There seems to be something almost magical about 7.42 percent. Because here we are, rallying in the face of calamity. Although our first-leg down from the all-time highs was much larger than ’29, so too our bounce seems somehow drawn towards that 7.42% rally of the first leg down in 1929.
You’ll remember what happened next: The Crash of ’29.
Our whole freakin’ economic future is up for grabs right now. While we got some nice downside action early Monday, the “Hopium” was lit and passed around early. In advance of tomorrow’s coming Revelations about jobs. This particular Revelations version has three chapters: Chapter 1 is the Gospel According to ADP. Following that is the Angel of Cuts by Challenger. Chapter 3 (which we expect to be fictionalized) will be The Gospel According to Bureaucrats. If the unemployment rate comes in less than 15%, Ure figures it will all be lies to “Save Normalcy!”
Beef’s in short supply, and did you see in England how “Hot-desking banned, separate with screens, canteens closed and over-70s and the obese working from home under leaked plans to reopen offices that could remain in place for a YEAR?” Yet, in this Disney-fied world of G-20 free money for globalist Fat Cats, the UK FTSE was up more than 1.7% this morning. They miss the memo about how a mutant strain of the shit will will be even more transmissable?
Yet, the outcome in Markets is anything but clear.
To see why, you need a short trainer on Elliott Wave theory. R.N. Elliott invented it before you were born. Unless you were born prior to October of 1940 because that was when his work “The Basis of the Wave Principle” was first published.
A couple of core concepts for you:
- Markets generally move in 3 or 5 wave steps at a time.
- Waves may be impulsive *(in the direction of a larger trend when considering smaller waves) or corrective (against the larger trend).
- Wave 3 is normally larger than wave 1. And may not be the smallest wave.
- Wave 5 is normally larger than wave 1.
- With smaller waves (subsets of a larger count) if corrective wave 2 is “complex” (*ugly up and down) then wave 4 will usually be “simple” and graceful – usually faster, too.
There is a lot more that I’ve picked up from reading lots of books on but also from my friend Robin Landry who was one of the key players in figuring out the algo’s behind what would become e-Signal. There is so much depth to Elliott, that while it’s a good trading tool on its own – with always something new to discover – it becomes on of the most powerful tools in the investor’s toolkit.
There are lots of other approaches – technical analysis, regression channels, On-Balance Volume, fast and slow stochastics, Relative Strength Indicators (RSI) and the MACD – moving average convergence/diverge – that make knowledge of the stock market almost a kind of “alchemy.”
Having said all this, however, even with as much knowledge as we can muster around here, there are still moments when “The Future is Up for Grabs.” This week is, in my view, one of those times. In the very short-term it may not “feel” different, but there are monster forces in play.
The problem comes down to the main problem with the “pure Elliott approach.” There is always an alternate count. Here’s how our daily Aggregate Index chart looks as of the early futures this morning. I want to show it to you so you can see the deep conundrum we’re in.
Let me walk you through this using my “color code” approach to avoid confusion.
Start with the yellow box near the middle. In Elliott terms, this would be wave 1 down. IF the move down is markets generally is to continue, then the ensuing move down from the top of the present Wave II would have to be larger than the thin yellow box (and the blue arrow at the bottom of it) indicating the minimum downside required for Wave III down.
Easy-peasy? Well, yes…and NO.
Let’s look at the structure of Wave II – which we are either IN or it’s OVER.
The case for it being complete is shown by the a-b-c labels. As long as the Aggregate (or you could use the S&P 500, if you don’t use our Aggregate approach), this count (it’s over, essentially) remains a valid possibility UNLESS we go higher than the top of the “c” of Wave II. If THAT happens, then we are in a five wave move.
And this brings us to the Green and Red boxes.
The first move up of the II (labeled “a”) is simply copied and pasted and placed at the bottom of the “b” down and it then meets the test of “c” (or 3) is larger than “a” (or 1).
Because under Elliott the minimum upside for a fifth wave is at least equal to Wave 1’s, we can copy Wave 1 (green) and line up the base of that with the bottom of what could turn into a Wave 4 – if the market is really going higher.
That’s Another Fork in the Future
I refer to today’s market conditions as “crooked” with good reason: The U.S. Government – by (I hold illegally) delegating the power to create money to the Fed – then letting the Fed play the markets – has killed honest markets.
Imagine yourself walking into a casino with “perfect odds.” You get on a hellatious roll at the craps table and you keep letting your bets ride. Soon, you’re in a position to “break the bank” and “win the house.” That’s the nature of luck and runs of luck.
But suppose down, just as you’re about to “win big” the House goes out and gets a loan for $300-gazillion dollars at zero percent interest.
You know what happens next: As some point every winning streak ends. So on the next roll (“Big Shooter coming out…”) you lose, House wins all its money and yours. You go home to sell the home you backed your bets with and the Casino pays back the loan (the Fed) and everyone but you makes out like bandits.
That’s what’s going on in the markets right now. There’s no honest price discovery because the government is feeding what is essentially unlimited cash into the few, chosen, obedient suck-ups who then “coordinate” a bit…and yeah, it’s a crooked casino, as we see it. Worst of all, as a pseudo-government entity, they are freed of the worries of collusion, price fixing, and all the rest.
“We have a charter from Congress and we’re working to preserve pension funds and America’s savings…” Jesus, I can hear it now. Wrap crooked up with a flag and serve for dinner.
Yet, it’s here where the small-time (yet still honest) investor reaches for the barf bag.
“OMFG George, didn’t anyone notice that three major bankruptcy filings landed Monday? J. Crewe, Hertz car rentals, and Gold’s Gym all filed BK’s due to The Virus???”
Um…well, there is that of course. But, what part of CROOKED CASINO wasn’t clear?
Cereally? Two economic papers worth reading: The NY Fed trying (Staff Report #921) to explain how Spanish Flu had a wide swath of financial influence lasting more than a decade. See Kristian Bickle’s staff paper “Pandemics Change Cities: Municipal Spending and Voter Extremism in Germany, 1918-1933” here. Care to calculate the diffusion factor for massive disease outbreaks? Since the paper argues 15-years of impacts, that would put us into 2036 before… (WW III comes first, so maybe won’t be worth forecasting that far ahead.)
The other economic paper worth reading will be “Hyperinflation as Synthetic Growth.” This one will be on Peoplenomics Saturday morning, but I have no idea on the conclusions because I’m still writing it. Stand by. Fed’s doing its part on the hyper-inflation, though. (Tomorrow, Peoplenomics will talk about how to wean off the “information and IP addictions” that keep people from a) retiring and b) living (more) happily ever-after. More a “rubber meets the road” discussion.)
Breaking: International Trade #’s
Trade Wreck: Think this will inject any reality into stock prices? I’m not holding my breath:
Exports, Imports, and Balance: March exports were $187.7 billion, $20.0 billion less than February exports. March imports were $232.2 billion, $15.4 billion less than February imports. The March increase in the goods and services deficit reflected an increase in the goods deficit of $4.6 billion to $65.6 billion and a decrease in the services surplus of $0.1 billion to $21.2 billion.
Year-to-date, the goods and services deficit decreased $28.1 billion, or 17.8 percent, from the same period in 2019. Exports decreased $21.7 billion or 3.5 percent. Imports decreased $49.7 billion or 6.4 percent.
Gosh, this has sure been fun, huh? Dow futures are up more than 300 points now. Print some money for the little people why they’re at it, pleeze?
Write when you get rich,