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Commentary on politics, technology and stock markets guided by Elliott Wave principles. Is Bob Prechter Hari Seldon, and has he invented Psycho-History? Or is Elliot Wave no more than Ptolemaic epicycles? On Cheer's, Cliff Claven said he had an infallible system for predicting the next President, and it could predict all prior elections. His prediction: "Yelnick McWahwah." And yet, Elliott often provides remarkable predictions. Stay tuned.
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Friday, October 31, 2003
Beware the Nones of November
As we track the Decline and Fall of the Greenspan Empire (aka The Greatest Asset Mania of All Time), the timing of the elusive Wave 2 top is the next big thing. We all know the Ides of March is mid-month. Less known is another day in the Roman calendar, the Nones, which in November is Nov5. The STU today sharpened their forecast for the top to the Nones of November: a top around Nov4 - Nov6, with Nov 5 as most likely. This date comes from several angles, but primarily they recalculated their mapping of the 1987 market pre-crash to the 2003 market, and found they had been off by four trading days, so on a trading day basis, they pulled back their original Nov11 prediction to Nov6; and on a calendar day basis, they similarly came to Nov4. Beware! A bit of a gutsy call, given the 7% GDP growth announcement today, and continuing ebullient optimism. Maybe the Ghosts of Crashes Past visited them this Halloween, and gave their prescient third eye a 'peak' ahead. Timing is the elusive part of Elliott Wave, but wave height and pattern is not. Under the STU count, the Dow should not breach 10116, or their count is off; and if it breaches 9500, the drop is in. Tuesday, October 28, 2003
Prechter's New Count, Same Message
Yelnick has noted that Prechter has hinted at changing his count in recent newsletters. Today he unveiled his new count. The count may be different, but the message is the same, and the prediction is much closer to Yelnick's view: a top of around Dow10K at around Nov 11. Prechter had counted the Dow since Jan00 as a nested series of waves 1 - 2, so that we were nearing the 3 of (3) of [3] wave. This is what normally happens. However, the recent wave 2 of (3) of [3] has proceeded longer and higher than should have been expected of a wave 2 of third degree down. In particular, it had passed the normal 61.8% retracement and was heading for a 78% retracement, as had the prior wave (2) and wave [2]. While explainable by the unusual circumstances of the mania, it nevertheless is rare for wave 2's to retrace that far, let alone three times in a row. A simpler way to count the bear market would be to see the whole drop to Oct02 as wave [1] down. Zoran had moved to that view a while ago. Yelnick had suggested that view in informal communications. Now Prechter has found the systematic justification for that view. The best reason for this change is the psychology of the current wave we are in, which is now relabeled as wave [2]. The investment climate has been uber-bullish, as expected in a wave 2. Wave 2's are often more bullish than the peak of the bull since investors are convinced that they have caught the bottom, so feel they have deeper justification for their bullishness. The level of bullishness now is higher than in the prior waves [2] and (2), which suggests that THIS is the highest degree wave [2], not the previous ones. Under this new count, we look for a 61.8% retracement of the full wave [1] down from the peak. The former Yelnick target was 78% of the wave 1 of (3) of [3] down, or Dow9930. The new ideal target is essentially the same, since whole drop of the new wave [1] is full of fibonacci relationships. (78% is the square root of 61.8%, so since the prior wave 2's each retraced 78%, it should be no surprise that 61.8% of the whole drop calculates out as 78% of the most recent drop.) Suffice to say the target is Dow10K +/- 200 points. Dow 10K is also a major psychological barrier. When the Dow first broke 100, it took another 18 years (and the Roaring '20s) to go above it again. When the Dow first broke 1000, it bounced off it a few times but didn't break through for another 16 years. It should be no surprise if we slightly break through the 10K level and then turn south again. Timing for the top is anywhere from Oct15, the day Zoran has already called as the top, to Nov 14, with a most likely time around the first full weekend in Nov, or Fri Nov 7 through Tues Nov 11. Yelnick sees Nov11 as one of two likely times for the top. Besides the above analysis of Prechter, Nov11 also fits the pattern the market saw in 1987. If the 1987 model continues, it would point to a crash the first week of Jan04. The other likely time for the top would be in late-Mar/early-Apr04, reflecting the impact of the Presidential four-year cycle on the timing of this wave [2]. To put it in simpler terms, Bush and Greenspan are doing everything possible to pump the economy and get re-elected. Their manipulations will either have worked or not worked by the end of the first quarter, right smack dab in the middle of the primary season. These manipulations have the effect of extending the timing of the wave, but not affecting its height or overall pattern. Friday, October 24, 2003
Financial Reckoning Day
The markets have gone south since Zoran's call of a top on Oct 15. Is this it, or will there be the final pop up to the Yelnick 78% retracement of just under Dow10k? So far the drop has been impulsive, which supports the case for an Oct15 top. The market will now retrace in a little wave 2. If it goes above Dow9773, it is likely it will continue to a higher top and test Dow10k. Too early to make a definitive call. For a longer term perspective, we turn to the delightfully iconoclastic The Daily Reckoning, which laid bare the contrarian case this week: We are almost past October - does this mean the seasonal uptick (stocks tend to rise from Nov to Mar) is upon us? (Yelnick notes that the seasonal uptick has not been working since 2000.) As they put it:
Why the jobless recovery? Is it due to the magic of productivity? (Yelnick believes it is due to the distinctly unmagical overcapacity in world production - little noted is that even in China, manufacturing jobs have declined recently.) No, they attribute it to the wizardry of credit:
Is tech leading us out? They note with delight the Golder factor - George Gider was the guru of the bubble, with his breezy predictions of a telecosmic future, and after a long hiatus amidst the Telecom Nuclear Winter, he is now back in vogue! They even re-read his book, to see if they could find evidence of his bold new future. Instead, they found evidence abounds for the telecosm to again be a financial black hole:
Is the end nigh? I leave you with a quote from Dr. Deficit, or "How I Learned to Stop Worrying and Love the Crash" himself, John Maynard Keynes:
Sunday, October 19, 2003
Zoran Calls the Top
Zoran has issued an update which is very worth reading. The DOW-An EWP view-19 October-2003.pdf Calls for a top last week on Oct15. This coming week will tell how prescient this is. Zoran uses a different count than Prechter's (which is orthodox Elliott). Yelnick has promoted this count for several years also: > Prechter has wave IV bottom in 1932, Zoran and Yelnick say 1949 > Prechter has wave 4 of V bottom in 1974, Zoran and Yelnick say 1982 (and it is a wave 2 not 4!) (On an inflation-adjusted Dow, Prechter agrees with these counts.) Implications are: > 2000 wasn't the 5 of 5 of V and the end of civilization as we know it, but the end of 3 of V > We are in a wave 4 of V, and there is a new bull market wave 5 of V ahead, but wave 4 isn't over yet Where Yelnick and Zoran differ is, Zoran thinks the end of what Yelnick has been calling wave 2 is actually the end of the bull market from 1982, and the end of wave 3 of V from 1949 .. Yelnick would have those all end in 2000, with the action down into last Oct02 (or Mar03) being the wave 1 down, and the recent uptick being the wave 2 back. But these count differences matter little, as we both agree that the next stage is down and down hard, and agree that the Dow will retrace the start of the mania (Dow3600 in 1994) to end this wave 4 before wave 5 of V starts. Wednesday, October 15, 2003
Prechter Triangulates
Prechter's EWT today used the C word (crash). He sees the market nearing the end of a rare expanding wedge or diagonal triangle, which is always an ending formation. As a consequence, he sees the odds of a rapid decline or massacre in November as the market catches up (or should we say down) to reality. Crashes are rare events, so view this prediction as unlikely; but the extreme P/E ratios and other indicators of an overbought situation call for a severe catch-up event. Perhaps the Yelnick view of a touch of the 78% retracement (Dow9930) followed by the severe altitude adjustment around Nov11 is coming. The adjustment might happen in two phases - a preliminary jitter down in November, and an historic drop in Mar/April. More on this as it unfolds. Tuesday, October 14, 2003
Silicon Valley Tea Leaves: VC Funding Hits Pre-Bubble Level
Mark Jensen, national director of VC services at Deloitte & Touche, weighs in on the current state of the U.S. venture capital industry. While the industry is "still recovering from whiplash," VC funding has apparently returned back to its pre-boom levels: in 1996, the VC industry invested $10 billion; in 2003, the VC industry will invest close to $15 billion. Jensen discusses "hot" areas for VC investment, the role of the VC industry in "feeding" the dot-com bubble, and positive trends emerging for technology investors. Some parting thoughts: "A downturn can be good for innovation… A lot of the real success stories in the tech industry came about during times that were worse than they are now." http://www.corante.com/venture/redir/31165.html Friday, October 10, 2003
Fighting Terrorism by Empowering Woman
Aristophanes in Lysistrata wrote a wonderful satire with a gem of truth: to prevent war, the women withhold sex. George Gilder, before he wrote the Bible of the Reagan Revolution, Wealth and Poverty, wrote a screed against feminism called Social Suicide, which, although much vilified and satirized, also contains a germ of truth: through marriage, young and restless men are made to provide for the future. But what about the woman? At a Commonwealth Club session at Stanford, an off-handed suggestion was made by one of a group of panelists while discussing the role of the UN in the war on terrorism, that may contain an amazing insight into winning the hearts and minds of the people captured in the broken nations that spawn terrorism: empower the woman to break the back of support for terrorism. Despite what Gilder argued, it appears worldwide that the empowerment of woman - education, employment, enfranchisement and entreprenurialism - is a major force for lifting broken nations out of a cycle of poverty and hate. The Grameen Bank in India, and others like it, have found that giving microcredit to the poor, especially to woman, has a remarkable impact. Thursday, October 09, 2003
Can Govt Stats be Trusted?
This disturbing report from Merrill Lynch, sent in by a loyal Yelnick reader: that recent GDP figures assume a much larger increase in tech spending than other sources support. This on top of the head-fake employment numbers a week ago, where the Labor Dept reported an increase, but the fine print showed they had removed a much larger number from previous reports, so they were able to claim an increase when their own numbers showed a decrease! Tuesday, October 07, 2003
Silicon Valley Tea Leaves: Seller's Market?
Fortune reported more tech optimism today. In addition, in a remarkably quick turnaround, the VCs now seem starved for deal flow. ("What ye shall sow, so ye shall reap"). In the last few weeks a stack of 'social networking' companies - Friendster, LinkedIn, Tribe - got funded at higher than recent A round valuations. More significantly, they were chased by VCs wishing to get in on the action. Haven't seen that since late 1999. to B or not 2 be
Wave action suggests higher highs ahead. We appear back to the march towards the 78% tretracement level of Dow9930, and therefore back towards a turn date of around 11/11. Also, Prechter has hinted in his last two Theorists that he might rejigger the count from wave 2 of (3) of [3] down, to wave B after a wave A down into last October. Wave B's behave like wave 2's except can go much higher before the wave C starts. Sunday, October 05, 2003
Scandal Candidate: Cheney and UA93 Yelnick said: "Prechter has gone out on his limb, and predicted that Bush too will be brought down by some scandal, yet to emerge, for actions already taken." My scandal candidate: The fact (reported by Dan Balz and Bob Woodward in the WaPo) that Cheney ordered and then confirmed the order to shoot down UA93 on 9/11, and the suspicion-bordering-on-fact that the Air Force carried out this order, followed by a cover-up. Reason for the cover-up: a) GW wasn't in the decision loop (he wasn't even on the phone!), and his 9/12 public image couldn't have taken the hit. b) "The Vice President killing Americans" (even if it was the right thing to do... it was...) complicated the spin of "bad guys killing Americans," and this is an administration driven by spin. Also note that while "conspiracies" (before the fact) are exceedingly rare, "cover-ups" (after the fact) are depressingly common... I believe in the latter, hardly ever in the former. The electorate has said it doesn't care about crony capitalism, but it does care about 9/11. Scandals which bring down presidents need to go to the source of their strength. The Kennedy Republican Tax Cut
Art Laffer, the scion of supply side, proffered a perfect tax proposal for Gov. Schwarzenegger to fix California's fiscal problem: a radical simplification down to two taxes: 6% on business net sales, and 6% on personal income less the normal middle class deductions (mortgage, charity, and - significantly - rent). This would match current California tax revenues and would replace ALL other taxes, including sales, property, capital gains, etc. Laffer's insight is that a complex tax scheme raises too much money during boom times, which governments overspend; and raises too little in bad times, which causes crises like the one behind the Recall. This simple tax would smooth revenue to the state, as well as make California look like the promised land to business once again. Kennedy Republican and the Internet Democracy
A NYT editorial today picked up on Yelnick's theme that the California Recall is presaging the next shift in US politics - towards more direct political action, an Internet Democracy. What is behind this is a revolt against politicians. This is why the perfect Presidential candidate for the times is not Howard Dean, nor Hillary, but Wesley Clarke - not just an outsider, but a non-politician. He was recently described to me by a loyal Yelnick reader as a 'multi-dimensional' thinker who would answer a question such as, how do we fight terrorism? by noting that terrorism is part criminal behavior, part cultural clash, part financial .. and only part military. So using the military to try to solve all four aspects is doomed to fail. The country has Wesley, we have Ahhnold. Arnold Schwarzenegger is currently more a tabla rosa than a political figure. We don't yet know how dimensional is his thinking. It is easy to underestimate his potential impact on politics, much as Reagan was underestimated. But his role will be different. Reagan honed his political philosophy over many years on the fried-chicken circuit, whereas Ahhnold seems to have honed his approach in the fried-chicklet circus on Hollywood sets. This leaves Ahhnold susceptible to the political confluences he is emerging into. A blank slate indeed! Unlike Reagan, who helped shape the emergence of a new conservative movement in the US, Ahhnold seems destined to be the popularizer of an already extant political movement. And what is that movement? Kennedy Republicanism. A grand realignment of the political landscape. The realization of the 'Third Way' politics of Tony Blair and of the original Big Groper himself, Bill Clinton. Taking a multidimensional approach, Third Way has three prime tenets: 1) militarily adventurous, vs George McGovern/Howard Dean pacifism 2) fiscally conservative, vs. LBJ/Hillary Great Society socialist experiments 3) socially liberal, vs. Reagan/Dubya religious right conservatism Kennedy was a Third Way politician; 1) He was the 'bear any burden' President, a fan of James Bond books, probably would have enjoyed Ahhnold's own Bond movie, True Lies. 2) He pushed through a 30% tax cut and sparked the '60s economic boom; and faced down the steel industry, somewhat like Reagan facing down the air traffic controllers early in his first term, and very unlike Bush II initiating steel tariffs in one of his many betrayals of American leadership in world trade 3) He supported civil rights and laid the groundwork for the seminal Civil Rights Act of 1964 The Vietnam War split the Democratic party (as well as the nation) and sent the party off in a pacifist direction where it still occasionally languishes. In a real sense the party walked away from Kennedy's policies, and many Kennedy Democrats defected in 1980 to become Reagan Republicans. The Reagan Revolution was incomplete, since he had to maintain the socially conservative base that Nixon had used to realign politics in 1968. Clinton pointed towards the third way, but although intervention-oriented in small conflicts, he shied away from confronting terrorism in 1998 when Saddam kicked out the inspectors. Ahhnold's opportunity to become the Kennedy Republican is based on more than his marriage to a Kennedy, his womanizing and his appearance in a Bond-like movie. To the extent he is formulating a political philosophy, it is reflecting the Third Way direction. Given that the Republican high ground are the first two Third Way issues, Ahhnold can shirk the religious right and add the socially liberal constituency to complete the realignment started by Reagan. Rush, to Judgement
Bear markets bring down the stock market icons of the prior Bull. Martha Stewart, Frank Quattrone. The grizzler bears begin to mawl the icons of the prior era outside of the financial arena. This one seem to be about to knock Rush Limbaugh off his perch. Prechter has gone out on his limb, and predicted that Bush too will be brought down by some scandal, yet to emerge, for actions already taken. Bush's Watergate. Current candidate: the incredibly irresponsible behavior of Vice President Dick Cheney, still receiving stock options and deferred compensation from Haliburton, and the apparent favoratism shown Haliburton in Iraq reconstruction. Crony capitalism of this magnitude - and it may be just the tip of a deeper iceberg - deserves to be outed then dismantled. Bush may have gone to war to fix a problem left by his dad, but the cronies around him may truly have gone to war for oil, to feather the nests of their prime consituents, oil and oil service companies like Haliburton. Cautionary Note
The markets went through the 62% retracement level, and shot above the 78% level, but didn't break the Sep19 highs before reversing at the close on Friday. Technically a wave 2 has to break the start of wave 1 to change the count, but *usually* when it passes 78% it keeps going. Zoran's weekend update points out that the market shot up on Friday on good employment news, then turned around when late in the day a little-noticed addenda to that news poured cold water on it. Also little noticed in the financial news was that interest rates turned up, normally a bearish sign. Prechter also sent out his EWT this weekend, a bit early - but he normally does this when he feels the need to keep the faithful in line. (His primary point: cycles suggest relentless downside pressure into the end of 2004.) Monday is Yom Kippur, and our Chinese Curse Day. The STU pointed out the stock market adage to 'buy on Rosh Hashanah and sell on Yom Kippur." Trading should be light on Monday, so we won't get a real read on this until Tues. Wednesday, October 01, 2003
Chinese Curse Day
What happened in the last two days is that the little wave [i] down extended in its subwave 5 to a lower low, and today we have begun what should be an ABC pattern back up in little wave [ii]. The Nasdaq is lagging, so watch it to spurt up. The 61.8% retracement is SP1020 or Dow9500, and the 78% retracement is SP1030, Dow9570. If it goes above the Sep19 highs, something else is going on. When it goes below Dow9000, it confirms a wave 3 has started with a vengeance. While in terms of price this rally is almost there, in terms of time it would normally last into tomorrow to next Monday. Mon Oct6 is a Chinese Curse ('may you live in interesting times') Day - Yom Kippur and the 30th anniversary of the 1973 attack on Israel. Rumors abound of some event that day - maybe an Iranian nuke is tested, maybe North Korea tests as well. The day after is the California Recall, and the most recent polls show that the recall is gaining momentum into its final weekend. Both Davis and the markets may take a tumble that day. If the nuke rumors are true, Yelnick wonders if Humpty Dumpty (Bush) will ever be put back together again. |