit new highs, NASDAQ did not follow suit. A case of intermarket bearish divergence. In Asia, SSEC/HSI had retraced at least 50% or more. The minimum retracements for a B counter rally had been met. Will the markets continue higher into fall season ?

A grand supercycle backtest

The Wave IV Grand Supercycle ? I hope not. Wave 4s are corrective waves. It typically retraces 38.2% of the previous Wave 3. Though not a large percentage, the degree of correction does matter. I had my count in a supercycle degree correction, however if things are really that bad and we are indeed in a grand supercycle correction where year 2000 is the peak of grand supercycle wave 3, we are in serious trouble. A grand supercycle lasts 100-200 years. Even if a mere 38% correction in price and time, we'll not going to finish this bear until 2020s. I am familar with this time frame due to the sign of Pluto in Capricon. However, the indicative bottom value of DOW is giving me the goosebumps. I knew Pretcher had already set the targets to the end of this bear at DOW 400. Yes, 400. However, I've always found him to be a extreme bear. So I've always tried not to take him too seriously, especially with global central banks taking a pro-active approach to induce credit into the markets and trying to prevent deflation.

Greenspan kept interest rates too low for too long, creating the dotcom bubble. After the cycle correction of 200-2002, capital flowed into the housing markets. Another credit induced bubble appeared, this time the housing bubble. Bernanke tried to prevent deflation and pumped liquidity into the markets. He tried to keep inflation in check as well. But will he succeed ? Watch the CPI.

Deflation is sometimes neccessary to wash away the excesses so that a new and better system can evolve. Preventing deflation is postponing the inevitable, not solving the crux of the problem. No one wants to be remembered as the one who caused the misery of the world. But if "morphine" is injected to a sick patient trying to keep him afloat, there will come a time when I do not even dare to think about.

Courtesy of Daneric's Elliot Waves :

I've been showing a lot of long term charts lately because I think we are nearing an important juncture: the resumption of the Great Bear market and on the precipice of a very scary move downward. So I'd like to revisit the Supercycle wave V theme yet again.

As most of my readers are everyday traders, you will know what I mean when I say a backtest may be occurring. Simply put, I am proposing that this Primary wave 2 rally is nothing but a massive "backtest" of a very long-winded Grand Supercycle upper channel line that resides very near where the market is today. Allow me to explain.

Elliott Wave theory, as laid out by Robert Prechter, proposes that the 2000 market top was a Grand Supercycle wave III top (in orange on chart) that stretched some 220+ year. It virtually aligns with the birth and rise of the United States. Within that Grand Supercycle wave III, there exists 5 subwaves of Supercycle degree (in purple on the charts). 1929 was the top of Supercycle Wave (III). After the Supercycle wave (IV) price low in 1932, a final Supercycle wave (V) impulsed upward in 5 subwaves of Cycle degree (blue). We cannot see all the activity prior to 1900 on this chart engine as I am unfortunately limited in what I can effectively show. So I make some assumptions based on sound EW theory. Allow me to explain some more.

A basic tenet of EW theory is the concept of channeling. Basically the price peaks of wave's 1,3, and 5 connect on a trendline and the peaks of 2 and 4 connect on a trendline. These trendlines typically form parallel trendlines, or whats known as a "channel". Again, channeling is a key concept of EW theory and gives us some of our basis for how we interpret very long term charts.

Every 5 wave structure from the submicro, to the Grand Supercycle, adheres to the concept of channeling. Just because a wave is very large (220 years long) does not mean it is more complicated. On the contrary, the larger the wave, the more closely Fibonacci expansion ratio targets are met and the more channeling adheres to basic concepts of connecting wave peaks 1,3,5 and 2 and 4. However there is something known as "Overthrow" on very powerful waves no matter what the size. That is where my charts come into play.

Again looking at the chart, Supercycle wave V (purple) lasted from the 1932 low to 2000 top. This 70+ year wave consists of 5 "Cycle" subwaves, labeled in blue. In theory, the blue Cycle subwave I, III, and V peak should have connected on a channel line (blue) just as subwaves II and IV connect. But something happened at where the Cycle wave V peak was "supposed" to end at about the red shaded dot area.....it extended above the channel line.

So looking at the charts, Supecycle wave (I) (not shown as it peaked in about 1837) , (III) and (V) should have also connected on a channel line (proposed purple). But purple Supercycle (V) also overthrows the purple channel line.

So based on this we can assume Cycle wave V should have ended at the touch of the upper blue channel line in about 1996 at DOW 5500. This is the red dot shaded area on my charts. You can see it struggled here yet it finally plowed on through and this is when the market got really extended and things got crazy. It kept on going until the 2000 orthodox price peak occurred. This 2000 top is the green shaded dot.

The advance above the purple upper Supercycle channel line was the result of a hyper-extended cycle wave V at the top of a Supercycle wave (V) in turn at the top of the most bullish Grand Supercycle wave III in history. It experienced "overthrow" of the channel and ran wild for a few years. This overthrow was largely the result of the expansion of credit which allowed people to borrow their way to a way of life that nature would normally keep in check. This is what Prechter could not possibly foresee nor predict.

Social mood was, in effect, "borrowing" from nature's laws. It did this through the Great Asset Mania, the greatest in the history of mankind. People were in a good mood and it reflected in both social and economic activity, asset valuations, and speculative fever. Laws were loosened at the very time when they should have tightened. Such is what happens at the top of a 220 year Grand Supercycle wave III. No one can see the top and no one can see the subsequent drop.

Then the Great Bear market began. A retrace Cycle wave "a" back to about 7250 occurred in 2002 and the DOW eventually met back up with the Supercycle purple upper channel trendline. This is the blue dot area in 2002 I show on the charts. It bounced off this trendline (blue dot area on the charts) and credit expanded yet again in another bubble of asset mania. Except this was a "b" Cycle wave and was actually a false rally built on a house of cards. The DOW was forming a corrective "expanded flat" in which the b wave price high (black dot area) goes higher than where the previous wave 5 price high occurred in 2000. We suspect this is a b wave because "real" valuations stopped long before the actual 2007 price peak. In other words when you were buying Valero (not a DOW member but just an example I thought of) at $75/share in 2007, when they are/were loaded with debt, you were buying a fantasy b wave cycle top. You can be sure that corporate debt fueled this expansive b wave valuations on the DOW 30 stocks. Prices were pumped way up on credit and the subsequent drop from 2007 - 2009 was harsh.

Regardless the market managed to stay above the Supercycle wave upper channel (purple) line after bouncing off in 2002. But in 2007 the party was waning and b wave was waning. The nasty Cycle c wave would begin. So the DOW actually topped in 2000, had an expansive Cycle (in blue) "b" wave rally that carried prices above the 2000 top in yet another credit -expanded bubble in an expanded flat. An "expanded flat" b wave occurs when the preceding wave was of such power that the main trend continues to "carry through" on the subsequent corrective wave. So the 2007 DOW top was a b "corrective" Cycle-sized wave and a false rally wave at that. The extreme sharp drop after the top confirmed it in my book.

So the Cycle c wave of that expanded flat is playing out now. Since an expanded flat is a 3-3-5 pattern, the current proposition is that Cycle wave c will consist of 5 Primary waves down that will eventually try and reach the lower purple channel line of Supercycle degree. Hence the less-than-1000-DOW target in a few years I show on these charts.

But Dan, the DOW seemingly traced 5 waves down from 2007 peak already! What gives? So aren't we done with the bear market for now??? Doesn't those 5 waves down form the Cycle C wave of your proposed 3-3-5 Expanded flat? The theory is no, we are not! Why? Because we had likely only 5 Intermediate-sized waves down which only formed Primary wave 1 at the March 2003 low. Toggle these charts to unlog scale and you can see it doesn't look at all so wrong.

And hence the "Primary Wave 2" (P2) rally we are in now. And after P2, comes a nasty P3 in which prices seek out the lower purple Supercycle channel line I show on the charts.

Which brings us to my main point: P2 is merely a massive "backtest" wave testing the upper purple Supercycle channel line (the purple shaded dot on my charts). And as traders, you all know that when a backtest fails, it heads to the lower channel line. And since there was significant "overthrow" of the upper channel line, the theory holds that there may well be underthrow on the way back down.

In addition, allow me also to state why Prechter theorizes that the DOW will head back to the DOW 400 (yes four hundred) area: Because if we are in a Grand Supercycle wave IV then according to wave patterns this correction should take us back to the previous subwave (IV) price range. That is a basic tenet of EW theory and you can see me often point that out on squiggle charts....so yes they should apply to Grand Supercycle wave charts too!

And the previous subwave "4" of Grand Supercycle wave IV is Supercycle wave IV which was...DOW 400 or less from 1929 to the Supercycle price low of 1932. So the theory holds prices should retrace to this area. Yes it seems unbelievable that the DOW could again be less than 500 but it was only 1975 when it was 570. So go figure.

P2: A Massive Supercycle channel backtest that should fail. Nothing more, nothing less.

And Cycle C wave should consist of 5 primary waves down forming the back end of an expanded flat on the DOW or something to that effect.

Are the markets topping soon

Newsweek released a publication stating the recession is over. Pundits are talking about a new bull market and GS gave a target of SPX1000 as well as upgrading GE yesterday. GE shares rose, was up 9% intraday.

On the contrary, I have my doubts. Filtering out all the noise from CNBC, newspapers and TV shows, and plainly looking at charts and sentiment.

As the market retrace approximately 50% (target for the end of this bear rally around SPX 1121), caution is warranted at this juncture. Looking at the weekly charts, the SPX is tracing out a perfect ABC from March lows. We should be in major C wave of Primary B now, once this C wave is over, the entire ABC (Primary B) should end as well, marking the top. At SPX 997, negative divergences are starting to appear on all timeframes. There are 2 probabilites here.

1. The 5 impulse waves off the July 869 low is Intermediate wave A of Major wave C of Primary B. After a zigzag intermediate wave B correction, Intermediate wave C will bring the indexes to new highs, targetting SPX1121.

2. A truncated Intermediate wave A of Major wave C of Primary wave B ends the bear rally.

In both situations, another downtrend will occur to end this bear market (Primary A 1576-666, Primary B 666-? (target 1121), Primary C 1121 - ?)

We are now 5 months into this correction. If comparing this bear to a similar 1929-1932 supercycle degree bear which also retraces approximately 50% of its A wave in 5 months duration. And thereafter, it finished the bear in a devasting C wave.

Another indicator of a top will be public sentiment. Bullishness should akin to that of Oct 07 top, with media declaring a new recovery/bottom etc. Watch GS as well. Remember last year when GS announced a target of US$150-200/barrel oil ?? Soon after, oil hits US$140 and it fell thereafter.

VIX which represents volatility is also showing positive divergence. Once its MACD turns positive and it breaks out of its wedge, volatile times should return again.

Also of particular concern are the oil and precious metal markets. They bottomed in Oct/November, months before US indexes bottomed in March. They have since marked the top in June 09, with oil forming a double top. Even with the SPX and DOW making new highs recently, oil is not conforming. This is intermarket bearish divergence.

For Asia markets, they made their temporary bottom in Nov 2008. The Shanghai Composite Index has met its major resistance and dropped 5% 2 days ago. Though it seems like a change of trend, we need to monitor for a couple of days more to confirm if thats indeed the top. There seems to be a shift in the balance of power, or market leader. Asia and Commodities markets bottomed first before US or Europe. And if they now mark the top first, this would probably mean that Asia will lead the recovery first after the final bottom is made.

By then, fear will be everywhere in the global markets and there will be no bulls around. Thats the time to cast your fears aside, step in and BUY. I believe after the final bottom is made, US markets will be quite stagnant for awhile, hence a L shape recovery. Asia could be different. This transfer of the balance of economic power could perhaps be the major theme in this bear market.
With all these reasons, its now perhaps time to load puts or pile up on shorts and exit longs as we prepare ourselves for the next Wave C. The big bad one.

Good articles for reading

Here are some good articles to spend your weekend away.

1. Martin Armstrong July 10 article on "The Goldman Sachs Conspiracy - The Real Dark Pool"


2. Martin Armstrong article "It's Just Time".
This articles talks about his Economic Confidence Model and PI cycles. Included are also topics on Kondratieff Wave, Gann's Fibonacci and the Mayan mystery.


3. Kondratieff Long Waves
The Long Waves follow a cycle of 60 years. And its broken up into 4 phases from Spring to Winter, each lasting approximately 20 years (plus-minus). Many who studied the K-Waves believed we are currently in the Winter-K wave phase. A K-wave winter is characterized by a three year collapse, followed by a 15 year deflationary work out period. Quite coincidently, the Long Depression featured in an earlier post on KV, was a good example of a K-wave winter, as was the Great Depression of the 1930's. This period also seems to coincide with the attributes of Pluto in Capricon (2008-2023).

The original translated 1926 paper.


4. Elliot Waves Theory by R.N. Elliot
This is the core of my trading techniques. I used both EW and technical analysis in my evaluation of stock market trends. Using this theory, bull markets follows 5 waves, and bear markets 3 corrective waves. The degree of each wave determines the depth of correction and whether there will be sub-waves within each major wave. We have supercycle, cyclical, primary, major, minor, minute waves (from the largest degree to smallest). E Waves do not forecast or have the ability to pinpoint exact tops or bottoms, rather its more into knowing at which the trend of the current market and highlight probabilities of certain pivots and turning points. Together with technical analysis and fibonacci guidelines, it enhances a trader's ability to forecast with greater accuracy. E waves can be confusing, because people using them have different perspectives on the markets. If one believes we are in a supercycle degree correction right now, the targets for the bottom of the stock market will differ from someone who thinks we are merely going through a cyclical correction. The theory is never wrong, however the ones who use them are, hence counts are frequently altered. Even Bob Pretcher, the founder of Elliot Wave International were years early in his famous bear call and missed out the boom years from 2003-2007.

He marked year 2000 as the peak of stock markets. Following the NASDAQ bubble and dotcom crash, the US markets underwent a bear correction from 2000-2002. The bull years from 2003-2007 were not confirmed by DOW Transports. According to Dow Theory, non-confirmation is a warning signal. And if we view the SPX/DOW in real terms, he was right on. The stock markets were firing up in these years and so was silent inflation. If we measure the SPX or DOW in terms of gold, real growth peaked in 2000. The years thereafter were fuelled by low interest rates and inflationary growth.

Cycles

I am a believer in Cycles. I believed things are not created equal and though we strived to be so, it will never meant to be, at least not within our current age or eon. Perhaps, one day, human consciousness will move towards a higher state of being, but that era should be sometime away in the future. Throughout the vast span of time, matter is born, created, peaked, decline, die and the cycle continues. From the beat of our hearts, the sunrise and sunset, the moon cycle, the galactic cycles and whether its caused by the big bang, God's creation or karmic forces, human evolution has never ceased to stagnant or stop its ever changing path.

Life is about maintaining equilibrium. Finding peace and harmony from within. I had been searching for the answers as to why there is inequality. I feel sad whenever I see the underpriviledged. I always believe that one day, life will be equally good for everyone, even if that one day may be far far away. However, now that I realised, life was never meant to be a one-liner. I no longer feel the anger inside me. It is a sense of quiet calm and peacefulness after realising the truth. This is a sad truth, but on a positive note, inequality spurts growth and changes.

Opposing the natural path may bring more pain and unwarranted unhappiness. Communism, perhaps, has ended more lives, separated more families than what it initially stand for, equality.

Ancient civilisations had come and gone, Atlantis, Mayans, ....
Empires come and gone....Roman, Egyptians...
Countries come and gone....

From the past till present, history always seemed to repeat itself. In the cycle of human evolution, are we currently in the fifth root race of Aryans ?

There have been lotsa doomsday topics, which I probably take it with a pinch of salt. Not saying its not true, it will come true one day. But I guess that day is still far away. If you are a Christian or Buddhist, you'll probably be aware of the second coming of Christ or the next Buddha, Maitreya, who will be descending to Earth some 50,000 years later. So, we still have time haha.

Disclaimer : I am a free thinker and I do not specifically promote any religion in my blog. These are merely my findings and thoughts which I'll drop a line or two but will not go into details.

Perhaps one "end of the world" talk which is coming close is the 21 Dec 2012. This is the date where it marks the end of the Mayan's long count calendar and signifies the end of their times. They are skilled astronomers, and in no way had they particularly mentioned that this date is the end of the world. These are rumours that are unfounded. However, I do agree that this day probably heralds the start of a shift in human consciousness towards a higher level as we moved from the Age of Pisces to the Age of Aquarius. Hence, the end of their long count calendar marks a beginning of another era.

21 Dec 2012 is a special day, because it is also the day of galactic alignment due to the precession of the equinoxes. A rare occurence every 25,800 years which coincidentally, is end of a galactic year, also known as "cosmic year".

Additionally, in financial astrology, the period of 2008-2015 has been predicted to be tough and challenging in the global markets. It will climax in the year 2012 when the planets square one another in the Cardinal Climax. A good read from one of the renowned financial astrologers. Merimman Market Analyst.

According to Nasa experts, they are expecting a peak in solar activity in 2012. A good time to watch the Northern Lights heeheheh. I think there is a movie coming out in November that is based on this upcoming solar storm.

I'll share some information on economic cycles, particularly, Martin Armstrong and his PI cycle in my next post.

The September Dream - Choosing the right cruise ship

Hoo Ra ! I have not been blogging for sometime coz my mind is focusing on the september dream ..yeah ... its finally coming !

This is quite a last minute decision as I did not initially plan to go anywhere for the later half of this year. However, just suddenly wanted to travel so much and picked up my long abandoned plan to go Alaska. I loved Alaska, the pristine wilderness, the whales, glaciers, seals, otters, brown bears, i simply adore them. I dreamed of going there for honeymoon, but Jon is not a scenery lover and prefers artifacts, culture and buildings. So we went to Europe instead. I have always wanted to see the northern lights too, they are just so amazing.

Finally after nagging in his ears for 2 years, Jon agreed to go hahah. This trip may also be my last long haul one, for at least the next 10 years. No, I am not pregnant lol. But its probably time for us to start serious family planning from next year onwards. With a kid, I guess chances of such trips will be far and few. So I better grab this chance and chiong. . so in a tight timeline of 2 months, I have to start crash planning.

The first is to source for the right cruise ship. There are a couple of reputable ones such as NCL, Royal Caribbean, Celebrity, Princess etc. Each have their own pros, cons and caters to different markets. The ones highlighted below are some of the common ships which sail to Alaska and Caribbean.

NCL, Royal Caribbeam, Carnival - these are "fun ships" and are usually huge in size. Around 2000 to 3000 passengers onboard. They have more amenites and caters to families, kids and young people.

Holland America, Princess, Celebrity - these are the more premium lines. They have more exquisite and award winning menus. Services are usually much better. For Holland America, most ships tend to be smaller in size, allowing them to cross passages which are not available to bigger ships. The passenger size is also smaller, allowing for a better space ratio, without everyone squeezing on deck just to see glacier calving.

Cruise West, Regent Seven Seas, SilverSea, Azmara - these are luxury cruise ships and are also smaller in size. These are fantastic ships to be on, if you have the budget. They are all inclusive ships, which means gratituties, shore excursions, alcoholic beverages are included. There is a promotion going on right now by Regent Seven Seas. They offer 1 for 1 cruise fare, free and unlimited shore excursions for 2010 vogages.

Many cruise lines are going to reduce their sailings to Alaska in 2010, hence prices could probably incease. So, another good excuse for me to go this year haha.

NCL is a good choice for people who prefer freestyle cruising, ie, no restrictions to dress code, no fixed dining hours. I loved it too, but was quite put off by reviews mentioning that there are always long queues on every restaurant during dining hours. One thing I like about NCL, its famous Chocolate Buffet ! Yummy !

After much consideration, we decided to go for Holland America (HAL). HAL cruisers tend to be more "mature", meaning older in age. HAL has a long history of traditional cruising, yet is also modernly equipped to keep up with the times. Frankly speaking, I prefer a more mature crowd. Kinda make me irritated if I have to see kids shouting and chasing each other around the decks. Its also smaller in size, which I prefer as well. I am not into entertainment, so no night parties is fine with me. Food and service are excellent. And also, one important factor, is HAL's staterooms. After comparison, they have bigger staterooms than most other ships, making it more spacious and cosy. They also take good consideration of beddings and duvets. If not wrong, their beds are Sealy's.

All food are included in the cruise fare, no matter which cruise line you take. Hence everything that you order in the restaurants are free, except specific specialty restaurants. For drinks, only tea, coffee, plain water are foc. Alcoholic drinks and juices are payable. But these will be included in the luxury ships.

There are usually 2 formal nights for a 7 day cruise. Gentlemen are to be decked out in dark suits with tie or tuxedos. For ladies, it will be evening gowns. Most cruise ships observe these dress code. It is a good experience and it can be fun. But we have decided to skip the formal nights and dine in Lido restaurant during those 2 nights. I do not mind bringing an extra pair of heels or gown if I am just going to Alaska. Its just troublesome having to bring these for 2 nights when we are heading to Rockies and Northern Canada after the cruise. Hence, we'll dine in the Main Dining Room on normal nights, and Lido on formal ones.

More on the Rockies later, to be continued.....