Wednesday, October 17, 2012

End of 12 year Correction Update and Why this W1 might take out 1475

Technically I should be posting the charts today separately but for the sake of time I am putting them on the same post. So first I will go over today's market and second I will follow up on my post on why I think the 12 year correction might be over soon.

First the SP500, is there anyone out there who still thinks we're going sub-1400? As I have noted on my September 6th post, people who missed the rally were probably going to jump in at the 50 day ma there is no doubt that's what happened. The market is now aligned with other markets (most notably emerging markets which have been sky rocketing) and SP500 @ 1500+ might just be around the corner at this point. I see 5 waves complete on this bullish wave but it is not as neat of a structure as the "perfect 5 wave count" I posted about last week. So the top today could just be the end of the nested W3 and if that is the case, we are going to get new highs for the year in the next few sessions. I continue to regret selling my XIV early but I am enjoying my emerging markets longs, in fact I am tempted to lock in profits but I am going to let them ride to the sky :) What I did do today was buy XIV's cousin, the very dangerous VXX at 33.10 which in pre-inverse split prices would equal to 8.27!! it wasn't not all that long ago I owned thousands of these things at $20+ and good thing I usually sell them fast.. next time I might just use SDS or triple shorts to hedge, at least they seem to be more clear.

Long Term Portfolio: 100% Long (Emerging Markets Only)
Short Term Trading Strategy: Bought VXX @33.10 as of 10/17

Now the following is the follow up from the post on the end of the 12 year correction. So first, take a good look at the chart.

As I've said numerous times before, I don't trade on long term counts and I wouldn't advice anyone to do so either. But these are interesting to look at and they can provide a guide to riches and right now the option of a break out of the 12 year pattern is becoming very likely. But first let's deal with some basic Elliott Wave theory, one of my basic rules is I do not believe in any type of "Cycle" work. It is pure BS as the people who came up with it failed to account for inflation and real GDP growth. So instead we see charts of "what would have happened" if we priced the market in Gold, etc.. pure BS!

What has happened since WW2 is the market going up in strong W3 like rallies that are broken in 5 waves. After these strong waves, markets have either consolidated sideways in multi-year corrections or have dropped and recovered quickly. In looking at the charts, the last time we had a multi-year sideways correction was the period I posted on the chart (before that was in 1955-58). And if you take a clear look, years from 1967-1977 are almost identical to 1998-2012. The US dealt with long wars, recessions, high unemployment, high oil prices, etc. But what happened after the 1977 period was a couple of years of slight higher highs and lows before breaking out of the pattern and tripling in price within 10 years time, this after being stuck in a trading range for almost 10 years. So now we find a very similar situation and there is a good possibility markets are about to break out of the pattern and go up for 10 years as other breakouts in the market in the past. And while I understand there are many bad news around, how do you think the news were in 1977? they were dire but look at what happened. Also, one index that might give us a clue is the Russell 2000. It is close to breaking its all time high and should this index break out of the pattern so will other markets. The RUT has always made a new high along with the other markets, so odds are if the RUT makes a new all time high so will other markets.

As to what will fuel the new multi-year bull market is anyone's guess. It could be an inflation driven rally, emerging markets, etc. But what matters now is that the long term trends on all major markets are pointing up, so maybe is time for a good ride up.

And I'll leave you with the debate from 1980 between Reagan and Carter. You can see how similar some of the issues are when compared to the debate last night between Obama and Rommey.

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