Yelnick |
|
|
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.
Archives
Elliott Wave Sites
|
Monday, March 31, 2003
War Rally Redux Ahead
The market dropped sharply from the open, tried to come back, and faded at the close. It sits just below Dow8000, right where we expcted it. This wave 2 did an A wave rally to Mar21, and now a B wave correction to today. Last week the B wave subdivided as a little abc with the b wave a triangle. One expects a sharp drop (or rise) from a triangle, which is what we got today in little wave c. Whether it is over or not we will find out tomorrow and perhaps into Wed. Then should come a fairly rapid C wave to go back up as far as Dow8600-8700. "Rumming it Up" When the War Rally Redux comes, will it be on a news event? Not necessarily, but look for more positive news to begin filtering in this week. Some of the news will be real, and some crafted. And much of it will embed in the public's mind the basic problem with this war: "rumming it up" by politicization. On the real news front, order seems to be coming to the 'captured' towns in southern Iraq. The British appear to be going in selectively to take out Fedayeen leaders rather than try to go door to door like the Americans. Their approach seems to be working. In addition, the 'embeds' and blogs are providing a level of immediacy of news that is unprecedented in warfare, and give generally a positive view to the war on the ground. On the crafted news front, the impression created by realtime news seems to ratchet up or down not by how the war is going but by how the punditry thinks the war is going. This is consistent with stock market behavior, where the market reacts less to news than the direction (or first derivative) of news. Interesting is that polling of non-pundits has not shown dramatic swings of support or views on the war. Either the 'silent majority' are not paying much attention or have a more commensensical bent than the breathless reporters at the front & the talking heads that comment. Nevertheless, begin looking for the powers-that-be to begin to criticize realtime war reporting, unjustly, since the major victim of this info flow turns out to be them. A new verb may be in the making: to rum, as in doing a Rumsfield. He certainly is criticized as rumming-up the military's plans in this war. Also look for the powers-that-be to begin rumming-up the realtime info flow by trying to turn it to their advantage, by putting pressure on the more negative realtime sources. Peter Arnett was fired after saying that the war was not going as Rumsfield planned - on Iraq TV. Geraldo Rivera (aka Jerry Rivers) was acting as an embed, apparently unauthorized, and it is being reported that he was kicked out by the military after drawing a map in the sand for TV viewers, giving away US positions. He disputes this. And he refuses to leave! Wait until Doonesbury catches up with that story! On the un-rummable side of realtime news, one brave blogger has flown to Turkey and will soon enter northern Iraq, to give us realtime news from the other front without having to pander to the other side (like Peter Arnett) or pander to his carefully-crafted image (like Geraldo). The crisis continues, and it is not in Iraq. Sunday, March 30, 2003
Bonds Away! Stock picture remains the same: we will shortly finish the B wave of an ABC correction, probably by breaking Dow8000, and then have a final C wave up to end this wave 2. One ewave analyst points out that every wave 2 since the peak in 2000 except one has gone back a fibonacci 78.6% of the wave 1 it has corrected. This indicates the continued bullish disbelief in the potential length and depth of this bear market. If so, the subsequent wave C should take the Dow to 8630. Interesting, since wave A of 2 was 1000 pts, if wave B falls to around 8000, this final wave C will be very close to fib 61.8% of wave A. The EWI short term update (STU) reports as well that every recent wave C of these wave 2's has been truncated. Normally wave C = wave A in length; now we are seeing wave C's of 61.8% length and short time duration. The EWI view is that this results from the over-optimism of the fast & furious waves A ("the Bull is back"); little dry powder is left in wave C to continue the rally. Bond picture is much more interesting. Long-term bonds appear to have finished a bull market that goes back to 1982 when Volcker broke the back of the inflationary 70s. If so, bond interest rates will have bottomed and now will begin to rise - even if Greenspan and the Fed continue to lower the fed funds rate. If you plan on refi'ing, do it fast! The implications are potentially profound. The Fed will try to brake deflation with lower interest rates, but longer-term rates (which affect the real deflationary economy) will stubbornly rise. The rush to refi among consumers and State governments - who are running horrendous deficits - has increased the overall level of debt quite dramatically. Holding debt in a deflationary environment is financially debilitating, as those borrowed dollars need to be paid back in more expensive deflated dollars. The State governments will look to the Federal government to bail them out, as will major sectors of the economy - most notably airlines - but the US will find its credit increasingly expensive as those long-term rates rise, especially when the US running up larger deficits through the war, and even larger deficits with the economy possibly going back into a double dip recession. Friday, March 28, 2003
Blood for Oil? or for The Dollar? Fascinating piece in The Daily Reckoning today called When Bush Comes to Shove. Why this war, and why the urgency? Conclusion is, to protect the Dollar as the world's currency. Key observation: in 1999 Iraq switched to the Euro. Other oil-producing nations were considering switching. Now the French make sense. We understand why they would try to create a counterforce to the US, which has been lacking since the fall of the Soviet Union, and why their urgency would have been increasing ever since the rise of The New Unilaterists in US leadership during the Bush Administration. But why now, why this war? Answer: to promote the switch to the Euro, which would give Europe enormous economic and political advantages. Thursday, March 27, 2003
Calm Before the Quagmire Market and war were both in indecisive corrective modes today. Market has dropped into the upper range for the wave B down of the ABC wave 2 correction, and into the middle of the 3 - 5 day time range. Do not expect much clarity until next week. Tomorrow may continue down to below Dow8000, or begin the wave C bounce. Similarly, the war is in a phase of repositioning, with more decisive action not expected until this weekend. Seldom does a war plan survive its first contact with the enemy. It is becoming clearer that the US miscalculated by underestimating the enemy. Rumor is that another 100,000 troops will have to be sent over. Is that just the start? In Vietnam, as in Gulf II, the US military was optimistic about a new war-making approach. Then it was the use of Air Cavalry to add extreme mobility to war, by shuffling troops in deep into enemy territory. One of the two initial battles is well shown in the recent movie, We Were Soldiers, and it demonstrated to the military that a much higher force level would be required to attempt to win the war. The quagmire was on. This time it is the use of precision weapons to Shock & Awe the enemy. It is not at all clear that they have been much awed by precise strikes on empty buildings. We still expect to rip through the Republican Guard in an open field fight - an optimism that may be tested this weekend. But once the RG melts back into Baghdad, a city of 5 million, the quagmire may be on. In Elliott terms, we are seeing the consequence of Wave 2 optimism. Wave 2's of the bear market match and often exceed the optimism of the prior bull market psychology. This optimism after a long bull market seems to infect war as much as any other aspect of society. In 1914, the Germans thought they could take Paris in a month, and instead they squandered the flower of European youth in the mud at Flanders and Ypres. This was after a 17 year bull market. In 1965 we thought we could quickly pacify Vietnam. This was at the peak of another 17 year bull market. The lesson we learned from Vietnam - the Powell doctrine of overwhelming force - was successfully applied in Gulf I, well before the peak of our recent bull market. It is an indication of the social mood at a market peak to throw out the hard lessons learned and rely on the new glamorous war approach. After the 17 year Mother of all Bull Markets, I suppose it should be expected that something like this would happen. It is unfortunate to have to watch it on prime time TV. Outing the Bloggers In Silicon Valley, a new phenonenon begins with a robust ecosystem that hits a critical mass and then grows exponentially. The phenom can stay under the radar for a considerable time before some event thrusts it into public consciousness. The Internet burst on the scene this way, as has WiFi. Is blogging next? Traffic on the leading warblog sites has skyrocketed after mentions in NY Times, WSJ, MSNBC and elsewhere. Many Internet pundits still view blogging as a form of vanity press, diaries for the lonely and bored. Yet the number of blog sites has reportedly crested 1M and may have passed 2M by now. Revolutionary technologies that emerge from the robust petri dishes of the tech ecosystem have grown to pre-eminence first among the pirates, the wild-ducks, the back doors of the enterprise. Blogs may soon follow this well-trodden path. PCs first snuck into major companies; only years later did the corporate IT departments seek to manage the influx. The Internet followed the same path, as has WiFi. Monday, March 24, 2003
4GW - Fourth Generation War The market ran up over 1000 points in a fib 8 days, then erased the last four of those days in the drop today. Ewave question is whether this is wave B of an ABC wave 2, or wave 3 down. If the market drops faster down than it did up - quite a challenge given the speed of the rise - then we are likely in wave 3. Wave 1 would have ended on Feb13, wave 2 went for the past 5 weeks in an ABC flat, and wave C ended Friday. More likely wave 1 ended on Mar12, we are still in wave 2, and today marked the beginning of wave B of an ABC pattern. If so, expect the drop to continue 3 - 5 days. We should drop below Dow8000 and bounce in wave C, or possibly stall around Dow8100 and develop into a triangle before completing in wave C up. It is facile to say the 8-day rise was war-driven, and the drop today a reaction to weekend news. The ewave view last week predicted this B wave well before the war news came in. The war news wasn't that bad, it only seemed so compared to wholly unrealistic expectations, and should not support the sharp drop that is likely to continue. Further, the ewave pattern suggests a C wave up will follow, regardless of how the war develops. A much deeper problem is emerging, however, which raises the question whether Bush II made the same mistake that Bush I made 12 years early: a wholly unrealistic expectation of a popular uprising. Bush I did not go in and finish the job in part because he thought a popular uprising would topple Saddam. It did start and was squelched, and the US did not support it despite encouraging it. Once burned, the forces of opposition are twice shy. And whatever is left of the Iraqi leadership is learning and modifying strategy away from the way they fought in '91 to so-called Fourth Generation Warfare, 4GW. We have caught some major Republican Guard divisions outside the city in a classic 3GW formation, and were able to pummel them, but they may now begin retreating into the cities. 4GW is the heart of the whole matter. 9/11 was a 4GW attack. Asymmetric. Terrorist. Guerilla. No nation-state to blame. 4GW relies on ruse and deception rather than the rules of war that have evolved since the War of the Roses 500 years ago. Now the rules have changed & our principles and response need to change with it. For example, are the Al Qeada prisoners in Guatanomo Bay POWs? They do not come from a nation-state with whom we are at war & do not follow the rules that form the foundation of the Geneva Convention. The Iraqi resistance is quickly evolving into 4GW principles. Pretend surrenders. Dropping out of uniform and attacking in civilian clothes. Unwilling human shields. Hiding in hospitals then coming out to attack. Incitement of every crazy from Palestine to Indonesia to come to Iraq and suicide-bomb the Infidel. The quagmire will happen after we win, when our forces in Iraq will be subject to the type of terrorism which bedevils Israel. We will need the Iraqi forces to police the Jihad post-war .. imagine the complexity. We should not blame Bush for trying to support the indigenous uprising, as it is unclear whether liberty can be imposed or must be earned. But we can fault him for stating the wrong principle for the war, a principle based on 3GW: preemptive strike. Now is the time to establish the principles of fighting 4GW. We are in Iraq based on the right to defend ourselves vs 4GW by regime change in one of the nation-states who support and incite 4GW warriors. The question now is how much 4GW will stress our rules of engagement and desire to minimize collateral damage. By not stating the core principles of fighting 4GW Bush has made it harder to switch tactics to deal with an enemy so callous that it will purposefully put its own citizenry at risk. Friday, March 21, 2003
Shock & Awe - or Aw, Shucks? Today's rally was enough to shock and awe even the most perma bear. CNBC beamed when they noted the last time we had so many consecutive up days & a rally of this magnitude was in 1982, the start of the Mother Of All Bull markets! And yet, the technicals are still much thinner than they were in previous Bull beginnings, let alone the MOAB. Breadth & upside volume are less than even the fast & furious Bear rallies last July and October. Comparisons are also being made to the 1991 Gulf War Rally, but they come up short too: then, we were climbing the Wall of Worry of a Bull market, now we are slipping down that Wave 2 Slope of Hope of the Mother of All Bear markets. As the Elliott Wave STU reports: "Going into Gulf War I there were 26 straight weeks where there were more bears than bulls ... [n]ow, including this week, there has been 23 straight weeks of more bulls than bears." This brings us very close to Macho Time IV, one of the great shorting opportunities of our time. The wave pattern says that we have no more than one last uptick in wave A, this leg of the rally, to be followed by wave B downturn. The panic buyers have loaded up so as not to miss this rally, and cash left in mutual funds is below 5%. Consequently, the Bulls are running low on ammunition, and the wave C upwards that finishes this corrective move will likely be short. Thursday, March 20, 2003
Blog of War This war is unprecedented in its real-time coverage. The most immediate news is coming not from web pages or TV, but from blog sites. Check out http://www.blogsofwar.com/ for a good example. The myriad of warblog sites include an Iraqi blogger who is giving a remarkable on-the-ground view from the other side. Another useful link is to the SkyNews Internet feed, http://www1.sky.com/sky_asx/sport_news_live/p2_livebb.asx, which includes the excellent coverage of Sky's US affiliate, Fox. You can watch the war even while away from a TV! Oh joy. Panic Buying The War Rally seems poised to upset the best-laid plans of professional investors. Just as it seems the rally is for real, EWT has come out with an interim bulletin to the effect that the technicals of this seven day rally are "exceedingly weak." We are seeing a record-breaking series of buying panic days which have not been able to carry with them the signatures of a new Bull market: increasing volume and increasing breadth (advances exceeding declines). Consequently, this rally will hit its high shortly, and present one of the last great shorting opportunities of this uber-Bear market. The Gulf War too seems already to have been enveloped in the fog of war, where the best-laid plans of armchair admirals hit the reality of action. The 'shock and awe' bombing has been delayed to see if the Iraqi leadership will splinter and topple their Fuehrer, as intelligence suggests a faster falling out than anyone would have imagined. The ground war has been accelerated to preserve the local oil fields, and has encountered more resistance than expected. So it goes. Wednesday, March 19, 2003
Euro Toro or US Ursa? Count: 2 of (3) Target: 8420 - 8470 Time: multiweek Wave 2 bear market rally continues, although we appear to be nearing end for this leg of the rally. The rally has retraced 50% and could turn down from here, or continue to the 8400+ level (890+ in SP) and then turn down. Note that the Nasdaq was down today, and will likely presage any downturn on the NYSE indices. Today's rise in the Dow was thin - the advance/decline ratio was only slightly bullish, and just a handful of stocks contributed to the 70 point rise. Perhaps one more spike up after tonight's deadline passes and the initial troop movements begin, then expect the market to turn down tomorrow or Friday in an X wave as part of an extended ABC - X - ABC pattern, and then turn back upin the final ABC. This correction should continue for several weeks - perhaps the early duration of this war. The wave 2 psychology has taken hold. Traders do not want to sell, as people are jumping in so as not to miss the War Rally. Pundits are beginning to note that the string of 6 up days in the Dow hadn't occurred since 2000, and maybe last week's low was a major low? Could the bear indeed be over? Ironic as it sounds given the events of the past week, possibly it will first be over in Europe - Richard Davidson of Morgan Stanley made an extraordinary observation this morning, that Euro stocks have fallen as much as they did from 1929-1932 and are selling at quite reasonable valuations. The German market for example has dropped as much as our Nasdaq. Will Europe emerge as the market to buy while the US continues to languish in its Bear market anguish? Wave 2 psychology seems to have also affected war planning. There is remarkable optimism about the war. Gulf War I was over in 6 weeks, 5+ of which were bombing and 100 hours the ground war, but covered a much smaller area. Other western armies have blissfully invaded Iraq and foundered - most recently, it took the British 4 years to pacify Iraq during WWI. Rumor is that Rumsfeld has overruled Gen. Frank as to how the war should proceed, insisting that the armies enter as the bombing begins, rather than wait as last time. It is said the US has a military advantage not seen since the Roman army. The last major Roman invasion of Iraq took place in 360 AD by the Emperor Julian, cost him his life, and dramatically weakened the Empire. At the height of the Empire's power, Trajan conquered it, but his successor Hadrian gave it back as undefendable. The Republican Trimuvir Crassus, trying to keep pace with Pompey the Great and Caesar in Gaul, invaded and lost his head, literally - it became a plaything of the Parthian Emperor for years. On the fateful Ides of March, Caesar was preparing to leave Rome to avenge Crassus and get back his seven legionary Eagles by invading Iraq. History might be quite different if he had been able to go ahead and Romanize the region. This is not a prediction but a perspective against which to see the wave 2 psychology. We do have overwhelming military capability and are invading a country which yearns to join the modern world. But this is a much more complex endeavor than Gulf War I. Our leaders were more cautious and circumspect about that war. The jingoistic difference of this war reflects wave 2 psychology. That psychology will likely dissipate when the war plans run afoul of Clausowitz's Fog of War. The war will have unexpected twists and turns. As the wave 2 psychology begins to dissipate, expect to see the markets turn much more volatile, with major moves up and down. Tuesday, March 18, 2003
French Connection The ewave sites are sorting out this wave 2. The rise has gone most of the way already, and so it could be short lived, but given the length of wave 1, typically this would go for 5+ weeks. Maybe it already has. Earlier, Yelnick had thought wave 1 down had ended on Feb 13; arguably it did, and we have been in a war-driven wave 2 ever since. Next week will be its fifth week. How high may it go? It is high enough now to satisfy wave principles, right between Dow8150, the '4th of the 3d', a typical level, and Dow8230, the 50% retracement level. Wave C = A at around Dow8300. But this may go to the fibonacci 61.8% retracement level, which from Mar12 would be Dow8420, and from Feb13 a bit higher. The pundits are sorting out who won/loss in the recent turn of events. Last night Strobe Talbott talked at Berkeley. (The event was well timed given Bush's speech, but was surprisingly lackluster and uninformative.) Strobe is a controversial figure. He was a Time reporter on Soviet affairs for many years, and the Russian Deputy Secy of State under Clinton. He was often vilified for letting Russia rot during the later Yeltsin years. Strobe has impeccable Dove credentials, and yet he admitted to the Berkeley audience last night that he is for the war, just not for how we got to this point. He concern is that if the war is short and sweet, it might further embolden the New Unilateralists the dismantle the post-war institutions like the UN and NATO. He would prefer to see an olive branch given to even the French after we win. The WSJ ran an intriguing op-ed piece on the last time the French were in control - after the US pulled out of the League of Nations following WWI. The French squeezed the Germans on reparations, and their leadership laid the groundwork for WWII and 50 million casualties. Not an auspicious beginning. Now the pundits are fighting back against the French. A view is developing that if Germany had a stronger leader, he/she would have countered he French and found a compromise. The intractability of the French position squelched an Arab League meeting that is rumored to have pushed for Saddam to abdicate. Indeed, it could be said that France's uncompromising position may lead to the splintering of the post-war world. It has shown the unreliability of the UN, the unworkability of the UN security Council, and the irrelevance of NATO in a post-Soviet world. So the French, and not the New Unilaterists, are now being blamed for the destruction of the post-war institutions. The wave 2 social mood is a belief the Bull is back. This leads to a sense of inclusiveness, multilaterism, and love of all things French. Some of that is beginning to occur, as pundits pine for the old world of multinational cooperation & argue for being gracious on winning the war by mending recent slights and disagreements. When the mood breaks in wave 3 down, we will swing to the opposite camp, and the New Unilaterists will hold sway. Assuming the war is short - and everyone in their Wave 2 mood seems to believe this - the post-war mess may be something to behold. Then we will see if a true leader can emerge, a politician with the courage shown by Tony Blair as he committed political suicide over the past few weeks, a leader to counter the Wave 3 mood down. Saturday, March 15, 2003
Doves, Hawks & Owls The Yelnick view is that social mood causes stock market moves. The broad market indices are the best indicator of mood. How can the Biggest Asset Bubble since 1720 be explained off fundamentals, or efficient market theory? War is a consequence of social mood. The first Iraqi war was fought for clear reasons, we had multilateral support, and the social mood was upbeat. This second Iraqi war is being threatened for ambiguous and changing reasons, the world does not support us and the social mood is downbeat. Should we go to war, and will we go to war? In a Bear mood the 'will' often overrules the 'should.' On Friday, Prof. Patrick Nye of Harvard, one of the Wise Men of foreign policy, spoke to the Commonwealth Club in SF. The paradox of American power is that just as we achieve a pre-eminence of power not seen since the peak of the Roman Empire - we are the only Superpower and since the Fall of the Berlin Wall have no rivals - we have an imperative to work multilaterally. Unfortunately for this moment of history, the Bush Jr administration has been captured by The New Unilaterists - foreign policy wonks who believe we should impose our will without living within the multilateral organizations and rules that we ourselves created to fight the Cold War. By kicking sand on on our allies with respect to their issues - Kyoto, Intl Criminal Court, and more - Bush has made it difficult to garner their support on our issues. Worse, if he continues, he might unravel in 4 years what we built over 4 decades - the Western Alliance. When asked what advice he would give Bush today, Prof. Nye first chuckled and said he never would have gotten himself in the position Bush is in. His advice to Bush: delay the war until after this summer, and continue to repair our relations with our allies. Sound advice, and likely to be followed in a Bull market - but Nye himself does not believe Bush will follow it. As Lincoln said in his brilliant wording of a war no one claimed to have wanted, "and the war came." This week we saw a classic Bear Market Rally - sharp and furious as the short covered. Many pundits saw it as a War is Delayed rally, as if the market is reflecting odds of a war starting or delaying, and reacting to momentary news. Certainly there is some of this at a micro level - witness the Sons of Osama spike on rumors the previous Friday. Yet the market has had similar Bear Market Rallies as recently as Feb 13, and right after the October lows. The current pattern fits normal Elliott Wave patterns. What is the pattern predicting? We are now in a wave 2. The primary count is that we have just finished wave 1 of (3) in a five-wave down pattern since the Dec2, the top of a wave (2) rally from the October lows. Pattern is easy to see - wave [i] went to late December, wave [ii] went to Jan 14 when the Dow tickled 8800, wave [iii] ran to Feb 13 when the Dow approached 7600, wave [iv] was a fast and furious Bear Market Rally, and wave [v] ended this week on Mar 12 at an intraday low of 7417. There is an interesting alt count, that the whole movement since Oct lows is still wave (2): wave A went to Dec2, wave B ended Mar12, and we are in wave C. Wave 2's have an interesting social character - the feeling that the Bull has returned. This can be seen in the many market pundits who have called the Mar12 low a major low and are now looking for a Return of the Bull. Some see a bullish head-and-shoulders formation with the July and March lows the shoulders and the October low the (upside down) head. Even more pronounced is the put/call ratio. Since Feb13, the end of subwave [iii], the ratio has been dropping - an increasing number of calls over puts have been bought. This shows no fear of a deeper drop. This optimism has occurred against a backdrop of war fears, unraveling of the Western Alliance, North Korean nukes and weakening economic news. Even more remarkable, it has occurred as most other market indicies have found new lows: United Kingdom, Japan, Belgium, Germany, Mexico, Singapore, Switzerland, our buddies in France, and even our own Dow Transport Average. Thus social mood trumps news, and ewaves better reflect the underlying dynamic than other market indicators. What to expect? Wave 1 lasted for over 15 weeks, and we would expect wave 2 to last 3 - 5 weeks. The rally has been so fast, however, that this one may be short. The last such wave 2 of similar degree was April 2002, and lasted 9 days. The Nasdaq may fade first, as it has been leading the Big Board indicies most of the way through this bear market, so watch the Naz for early warning. Friday, March 14, 2003
The Foundation for this blog: Hari Seldon Psycho-History Commentary on the stock market guided by Elliott Wave principles, as developed by Bob Prechter. Is he Hari Seldon, and has he invented Psycho-History? Or is Elliot Wave no more than Ptolemaic epicycles? Fourier informs that any complex pattern can be modeled by proper weighting of cycles. 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. |