WaveBOOM makes the “call” for the 2009 turn
Stocks About To Bottom
NOW: This is what we’ve been waiting patiently for since the November bottom, which we said would be “a” bottom, but not “the” bottom. Well, this is going to be a better bottom than November, so get ready to get back in the game.
A quick review of the daily charts of the major indices reveals a change in character of selling compared to November ’08. Then, all the indices were plunging simultaneously, making lower lows on huge volume and horribly bad breadth (declining stocks outnumbering advancing stocks by 4:1 or more). Currently, only the Dow is making new lows under those of November, while the S&P, NYSE, Nasdaq, and Russell 2000 are making higher lows than November ’08 (as of the time of this writing). This is called a bullish non-confirmation. It means that the other, broader, indices are not confirming the Dow’s new low. SHORT TERM, this is suggesting a rally is due, since the selling is concentrated in the Dow, while there is less selling, or more buying, in other sectors.
Remember, we are looking for another multi-week to multi-month low in the next few hours to days, NOT THE LOW that will never be seen again. That low is still a couple years away. The rally that is due to start in this time frame should last from 1 to 8 months, and be very rewarding for those that are 1) in it, and 2) out of it just prior to it ending.
NEXT: Last issue, we showed the S&P 500 chart, which is manifesting nicely in line with our blue vectors of probable market path. This is the Dow chart over the same period, which has a different topping pattern, but the exact same message and path projection: short term bottom imminent, multi-week to multi-month rally, then catastrophic selling for THE FINAL LOW in the 2012-2014 time frame.
Those familiar with our work can likely see some glaring signs of a imminent market low. Long term stochastics are as oversold as they have been since 1982 (on this chart, it only shows more oversold than anytime since 1987 crash); testing the 50% Fibonacci retracement level (line going through 7370) of entire rally since 1974; around 6800-7000 will test the uptrend line since 1987 (pink line); around 6800 will test the lower two standard deviation line; around 6800 will be approximately where wave ‘5 of 3 will be equal in size to wave ‘1 of 3; and around 6300-6800 would be an interesting place for the right shoulder of a future head and shoulder formation to begin, to name a few.
ACTION: Therefore, we are “pounding the table” and “sending up flares” to be on the lookout for an IMMINENT change in market direction in the coming hours/days. Rather than try to time it perfectly, which is all but impossible, we recommend the following. Of your available funds, place 1/3 in the market today around Dow 7600, the next 1/3 in the market anytime the Dow trades under 7000 or above 8000, and the final 1/3 in the market anytime the Dow trades under 6450 or above 8450. THIS IS THE LOWEST RISK, HIGHEST RETURN BUYING OPPORTUNITY SINCE THE DOW PEAKED AT 14,200 IN OCTOBER 2007!
This plan will: 1) give you a plan we all know you don’t currently have; 2) allow you to calmly enter and prosper when everyone around you is paralyzed in panic; and, 3) effectively create an average entry level of around Dow 7500-8000 before the upcoming 2000-3000 point Dow move (which could be 25% to 35%, depending on how the entries develop). For more specific plays, see the Trade Table below. We have set up trade entry ladders for leveraged plays in the Dow rally (DDM), Russell 2000 rally (TNA), Dollar decline (URR), Bond decline (TBT), CRB Index rally (UCD), Crude rally (DXO), Financial sector rally (UYG), Real Estate sector rally (URE), Semiconductor sector rally (USD), as well as some unleveraged individual stock plays. We’ll add more in the coming days, so check back regularly.
For what it’s worth,
Be Careful What You Wish For; Be Thankful When You Get It
NOW: Remember the past 12 years of market rally? The Dow broke through thousand point levels like a hot knife through butter. During the only serious pullback post 9/11, we were all too worried about terrorists invading our country and blowing stuff up to consider using the market low in 2003 around 7200 to invest. Besides, we thought it un-American to benefit from the pain and suffering of others.
As the Dow recovered and began its run up through 8k, 9k, 10k, 11k, 12k, 13k, and finally 14k, we all said if we only had that 7200 level back, we’d “back up the truck” and “mortgage the farm” to buy as much as we could at those prices. Hell, that would be a 50% Off Sale!
Well, here it is…The Dow closed Monday at 7114, the lowest close in 11 years. The sale is on! Will prices go on deeper sale in the days to come? Who knows. But, when you ask for a gift and it is provided to you, aren’t you supposed to say thank you?
NEXT: We are not only saying thank you in a big way, but have been warning that this opportunity was coming for the past three months. As recently as a month ago, with the Dow approaching 9100, we said that the Bogus Bounce had just completed the pattern we were looking for it to complete, prior to the resumption of the decline from late 2007, and that stocks should be sold immediately. We further forecast that the November 2008 lows would be broken in what we called WAVE 5, and that low would represent the BEST BUYING OPPORTUNITY since the peak at 14,200.
Well, here we are, having just broken those November 2008 lows. We believe, based on our decision support system, that our forecast will in fact deliver a serious, multi-month buying opportunity. It appears that the actual price lows will come within the next few hours to few days, and will do so into our target range of 6800 +/- 300. In our last letter, we gave these specific entry suggestions: “Of your available funds, place 1/3 in the market today around Dow 7600, the next 1/3 in the market anytime the Dow trades under 7000 or above 8000, and the final 1/3 in the market anytime the Dow trades under 6450 or above 8450. THIS IS THE LOWEST RISK, HIGHEST RETURN BUYING OPPORTUNITY SINCE THE DOW PEAKED AT 14,200 IN OCTOBER 2007!”
That suggestion has allowed objective investment in a time of general market panic, with 1/3 currently committed, and a second 1/3 preparing to be invested on any Dow print below 7000 (which could happen this week).
ACTION: We are holding fast to our forecast and entry strategy, as seen on our Trade Table in the last letter. We have entered positions in many market sectors and are prepared to enter more if prices continue to decline. THIS IS NOT THE TIME TO BE BETTING THE SHORT SIDE. YOU WILL COMMIT FINANCIAL SUICIDE IF YOU TRY.
Play it safe and simple. Use this 50% off sale to buy some things that you can live with for the long term. We will be the first to tell you in a few months that it’s time to exit and hide in cash again.
For what it’s worth,
Friday: Apple is about to fall far from the tree…Again
IMMEDIATE ACTION: This is a brief note to prepare for a scary open Thursday morning, with a high probability of 7,000 breaking for at least a little while. This break will immediately trigger the second 1/3 entry of available funds that we have illustrated several times in the past few days. Once 7,000 breaks, as we’ve forecast since the November rally highs, the minimum expectation for the ‘5th subwave of WAVE 3 down from 14,200 will be in place, with potential for a test into 6,300.
This is the same monthly bar Dow chart that we have shown often. Notice the extremely oversold stochastics and the labeling of ‘5 of 3. Be ready, because if you miss this opportunity to enter or add funds under 7,000 (not to mention under 6,500 possibly), you’ll might hate yourself in the morning. As the blue vector shows, the coming bear market bounce will be WAVE 4up. It has the potential to test 9,500-10,000. If it does, that will be a 50% Dow rally, and should complete during 2009. Miss it at your own peril.
Interestingly, as this low is put in for stocks, the highs are showing up in gold, silver and bonds at the same time. We have entered most of our short silver ladder, and the first rung of our short bond ladder (see ZSL and TBT respectively). In addition, we have entered many other plays to take advantage of the upcoming multi-week to multi-month rally.
For what it’s worth,
Odds Rise That Big Low Is In Place
This is another INTERIM update…
It’s a little whippy searching for a bottom of the importance that this one is. But, after being blessed with the navigation grace to help you all through the worst selling event since the 1930’s, we’re okay with a couple false starts. Thanks for your patience.
To recap the last few weeks: after exiting the market last Spring with the break under Dow 13,100, we finally entered our initial 1/3 position on a break under Dow 7600, and the second 1/3 position on a break under Dow 6800. Due to pattern issues, we exited our second 1/3 position on Friday’s close at 7218. Trying to fine tune the perfect risk-managed exposure, we said we’d replace the second 1/3 position on a break above 7450. However, after observing the lastest edition of “Wag The Dog” by our government, we decided mid-day Wednesday that we’d push that re-entry trigger a bit higher to a CLOSE above 7550, so we could allow a bit more pattern to develop and increase our confidence.
For simplicity reasons, we’ll now make that second 1/3 trigger point on any BREAK above 7600, or below 6950, rather than close (which will give us 2/3 allocation exposure if either level is broken).
Finally, we will change our trigger for our last 1/3 position to either a break above 7950 or break below 6450.
We’ll be adding plays to exploit the above strategy in the next day or two. Stay tuned.
For what it’s worth,