Three very different pictures of the future are emerging at what we think of as the “financial sports book.” And two of the three views are driven by some basic Elliott-wave thinking.
The first future is the one that should near completion in coming days or weeks. That’s the future where the big Wave 1 down from all time highs resulted in the Wave 2 bounce that appears to be completing.
Unless you are a Peoplenomics subscriber, and playing the “home version” of Aggregated markets, it may not be clear. But in the Aggregate, we put in a low (bottom of Wave 1 of 19,841.45. From there we got our first Wave 2 action up to 21,234.75. Whether that’s an A (or 2) will be revealed eventually.
Point is, we pulled back to 20,667.58 for a (ii) and then drove up to 22,681.34. A powerful Wave (iii) this one completed January 18 just ahead of the three day MLK weekend. Oh, options day, too. (Just like this week.)
The Wave (iv) candidate is the low of 22,330.05 that came in on January 22nd.
From there, the Wave (v) of II (or (v) of B) got rolling big-time. As of this morning, based on futures pricing, we’re likely to trade around 23,531 level today.
One of the basic rules of Elliott is that Wave 5 must be equal to (or larger than) Wave 1. Knowing this, and seeing that the first wave up was 1,393.30, we can add this to the Wave (iv) low (22,330.08) which means the Wave (v) of II COULD end and we could be heading down in earnest sometime over the next couple of weeks.. Still, with a possible level of 23,723.38, as a target, there’s a slim chance of another 5/10ths of one percent upside between now and the Friday close.
That’d be graceful. But it’s here that the future could divide.
You see, if the market begins to break down in the next week or two, and this is the “end” of larger waves, we could pencil out a future where the market goes down like crazy for a month or two which would be logical given that the Wave I down lopped so much off the market. The largest wave is usually Wave III and we could be set for entry into that. So take the big market declines of 2018 which fell from 25,006.29 down to 19,841.55 in December and think of that as a “getting started decline.”
OK, this is horrific but it would be a logical result of everything going badly in the real world outside of markets. The border funding could still shut down government. The trade talks with China could still implode. Europe could fall apart and that might be bad enough that money which might have taken refuge in the US market would be called home to pay off bad margin calls and so forth.
Toss in an actual report from special persecutor Robert Mueller that reveals genuine, legit, efforts to use the Russians to influence elections and back it up with an impeachment drive that gets legs, toss in Melania getting sick of it all…well, in THAT kind of future, the market’s wouldn’t prosper at all.
But Wait! There’s a Bullish Case!
Just as there’s an “all things go wrong case” that the markets could track, there’s a bullish case where “everything goes right.” The Trumps live happily ever after, there’s no Mueller report despite the “process crimes” because who even remembers what was for dinner 3-weeks ago, let along what happened 3-years ago while smoking a cigar and sipping drinks?
In the bullish case, there’s a minor pullback for a subdividing II, but then reveals itself as a smoking Wave III up which, instead of crashing, reads nothing but good news. Some El Chapo money goes to the wall, making good on a Trump promise, there’s nothing impeachable and that peters out, the democrats begin to self-destruct on the radical socialist idiocy.
In the Bullish case, there’s a pullback following the options expiration and a logical top to the recent rally. But it would turn out short-lived and we would see oil prices, precious metals and the like begin to firm and gold and silver would begin to move up again. So would interest rates and the Fed would come up with two more hikes that merely slow the rate of climb down to something less manic.
Still Shares and oil at three-month highs but no love for euro and gold holding over $1,300 supports the idea.
So there are two versions of the possible future. And the third? Well, that would be a kind of “None of the above, we muddle along.”
This is what making investing very much like playing “Russian Roulette” with two bullets in a three-cylinder revolver.
Regardless, as the futures have been advancing as I write this, looking to me like the odds of another one percent advance from where we will be trading today isn’t statistically probable enough to get us out of cash. The future will be along soon enough and no point making brash decisions.
The future wears a ghillie suit, but the Elliott and Aggregate tools are useful when you’re trying to spot movements in the brush while you still have tactical advantage.
Now, About Christmas!
We just got the fresh Retail Sales data for December – delayed because of the government shutdown. Let’s roll with that first: Que the graphics:
“Advance estimates of U.S. retail and food services sales for December 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $505.8 billion, a decrease of 1.2 percent (±0.5 percent) from the previous month, but 2.3 percent (±0.5 percent) above December 2017. Total sales for the 12 months of 2018 were up 5.0 percent (±1.4 percent) from 2017. Total sales for the October 2018 through December 2018 period were up 3.7 percent (±0.5 percent) from the same period a year ago. The October 2018 to November 2018 percent change was revised from up 0.2 percent (±0.5 percent)* to up 0.1 percent (±0.4 percent)*.”
What this means is that spending on Christmas this year was about like last. Because while there was an increase that was all basically offset by actual year-on-year inflation.
Next out is the Labor Department’s January Producer Prices report: Simply put, it’s looking a little deflationary to us:
“The Producer Price Index for final demand edged down 0.1 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices also fell 0.1 percent in December and inched up 0.1 percent in November. (See table A.) On an unadjusted basis, the final demand index advanced 2.0 percent for the 12 months ended in January. .”
See the problem? Blue line: Final Demand Goods. Are we arriving at the long-discussed Consumer Super-Saturation? Damn hard question that, but after you own 3-UHD TVs and two cars per person what do you really need besides food? (We could argue about whether you needed that “other stuff” another time.
Later on today, business inventories report at 10 AM Eastern and then the Fed H.6 Money Stocks after the close which will give us insight into which thumb is on which scale and how heavily.
Oh, look, now the futures are looking a bit glum because of all this deflationary stuff..now the Dow’s up only 80.
Italy Out of Olive Oil?
Interestingly, this is being blamed both on disease and a COLD SNAP which falls into the “climate change” bucket by the climate marketers but to more rational people it’s just “The Weather” which has ALWAYS been variable…(But who do you know who has been telling you for how long that an extended Solar Minimum could bring food shortages?)
See, one of the things that happens at the end of an economic long wave is prices hit bottoms. But then they begin to rise. And if there’s a Depression lurking in our future, be ready for “hungry times” ahead.
So far, not much to worry about. In New Zealand, for example, a big ag country, “January food prices rise 0.8% from year earlier.” while here in the U.S. the Consumer Price report out Wednesday revealed ” The food index increased 0.2 percent, with the index for food at home rising 0.1 percent and the food away from home index increasing 0.3 percent.”
The management problem for the government continues to be making the transition from pernicious deflation (where prices go down and the purchasing power of money goes up) to the “other side of the gap” where prices go up and so people don’t “sit on their wallets.
Refer to the previous story about Producer Prices. Those need to go up and since they’re not, we aren’t yet- buying into the idea of a bullish big wave up on our doorstep just yet.
U.S, Dept. of Interesting
General Motors launching AR?V ‘sweat-free’ electric bike company. We’ll take two…
Some else is rational: Sen. Joe Manchin slams Green New Deal: It’s not a deal, ‘it’s a dream’. Or, political crack to the phoneheads.
Since both Elaine and I are over 70, this kind of story gets out attention: “Going Broke Remains Top Concern in Retirement: Survey of CPA Financial Planners.”
And the EU scores another notch in our “They can’t govern but they sure bitch a lot…” tracking as Google, Amazon among those targeted in EU unfair practices digital rules.
House guest coming today so busy banging the keys today until he arrives…moron the ‘morrow with the moron being you-know-who…
Holy smokes! Dow futures now negative…I must not the the only one seeing deflation lurking despite the Fed’s hype and rates…..