The Long Crisis

Archive for the ‘stocks’ Category

For the last several weeks we’ve been very concerned that all the major indexes are in “thin air” and have exceeded some key Fibonacci retracement levels. But certainly, the poor price action over the past few days, with the Dow closing Friday at 10120. 26, down 115. 75 points, is a strong indication that the concerns are justified.

This new short video explores that and looks at a key Japanese candlestick formation that could really make a difference and be the first clue in the demise of the Dow. The fact that early in the trading day the Dow rallied over 100 points on news that GDP for the fourth quarter of 2009 expanded at a 5.7% rate and then reversed in the afternoon to finish about 53 points lower is certainly bearish price action.

In the video I’ll also show and share with you a specific number to look for in February. Should this level be broken, then it will signal a major reversal to the downside for the Dow. We are not talking about a minor correction here, but a complete trend reversal, one that will be very violent and catch many traders by surprise.

Watch the video you see if it all makes sense to you. As always our videos are free to watch and there is no need to register. Bear Market Wave 3 Video Enjoy the video and let us know what you think on our blog.

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In an interview with Reuters, Robert Prechter, president of research company Elliott Wave International in Gainesville, Georgia and known for predicting the 1987 stock market crash, said that the next leg of the bear market in stocks has probably begun. Prechter further says that stocks as well as gold and corporate bonds are likely to slide as the U.S. economy suffers long-term weakness.

For investors in stocks this is “the last chance to get out with the Dow in quintuple digits,” Prechter added. Prechter is forecasting a long-term deflationary environment for the US economy which may last until 2014 to 2015. Prechter is a highly regarded financial analyst and is considered a leading authority in the application of Elliott Wave theory.

According to Prechter there is a very good probability that the highs have been seen in the Dow Jones industrial averages and that the rally from the lows from March 2009, even though the rally retraced about 53% of the losses from the all-time high, was merely a rally in a long-term bear market. Prechter compares the advance to one that occurred in 1931 in 1932 that advanced an almost identical 52.9% before the market collapsed to new lows.

Prechter is forecasting that wave three of the bear market has probably started and before the bear market has been completed the March lows of March 2009 will be taken out. Wave three is the wave that travels the furtherest in the shortest amount of time. Many traders will be taken completely off guard as the wave begins and will suffer heavy losses as the wave progresses.

Prechter is forecasting that the likely bear move will be violent and extremely severe. According to Elliott wave theory, as explained by Prechter, the current bear market involves a super bear cycle and will be the most severe for at least the past 200 years. The ensuing wave of deflation will take no prisoners, and will decimate stocks, bonds, commodities, as well as real estate. In fact, the deflation will be so severe that he thinks the only investment that makes sense as an asset class will be cash.

In regard to the US dollar, Prechter forecast that a deflationary period of depression will bring strength to the currency. The reason for this is that in a depression bankruptcies, structured settlements, foreclosures, and debt liquidation, create losses and take dollars out of circulation. For example, if a real estate project worth $100 million goes into foreclosure and eventually sales for $50 million dollars, the difference of $50 million is simply lost.

The money does not appear in anyone else’s account, it has just disappeared into money heaven. The fact that a depression causes dollar destruction means that the remaining dollars have more value. In a depression, cash becomes king. Those who have cash find that their cash becomes more valuable as they can purchase just about everything at lower prices.

While it is far too early to say with certainty that Robert Prechter is once again right with his forecast the price action of the last several days strongly suggest that he must be taken seriously. For the stock market to fall about 555 points on the Dow, only to rally today by 23 lousy points, is extremely bearish price action. Over the past two weeks weakness in the gold market and commodities in general have correlated with renewed strength in the dollar. All of this price action is in line with Prechter’s forecast.

If Robert Prechter is correct about this being wave three in a bear stock market the next few weeks, and indeed all of 2010, will likely be an extremely painful period for stock market bulls. A wave 3 in a bear market typically will have sharp sell-offs followed by weak rallies, each followed by another sharp sell-off, until the wave is eventually completed. The price action of the past four trading days will conform to that pattern if another sharp sell-off takes place.

The price pattern of the next few days will be critical. Any further sharp brutal sell-off would be fair warning that we are in a wave three of a bear market. If Prechter is correct about this being the beginning of a bear super cycle the year 2010 will be one long remembered by stock market traders. Unfortunately, it will only be short sellers that will be able to talk about 2010 with a smile on their faces. Those who are long stocks during such a cycle will probably never want to talk about stocks again.

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For those of you who have been around for awhile in the investment world, you probably know that Doug Casey is a well known international sportsmen, speculator, and all-around investment guru with a darned good track record. The following is Doug Casey’s take on the present state of the stock market. While he doesn’t by any means give a date certain Doug strongly predicts that a stock market crash will take place in 2010.

The following article is from one of his publications, “Conversations with Casey”.
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Doug Casey: “Stock Market Set to Crash”

(Interviewed by Louis James, Editor, International Speculator)

L: So, what’s on your mind this week, Doug? I understand you’ve had a “guru moment”…

Doug: Well, it’s nothing but a gut feeling, but I think the stock market is riding for a big fall this year.

Everyone was afraid the world was going to come to an end a year ago, and it almost did. But governments all around the world stepped in and printed up trillions of their various currency units – it’s not just the United States. And still, retail price inflation hasn’t blossomed. It seems that governments are bent on keeping asset prices up to avert panic. They focus on controlling perception instead of fixing the problem. It stems from an economic version of the theory that all we need to fear is fear itself. As long as we have the right psychology, everything is going to be okay – total nonsense.

L: That old saw: as long as there’s confidence, all is well.

Doug: Yes. It’s the Wile E. Coyote theory of economics. As long as you never look down after running off a cliff chasing the roadrunner, you can keep treading air. Unfortunately, although the power of positive thinking may help in many ways, it’s of zero use if you continue living above your means and making stupid decisions.

L: Insolvency doesn’t seem to matter; as long as everyone has confidence that things will keep going, the experts believe they will. But in the real world, you can’t remain insolvent for long, even if “you” are the United States as a whole society.

Doug: Exactly. My thinking about the stock market is this: corporations have done as “well” as they have mainly by cutting expenses. Laying people off, that sort of thing. So the bottom lines have not fallen as far as we might expect – but the top line has been hit. Revenues are falling for corporations across the board.

L: And the market has to notice this reality sooner or later.

Doug: Yes. The world’s financial system has to adjust to a new reality, one with lower levels of consumption and differing types of production. The legions of unemployed are not going to go back to work anytime soon, at least not doing anything like and his team are thinking quad they were doing before the bubble burst. The economy is going to continue deleveraging. There’s going to be less debt to allow the purchase of all this stuff people have been buying, resulting in lower corporate earnings. So it’s hard to see revenues doing anything but continue to spiral downwards for years to come.

And then there are financial “accidents” waiting to happen.
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For more information about Doug Casey, and what his team are thinking about the current investment climate go to his website, Casey Research.

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