The Big Lie ~ The Risk Averse Alert

Wednesday, September 16, 2009

The Big Lie

Hey, do you remember CEO Alan Schwartz's CNBC interview two days before his firm, Bear Stearns, was vaporized and absorbed into JP Morgan-Chase for a song? Would you agree he was doing what he had to, despite reality?

Then, tell me. How is Ben Bernanke's talk of near-certain "recovery" rightly seen in the face of more negative news than one can shake a stick at? With tax revenues collapsing in the face of exploding federal liabilities backing a bankrupt financial system, what else would Mr. Bernanke say?


I received something interesting today, originating from the desk of Glenn Neely at NEoWave (thanks again for forwarding this, Bernie)...
In January 2008, I warned customers and the public that a massive, new bear market was underway. That bear market unfolded almost exactly as originally predicted on both a price and time basis. It seemed almost impossible, at the time, the U.S. stock market would experience a 50%+ decline in less than a year, but that was what NEoWave theory told me and that is what occurred.

As I have said many times in the past, as a market moves toward the center of a large, complex corrective formation, predictability becomes more and more difficult. It usually reaches the point where you can;t predict what will occur next, confusion is high, inaccurate forecasts are common, everyone is looking for answers (when few are possible) and a level of public agitation or irritation is obvious.

That point of confusion is exactly where the S&P is right now. After a year of extremely accurate market forecasts (I was in Timer Digest's Top 10 repeatedly the last 12 months), the S&P is now in the dead center of a 15-20 year, complex correction that began September 2000. Until the S&P moves far from this part of its structure, I will (at best) be able to predict general market direction, but not specific day-to-day behavior. This same phenomenon occurred from 2004 to 2006 when I knew a "bull market" was underway, but I could not predict, with wave theory, exactly how it would unfold.

The continuing rally in the S&P has forced me to reconsider the design of the bear market from January 2008. Initially, I thought it would be a complex correction that pushed to new lows at least once more before the lowest point of this 20 year bear market was reached. But, recent action brings into question that assumption and raises new possibilities. For that reason, I went back to my S&P archives and looked up the various scenarios I originally created for the 4+ year bear market starting January 2008. Attached is one of those scenarios that still explains the past, fits current evidence and explains the magnitude of the rally off 2009's low. If correct, the 2008 to 2012+ time frame is a contracting Triangle that will eventually end much higher than 2009's low. It also means 2009's low will not be broken for the next 50 years!

This feels eerily like my call in 1988, just 8 months after the 1987 crash low, when I was the only wave analyst in the world predicting 1987's low would never be broken for the rest of my life. The count attached to this email is not yet my "official" wave count, but it is quickly becoming a serious choice. Over the next few weeks it should become more obvious the path this phase of the 20-year bear market will follow.

Glenn Neely
NEoWave, Inc.

Here's Neely's attachment...


I know nothing about NEoWave. Yet I do have a certain, rational reaction to Neely's remarks.

I similarly perceive how the S&P 500 is at a point where it seems things other than what have long been projected here might develop. However, I am not yet even close to fearing an alternate Elliott Wave count might soon become necessary. To my way of viewing the stock market's present technical condition, everything one might expect seeing line up prior to collapse is being evidenced. That the advance off March bottom is being extended to its ultimate maximum only alerts me all the more to the greater possibility of spectacular collapse.

Indeed, that a long-time bear like Glenn Neely is suddenly more reserved might best be seen a contrary indicator. I wouldn't say he is throwing in the towel, but he is possibly setting himself up for missing some substantial part of the coming collapse. Things right now in fact might be so precarious that a "perfect storm" seemingly developing out of nowhere could crop up and virtually overnight precipitate an historic gap lower in major stock indexes. Let me put it this way. The odds of London being leveled probably are better than the odds of Bernanke's "recovery."

And learning that Neely, a long-time bear, believes the 1987 lows will not be taken out in his lifetime alerts me to the possibility the 1974 lows might be the levels to which major indexes are about to fall over the next few years ... if not weeks.

Like I said, I know nothing about NEoWave, so I am not qualified to deliver critical commentary on the methodology by which Neely comes to his conclusions. However, I do know the Elliott Wave Principle. And though nothing ever is set in stone, even given finite possibilities, it is easy enough to develop a forecast and over time continuously assess its probability.

So, having been there and done that, there's absolutely no reason to tone down my fear of collapse. Not one thing changed today.

If in fact equity is dead money as I claim, then it stands to reason some time would be necessary for strong hands to trim their exposure. It also stands to reason these same strong hands will be careful not to upset the applecart. Indeed, this would go a long way toward explaining a rather glaring disparity resulting from the recent crisis...

Fast Money
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