Monday, March 2, 2009

Special: Review of Reviews

This is meant as a recap for some of our longer term forecasts with additional information for the year 2009. Its quite a long post so get your coffee ready

[January 21 2009 - The turn has begun]
“We will be creating new lows in the next 8-12 weeks and should find it around the 620-640 range - by new lows I mean at least 50+ points away from our current low.”

[February 11 2009 - Back in town]
"I am going to state, even before our confirmation, that our trend decision is in and we will be moving towards the downside - a scenario I had described earlier."

In January I had posted 2 mid term outlook possibilities. The first was a rally towards the 1000 range that of course failed as the signs needed for this to occur did not materialize. The second more likely scenario inline with the primary trend is the turn towards the mid 600 range by end of March - mid April. All signs for this fell into place as we had anticipated. I am going to state it again and I apologize for sounding like a broken record but a break of the 800 was the sign of signs for the market. You all know that I was not a believer of the double bottom even though we had some signs occur last week but in my commentaries I justified those moves but also stated that a big change needs to occur before the big players stop selling their positions.

[February 1 2009 – Weekend Special: The other side]
The second long term post followed shortly there after went into purely technicals related to the 5 wave theory. I had stated that I may have been off on the wave count and it seems after more review I was off by quite a bit and came to the realization that we could still be in wave 3. This of course is very bearish but also confirms our long term targets of the 400 range. Wave 3 ratios were explained with a possible ratio of 1.61:1 up to 2.61:1. Here were my numbers:

“One thing we have to our possible advantage is the wave 1 to wave 3 ratio is normally 1.61:1 or only slightly more (on rare occasions up to 2.6:1), our ratio currently is 2.2:1 leaning towards the strong side (wave 1: 1575 - 1257 = 318, wave 3: 1440 - 741 = 699).”

“There is a possibility that my wave count for wave 3 and 4 is incorrect - in elliot wave theory wave 4 is the most difficult to count correctly from start to finsih and only becomes clear once wave 5 is confirmed.”

It seems we are still in wave 3 until we hit our 6XX range targets. A 2.61:1 ratio for wave 3 (which is very possible) would bring wave 3 at a total of 830 points which off the 1440 top means 610. I do feel we will bottom out before but as you can see those numbers are inline with my 620-640 range. There are many ways to forecast and I generally resort to many technicals in combination with fundamentals to make my calls.

Today we closed at the 700 range, a range that I feel will hold at least the next few days. While we have the 650 range right at our doorstop the market cannot get ahead of itself here. I still feel that my final price targets will occur within the time window outlined but there is a chance as mentioned last week that they could be occurring within the next 2 weeks which would bring it anywhere from March 13th towards the end of March.

What comes next?

Well after the mid term lows are in I feel the market will find new bulls and new excuses to go long – yes I said excuses. I do see us trading back towards the 741 range with a possibility of kissing the 800 one last time before we say good bye for the long term but we need a lot of commitment from the bulls to make this happen so stalling here before those targets is very possible. This should play itself out towards the May-June time frame where we will be finding our top. Of course this time around I will attempt to be more accurate and provide more frequent updates to both time and price. After this occurs we should be entering our last phase to one of our primary bottom targets. I do not know of the 400 range will be our final bottom but at least its our first step.

[October 29 2008 - Where are we headed long term?]
"The next Big (orderly) Crash – the next big event we have to deal with is the redemptions out of mutual funds and 401k’s. I see huge risks with the average investor being sold on the idea that the bottom is in and we will continue on the upside. Seeing the DOW at the 10K levels again will bring back huge amounts of confidence, investors are more comfortable now that they have recovered some of their losses and greed will step in again with low risk investments being moved into more risky ventures to get in on those “undervalued companies” that are begging to be bought and bring huge returns back how we had them in 2007. After our top around the turn of the year our downtrend will continue in an orderly fashion, nothing like we had seen in the past 2 months. Sense, with a hint of fear, will slowly set in again when we will trade back towards the 700-800 range. Here is where I believe we will start to see a huge change in the market place with more redemptions coming from Mutual funds based on 401K liquidations or moves into bonds and other stable investments. This will be a long process and by the time we are done we will have our 400 mark on the S&P towards 2009/2010. You may call me crazy and yes I agree I am worst case scenario kind of guy but I rather prepare for this event and be called out in 3 years about how wrong I was then to blindly follow a path that has risk and loss written all over it."

It is my feel I maybe wrong on this time target – why you ask? We are down around 50% now from our tops. Many average investors have held on and continue to hold on – keep in mind that many look at their losses in 401Ks a bit different “well, most of my losses were the contributions so my own money has not lost all that much in value” – as we are nearing those pain points where the average investor will see his own money being lost, emotions will set in and decisions will be made on 401K holdings just as we had forecasted. This will be the last nail in the coffin for the market.

We knew about this before so why does this move up our price target?

[Feb 11 2009 – Back in town]
“The market has been very disappointed by the bailout as it lacked any type of direction or detail needed. Hearing Obama on TV is very scary. There is only a small percentage of people in the US that really understand the severity of what we are going through. [...] However, Obama is painting a picture that is much more severe and graphic for the normal consumer to even understand.

- "catastrophe"
- "tanking economy"
- "worst recesssion"
- "unreversable downfall"
- "worst crisis in our generation"
- "[insert strong graphic word here] since the Great depression"

Those are just some of the words used by our new president. I understand this is also a lot of politics, trying to paint a bad picture to put pressure on congress to allow him to do the things he feels are needed, showing a bad picture so once the economy recovers by the end of his term he can take credit for it. I think he is walking a very fine line between using the proper words to his political advantage and causing damage and fear to the average consumer that does not have a full understanding of economics.”

This is a change in the market place I did not expect and could play an important role in our recovery off the 600 ranges. [EDIT: March 6 2009, clarification] The acceleration I have been talking about is primarily attributed to the above change in the market place. The administration failed to inspire confidence in investors and consumers and as a result we have come close to free fall levels again which can severly affect the remainder of the year unless we will see some changes [EDIT complete]

If we overshoot into the low 600’s our retracements to 741 and 800 will become less likly both in price and also in time. This could mean that after the formation of our top, which could be quite a bit lower around May/June, we could be seeing 480 by September 2009. While this is quite a drastic move and much stronger then I anticipated it is inline with the current market and consumer sentiment we are seeing.

The consumer needs to see that the administration has a handle on this crisis and has all the right people in place to ensure that America as a nation will emerge stronger once this crisis is over. Thus far I have to be honest I am a bit disappointed and if we are keeping score its crisis 1 : administration 0. Lets see if we can even out the playing field in the next 2 months to come.

This month will give us great clues and signs that we can use to apply to our long term targets. Looking at our current down trend it is quite a bit more orderly then anything we had seen in October but acceleration is occurring, we have dropped quite fast from the 800 range which of course is explainable (remember the bungy cord reference) however we do need to put on the brakes here at 700. If we maintain our current acceleration which I feel will not occur I need to sit back down on the drawing board to re-evaluate our price and time targets.

Many of my longer term calls were fairly high level and looked at much wider ranges. I have also been off on quite a few price targets for the retracements we have seen. There is one specific post in early December that I just want to DELETE but unfortunately this is not how it works - I was emotional coming off quite a loss and made long term calls without justification - I can tell you this is not occuring here this time and I have learned from that mistake.

As I am getting more accurate in my short term forecast abilities I try to apply many of my findings on the long term horizon as well. As you can see here I go into quite a bit of detail and tried my best to show what needs to occur for those forecasts to remain valid. So take what I give you for what it is - an attempt to foresee what will occur in much more detail in times when many are saying this market is unpredictable and no one knows what will occur. Thus far we have been on the winning side and I will do my best to try to remain there =) I am fairly confident as I would not be posting it otherwise - keep in mind once I make a statement I cannot retract it again and if I am totally off here - well you know what then, I will just be some blog poster thinking he can predict the markets.

So if I end up being way off in the way we will arrive at our lows for this crisis I am still confident of the 4XX being one of our major stopping points, at least that is something we can take from this.

1 comment:

  1. I edited the above post to clarify my statements regarding the administration. While it was assumed I was talking about this in reference to our acceleration I wanted to make it crystal clear. Also added the reference to the trend confirmation from Feb 11.