Friday, January 31, 2014

Silver might need 1 more capitulation down draft before bottoming.

Metals have been eluding me in terms of model correctness.  The were down when stocks were up and now they are not showing strength even when stocks are weak.  If silver, for example, does not bounce real soon now and with serious gusto, it is in danger of confirming that one last downdraft will be needed in order to finish off the multiyear bear market in metals.  When that happens, I expect a rapid rebound as investors rush into the metals as a safe haven.  I have a small amount of USLV right now and, as posted earlier, I will add significantly to it on the technical turning points.

If silver breaks the support line at the location indicated by the red circle, expect pain all the way down to the blue circle which represents the throw under for an ending diagonal.  If that is followed by a rapid move up through the upper resistance line of the channel as shown in orange then metals will likely be confirmed to be in a new bull market. If this happens then it will result in a very bullish inclining double bottom which will support another run back up to $50 or higher.

Alternatively, if this support line does hold then it could lead to several years of sideways action bouncing between current levels and ~$23.  As usual, the long term winners here will be those that take advantage of depressed prices to build a position in the physical bullion, preferably 1 ozt coins such as Austrian Philharmonics, Canadian Maple Leafs, etc.  I would avoid coins that are issued by someone other than a government mint simply because they lack the recognition factor of government minted coins.  IF there was a crisis and someone wanted to trade you their non-name "silver rounds" for your goods and labor, would you make the trade if the coin was something you never saw before?  I personally want the government stamp that says ".999 pure 1 0zt".  Not that silver rounds are bad.  Lots of people buy them.  But they are only a few cents cheaper and the government mint stamp is more than worth that to me.

Google's sneaky and evil watering down of shares as part of split.

I thought the prior ending diagonal for Google was the 5th wave up.  All looked good for my June puts recently when the shares took a 90 point dive.  But since then there has been a dramatic rebound while the broader markets tanked. These are just the risks of interpreting the chart in real time instead of waiting for confirmation. 

As you can see from the model below, 5 waves have occurred to form a higher high than 3.  The two most likely events going forward are that:

Scenario 1: This is just 1 of 5 up having completed.  A pull back will occur, perhaps back to 1100, where a double bottom will form into wave 2 down.  If a lower low cannot be had, this will set the shares up for wave 3 up, 4 down and finally 5 up.  After that I think there is no room left to run and we will see a dramatic down draft in that case which will send panic into GOOG shareholders.

Scenario 2: These recent, broader market defying 5 waves up just formed an ending diagonal with a throw over that led to a higher high.  This new high just kissed and slightly surpassed the big 1-3 line.  Thus, even though this 5th wave is not as large as the 1st wave which ran from Oct 9th-24th of 2013, it is an ending diagonal and I think that trumps the desire to see 1 and 5 of equal length when 3 is the extended wave (as it was this time).
I think scenario 2 will probably be chosen by the market.  Thus I will be buying another set of the June 840 puts at the open on Monday.  Hopefully the shares don't gap down at the open since that will bump the options prices up. 

This recent bounce in GOOG shares has not dissuaded me from my belief that GOOG is about to roll over.  Quite the contrary.  It is giving me the ability to dollar cost average into a position.  These 840s will be 3-10 baggers before they expire IMO.

If the market needs news to really get things moving, today that news came for GOOG: the company is going to split the shares.  Normally this is thought of as a bullish thing as lower priced shares are supposedly easier for smaller players to participate in.  Of course, after the split the shares will still be over $500 each so I'm not sure how good that logic is but it's at least something to say to the herd.

But in this case, the split is a sneaky rip off that is absolutely going to piss off big institutional investors because anyone accepting the split also has to accept an effect massive reduction in voting rights.  That doesn't matter to Joe Sixpack but it certainly matters to institutional investors who can see it as a loss of say in their investment should they believe that changes need to be made.  And when are changes normally requested?  Yeah, when the shares go down.  In other words, I read this as the powers at GOOG making sure they don't get punished or pushed around in the media by big shareholders like Carl Icahn is doing to Apple.  Google's message to institutional shareholders is clear: "Buy the shares if you want to but don't try to tell us how to run things if the markets turn down.  And to be sure you don't try, we are relieving you of most of your voting rights as part of the share split.".

Any institutional investor with a brain will run away screaming from that deal. Splitting the shares don't add value to the company, it is just a PR stunt.  But removing voting rights absolutely makes the shares worth less to large investors than shares which do have voting rights.  Add the news and the chart together and I think it leads to major GOOG share swoon real soon now.

I model the recent and ongoing NASDAQ composite rally as a dead cat bounce.

This is very speculative of course but I am going to model the current action as an A-B-C back to the 61.8% fib over the next couple days.  If this plays out then after wave 2 is complete you do not want to be invested in any of the stock markets.  3rd waves are never the weakest and usually the strongest.  So I am modeling this next 3rd wave down to perhaps 3900.  Keep in mind that this is only 3 of 1 down.  In other words, the carnage is still a good number of weeks ahead of us but people will begin to get worried after the next smack down.  It is beginning to look like a "walk away in May" year.

New master DJIA model adds detail to current model

The DJIA dead cat bounce began only minutes after I suggested that a near term bottom was coming

Elliott waves are quite amazing IMO.

Now that I see what is happening and have had time to look at the individual waves in detail, I want to modify the model a bit.  My new master model is below.  In short, we just finished the top level 3rd wave.  The 2nd wave was meandering and so by the rule of alternation I have to model a vee recovery into wave 4 which likely exists at a point parallel to the 1-2 line.  So we rally up into Friday's close and then have an even stronger C wave rally on Monday according to my model.

After that, a 5th wave down which could end center channel or, in the really bearish case which I more expect, a trip to the 1-3 line.  This kind of volatility is very trade-able.

Got the expected sell off. Now get ready for massive Dow rally going into the close.

DJIA looks to be finishing its 5th wave down with an ending diagonal.  I'm flipping long for a day.  Beware of next week though.  That's when the real deal sell off begins.  What we have seen so far is just wave 1 down.  The real fear comes next week.  Leveraged gamblers will be thinking TVIX for next week.  I expect 70% gain in 1 week on that.  Minimum.  Could be much higher.

You will know that the herd is moving south when bad news is no longer accepted as good.

Bezos over at Sacmazon has been bleeding cash for quarters now.  All of this was glossed over as the shares were pumped to the sky.  Shareholders were led to believe that getting paid for crappy performance was, of course, normal.  Expected even.  Just like back in dot bomb.

And so today they are shocked at having heard the company report a profit only to see the shares lose 8% at the open.  Forbes explains that it is all about forward guidance, but the guidance was really not much different than the past quarters.

In truth, the herd is read to move south and so, as predicted many times in these pages, seemingly good news will be ignored or at best under rewarded while bad news is treated as a diagnosis of untreatable cancer.  To the degree that these bloated markets have overshot to the top, that is the degree they will under perform to the down side.

Thursday, January 30, 2014

I hate to say it but either Friday OR Monday is likely going to be a market slaughter.

So many things are following my model that it's really overwhelming a bit.  I'm able to call the action almost day by day in many cases which means that a change in direction in the markets is afoot in my experience.  When the herd is complacent or nearing the end of a trend it often tends to meander toward the finish line like a herd grazing its way along.  But when the "time to move" signal is sent and received, the actions become almost military precision in nature of packing up the fort and getting ready to travel.

This rally was predictable and predicted.   Look at the nature of the chart.  5 waves down and then a-b-c back up.  This is classic EW 1-2.  Long time readers know what LIKELY (odds, not certainties!!) comes next: a big wave 3 down with gapping and crapping and everyone $hitting their pants as they realize that buy the dip has become a suckerz bet.  Once the markets show that stocks are dead money they will pile into metals IMO.  The money coming out of stock has to go somewhere.

The slaughter will begin Friday or Monday according to my model.  The COMPX is currently at the 38.2 fib and I suspect it has to achieve either the 50% fib or the 61.8%.  But no guarantees.  I would not hold this market long over night or over the weekend.  No way, no how.  The chart below is the NAS composite 10 minute.

I want to stress again how there is risk in trying to call the day by day.  These models represent my interpretation of the EW rules and thus are designed to skew the odds in the favor of the trader.  But odds are not certainties and models that are followed by reality for too long attract too many predators too quickly.  Thus, the herd changes and morphs.  If it was so easy then everyone would be a billionaire and we should all know that no new value is created in the stock market.  It is only transferred from losers to winners.  The whole thing should be done away with IMO for the good of the nation, but as Chuck Prince taught us, while the music is playing you have to dance.

Miners leading the coming metals bottoming.

I've been on metals bottoming watch for months while they went kind of sideways.  I think that sideways movement was a 4th wave.  The big move down in silver today looks like it could be all or part of the final 5th wave down of an expanding triangle.  This could be the end of 1 of 5 down or it could be all of the 5th wave.  In any case, when it bounces, be wary of the bounce being only wave 2 up while at the same time respecting the fact that it could be wave 1 up of the new bull market in metals which is absolutely going to start in 1H2014.

Below is modeled the case where this recent sell off was actually the bottom.  The reason this is a real consideration is the miners are rallying.  They often do so before the metal bottoms but they cannot sustain any rally without the metal bouncing up to support them.

No matter if this is the bottom for metals or not, look for a good rally in metals if this expanding triangle is confirmed by the break out of this throw under back into the channel.  That will, at the very least, be a short term buy signal.  Then you have to play it day by day until the new bull market in metals confirms itself.  Because of the state of the miners, I give it 70% chance that this throw under is a lasting bottom.  The easy trade here is to buy at the end of the day which will hopefully coincide with the low of the day. Then set tight stops of 2% for the following AM, especially if the wave count looks complete on the down side.  Then just go about your business knowing that if the model is wrong then you will get stopped out for very little loss but if the model is right then you will enjoy massive short term gains.

TRX skyrockets into expected 3rd wave...

In this post I modeled that the 2nd wave in TRX was almost complete.   Today's 17% jump in the face of declining Dow and S+P and NASDAQ can best be described as 3rd wave action.   The back
 test of the resistance-turned-support line was a thing of beauty to behold for traders as it provided yet another confirmation of this Elliott wave model.

 I expect good follow through in the next couple days as TRX finishes forming its 3rd wave.  Remember, buy the dip, not the peaks.  Wait for 5 waves to flow and then pick up shares on the a-b-c retracement.   In other words, I think somewhere around $1.98-$2.02 will be a reasonable entry point.   And it might possibly go to $2.16 before that reversal so don't be shocked to see it if that does occur.   But after that plays out, expect a massive rise because the chart will be in a 3rd of 3rd position and I expect that to show significant gaps up.  The shorts will want to run away from this one ASAP or they will lose all the profits they have in it.

Trader Dan, if you read this please do me the honor of leaving a short comment with your unofficial thoughts on TRX.  I understand that Jim might not be able to make any comments for legal reasons.

Wednesday, January 29, 2014

[JCP] could catch a significant tail wind tomorrow.

It seems crazy that I would be talking down the Dow and the NASDAQ on one hand and then suggesting that JC Penny could catch a bid on the other.  In all fairness they should be trading together.  But there is a lot of hot money out there still, a lot of margin leverage that needs to be put to work.  Stock traders don't trade stocks because they like it, they do so in order to pay the bills.  They HAVE to put their (your) money in something, anything.  It really doesn't even matter what as long as the traders can say "everyone was doing it".  That is all the defense they need: "I was keeping up with the herd in order to avoid being trampled" or "the music was still playing so I had to dance".

Of course, the reason I choose now to say it is that I think a-bc has finally played out and I think it will avoid going to a lower low by a hair.  So it will still be a valid 2nd wave.  Which means traders could pile into it if the 3rd wave starts to show momo (momentum).  The first wave up was quite easy to call a motive wave.  The wave back down also seems an easy a-b-c call even if it almost went below the left hand point.

There is a really easy way to play this one: buy at the open and then set your stop loss to just below the horizontal line.  IF they dare take out your stop then the EW chart will be broken and for a few cents they will have screwed up a major percentage move.  Make no mistake, this could easily double in price over the next month according to my possibly incorrect model.  This one seems unlikely to the naked eye so I will give it 65% probability of playing out as shown but my gut says it will happen despite the odds.  Or is that just indigestion talking?  Time will tell but I do think I will buy this one at the open to see where it takes me.

Looking at the expected rebound tomorrow from another angle: FAZ.

The reverse triple financial ETF is up smartly since the recent bottom but I expect it to swoon around 7% tomorrow.  But where did I get that figure from?  That's what I hope the chart is telling me.  The chart already pulled back to a perfect 38.2 and it has set itself up for either a big 3rd wave up tomorrow or a big move down.  So it could really be off to the races tomorrow.  So why am I picking down (in other words, an up day for the bankers and markets in general)?  There are multiple reasons for it.

First, this most recent market pullback was, for most people, just another pullback in an ongoing bull market.  The only reason I'm claiming it is the start of a new bear market is because of the shape of the chart and most people will liken that to reading chicken bones, etc.  I'm not talking about just stupid people here.  I'm talking about very intelligent and well educated people.  But they might not see that they are more indoctrinated into the system (and thus a tighter part of the herd) than they could ever imagine.  Of course, I could also be just wrong.  Time will have the final say on that.

My interpretation of the chart says that the 38.2 wasn't enough of a pullback.  I think that this bull market has gone on for a couple years now and that people have gotten used to dip-buying working every time (the old "it's worked so far" justification - just like fiat currency and fractional reserve banking).  I think this first pull back has to test the resolve of the bears.  In addition, look at that open gap on the way up.  There is an old TA theory that says all gaps will be filled.  I don't think it is right but I think filling that gap as shown would create a nice long C wave down to the 61.8 fib which would also be a backtest of the resistance turned support line.  Getting back down close and then shooting upward is how the market communicates that it really has changed direction.  So to recap my reasons:
  • The shape of the chart
  • Gap filling
  • 61.8$ fib hit
  • Nice long C wave relative to the A wave
  • Backtest the RTS line from above

If this doesn't work out I should know pretty early in the trading action.

I absolutely endorse Edward Snowden for the Nobel Peace Prize.

Snowden is a hero.  He risked himself in order to uncover government corruption and power grabs.  Now two Norwegian politicos have nominated him for the Nobel Peace Prize. When one considers the idiocy of giving Obama this same prize for having done absolutely nothing it makes me think that justice would be served to simply strip him of that undeserved honor and give it to Snowden.  But who wants it after Obama has had anything do do with it?  If I were Snowden and they gave me that prize then I would tell the American people that I would only accept it IFF the American people demanded that I be given full amnesty from any charges and be allowed to travel the world, including the US, without fear of US government attacks.  The reason?  What good is a peace prize if it doesn't lead to FREEDOM.  Peace without freedom is nothing.  The American people would eat it up with a stick.

I am on record in these pages many times starting from when I first heard about what Snowden did with my view that he is a hero.  In fact he and Ron Paul are the only two people I have ever said that about.  It is not a term I bandy about in order to cop a headline like the main stream media and political jerks do.  If you ever get a chance to do something good toward the cause of helping Snowden, please do it.  I certainly have contributed cash to the cause of thanking him publicly.

Obama tries to create new honey trap MyRA scam.

MyRA is Obama's new government controlled honey trap Roth IRA plan. Essentially, you pay taxes on the savings now and then don't pay taxes on the earnings you won't make because of the coming market crash.  The limits are pushed up from $6500 to $15000.  Yep, the old 401k scam is running out of steam because boomers are retiring and drawing cash out of the markets, NOT putting more cash in.  Nobody wants to put more money into a government controlled trap!

The minute you go to collect it you will find all sorts of what are essentially capital controls.  They will change the rules with the stroke of a pen so that you will have to wait until 71 until you can start getting your own money back.  And there is always the real threat that the funds will be nationalized "for your own good in volatile markets".  In other words, the markets will crash and then government will mandate that a certain portion be placed into "safe" (HA!!) government debt.  This is how they plan to steal from the people, just like other governments are doing in 3rd world nations today.

Smart people will not fall for it.  Smart people will reject any Trojan horse that government offers.  When government was pushing all young women to have to take a cervical cancer vaccine under threat of law, I was telling family and friends to push back with all their strength because nothing the government gives you is worth having. 

Now, it seems, the individuals who created of that vaccine are coming clean. In short, the risks of taking it are higher than the threat that it was supposed to be directed towards and everyone involved knew it.  In addition, the risk of catching HPV was very low to start with. So it was all a big money making scam game between big pharma and big government.  Well, you know that big government would not do this without big bribes and other compensation.  So get the notion out of your head that ANYTHING the government says is honest and you will do just fine.  And that includes Obama's new honey trap for his soon to be collapsing stock markets.  Your best friend for long term retirement saving was, is and always will be to buy physical bullion coins of large denomination (1 ozt) and hold them yourself. 

Cashin: Stocks almost went over a cliff.

Cashin has known risk of a major pullback has been in place for months.  I think he is now on topping watch as you can observe in his recent interview with Pisani.  Stocks almost went over the cliff, but of course long time readers of my blog know that major break outs or break downs do not happen on 1st waves.  Like a herd of water buffalos they make a series of probing charges and retreats before deciding to go for broke and when they do, the opposition breaks. 

And so we will likely get our wave 2 retracement which will last 1-2 days and give the markets a bit of calm.  But then, likely on Freaky Friday, the markets will turn back down into a massive 3rd wave and all Hell will break loose.  At least, that is, if my EW model is correct.  Despite the risk of predicting such short term moves, I will be laying into it with vigor on the short side (to say the least).  I have figured out an ultra leveraged strategy using tight stops that I plan to test out.  It is designed to produce asymmetrical returns while stopping out quickly for small losses if I am wrong.

Flipped long into XIV at the end of the trading day

5 rail bumps down into an ending diagonal with a throw under right to the 61.8% fib seems like a good setup for a C wave bounce on XIV.  This model supports my other "sucker's bounce coming" models as well.  I'll be quick to bail on my new XIV position if the market isn't up strongly from the open.  There is a lot of pent up "buy the dips" out there who don't realize that the bull market is likely over. 

Or maybe I'm the dip.  It could still go either way although I like my odds.  But I have to be clear, these models are not confirmed.  They have been working well and that is nice but I need confirmation as explained in some of my other recent posts before I can be comfortable with them.  Of course, if you wait for that to happen then you limit both your risk and your reward.  We won't have to wait long before finding out.

Wave 1 down of NASDAQ composite nearly complete.

Looks like a 5th wave ending diagonal is playing out.  Sucker's rally expected tomorrow and it should be a good one. Wave 2 is often a vee style retracement because everyone figures that the pull back is done, the market terror is over and that the old trend will re-assert itself.  This generally results in a 5-3-5 a-b-c rally which can be shocking in its presentation.  But traders should be wary of it IMO.  Either sit it out or be nimble go long the market at the end of today (like I probably will) and then dump it after 5-3-5 plays out before flipping back short somehow (I will play the VXX because it is so leveraged).

Here is my model for the next couple days.  So, either a "black Friday" or black Monday" style sell off.  I'm modeling that 250+ COMPX points will evaporate during wave this small 3rd wave:

Wave 1 of new bear market seems nearly done.

I just exited the VXX position that I re-took yesterday on the way home from China.  At 5% gain I might have left some money on the table but I don't have time to watch it all day.  I also dumped my FAZ just now.  The FAS (opposite FAZ) chart is telling me that we likely have a failed 5th situation on wave 1 down and so a strong rebound is expected to at least the 38.2 but just as likely to the 50% fib.   7% is a trade-able amount so I might just flip long on FAS at the end of today.  But after that it will be back to FAZ because when the 3rd wave down hits the markets it is going to be a punch in the stomach.  The market will thus figure out that "buy the dip regardless" is no longer a working play and the market is a fast learner.

These short term day trades have been good to me on these leveraged issues but after the market clearly communicates its new downward direction I will be less likely to trade in an out so often.  I'll just sit through the small wave sucker rallies once the market tells me the bear is back.  Right now I think that it is, I model that it is, but I cannot be sure until we get confirmation and that has not yet occurred.  The market has bounced back from worse. 

The chart is telling me that this is also what the herd is thinking, hoping: "the damage so far is not serious, it might recover".  I seriously doubt that my model will fail me on this but hey, it's just a model.  But if we get the indicated bounce shown below and then a big gap down into a hurtful 3rd wave then that is the first major confirmation.  And if that 3rd wave then turns into a triangle 4th wave instead of starting yet another bull run and then that 4th wave breaks down into a 5th then that is real confirmation of a direction change.

Below we are looking at 1 of 1 down.  My guess right now is that 5 of 1 and then a-b-c of 2 will both be done by mid April.  Then we will be starting the big 3 down in the face.  Many hundreds of Dow points evaporating on a good number of days.  Big gaps down with plenty of fear that comes in wave after wave as people figure out that the Bernanke put is ka-put.

Metals update: SLV will either break out or break down.

I have not been talking about metals much lately because the action has not been compelling.  The metals are sort of stuck in no man's land trying to decide if they are a commodity or money.  Of course they are money but the herd needs time to wake up to the fact.  Long term holders of the physical simply cannot go wrong. 

It really comes down to this: either have a retirement account denominated in fake paper assets which I cannot access if the government does not allow me to and which they can steal from me at the stroke of a pen from someone who is avoiding congress with executive orders OR a retirement account denominated in metals that have never gone bankrupt before, which I own in my own physical possession and which will require a running gun battle with me before anyone pries it from my hands.  Yeah, I vote on me.  The system is designed to screw people so smart people will get out of the system.

In the short term, however, metals are not creating impulsive charts.  The sideways movement could either be a rounding bottom where the herd take time to have it mind changed or it could be a 4th wave.  If a 4th then expect a 5th wave down.  If a 5th wave occurs, I think it could be an extended 5th because the 1st and 3rd waves are the same length.  One of the 3 impulsive subwaves is often extended.  So if a 5th wave is coming, it could be extended.

Personally, I hope to see it because these short term moves mean nothing toward my retirement account value.  I have a small amount of USLV which is down right now but more than offset by my VXX and FAZ and GOOG puts.  I didn't buy more because the chart is just not clear.  But I'm beginning to think there will be one more big downdraft that happens along with stocks when the 3rd wave down in stocks happens.  At some point I think metals will decouple from the markets (i.e. get treated as money rather than as a commodity).  But for the short term, if we get a big 5th wave down on high volume that is a buy buy buy signal, not a sign to panic and flee.  I will be moving profits into USLV if that happens.  Of course, these are gut feelings.   The charts will, at the end of the day, guide my gambling moves.

Waiting for the big wake up call - Dow down 300-500+ points in one day.

The markets still have not woken up to the fact that a major top has been put in.  The herd is milling about on the river banks trying to figure out if the next river to cross has too many crocodiles in it hidden just under the surface.  They fear that it does but they need some proof.  They need to see a few strong players get taken under.  Once that happens they will figure it out:  it is no longer safe to continue migrating north.  South is a much safer choice for now.  And so the herd will, with heavy heart for now, turn south.  And the markets will follow close on the heels of the herd.

I go send a probe post to some of the Yahoo chat boards now and again just to hear the echo of the lost people who hang out on them and gather support for their own way of thinking. It is not a place to exchange ideas.  It is a place to form mini herds which will give positive reinforcement that their world view is correct, even when it's no longer working for them.  The AAPL board is a perfect case in point.  I warned them of the coming downdraft in share prices.  I provided charts and logic.  They told me to stuff it and got very rude. 

And so my model slapped them upside the head and still they learn nothing.  I have no doubt that many there are quite intelligent but herd-think is omnipresent in all of us and it controls us unless we are constantly on our guard.  That is the value of the EW model more than anything else IMO.  It tells me when my worldview is incorrect by violating key levels.  Even though the models seem to be working toward my world view I am constantly re-thinking about them, trying to fight off herd think in my own mind and watching for trigger violations.  Until the Big Reversal is confirmed (which it is not yet), this could just be an a-b-c retracement.  One major confirmation I am looking for is a bit 300-500 point sell off in the Dow that contains a big gap.  This will either be 3rd of C or 3rd of 3rd so it is not confirmation in and of itself.  But after that happens the market will either have to rebound strongly to scare off the lions, hyenas and crocs or it will have to turn south and run away.  If a 5th wave down occurs, the chances of a major reversal being in progress go way, way up.  We are not there yet.

Tuesday, January 28, 2014

Bill Fleckenstein nails it again.

Before the crash of 2008, Fleckenstein was  huge bear.   Then in 2009 he closed his bear fund and distributed the profits (right at the peak of beardom).  Now he is out talking stocks down again.  This should be a wake up call for anyone who is long this market because Fleck has already proven that he is looking at the herd from the outside, not just running with it blinded to the larger picture like most stock analysts tend to be.

Instead of talking about how great earnings are, Fleck is wondering why anyone would pay a PE at the high end of the historical scale in a market that is clearly fed pumped.  He mentions an easy 30% downside and I think he is right.  That is easily the next pullback.  It could be 50% or even 61.8%.  It could even be the end of the market mania at which time I expect it to go well below 1000 (manias end up below where they started just like the Japanese Nikkei 200 did).

Maybe I'm pointing to Fleck because he agrees with my topping call.  But maybe it is simply out of respect for someone who already showed the wisdom to shut down his very livelihood before he gave up all of his hard won profits.  To me, that makes him the smartest guy in the room.  Listen to the smart guys if you want to get smarter.

As modeled, Mr. Market takes a huge bite out of Apple

For a couple weeks now I have been warning about Apple's stock chart: first here, then here and most recently here.  If you are confused about the recent beat down of AAPL shares then you owe it to yourself to go read those posts in full.  The model fully predicted this breakdown and, sadly for AAPL shareholders, more to come.  It cannot be shrugged off as luck or chance because the reasons for making the predictions were not done on gut instinct but rather in line with the rules of Elliott wave analysis.  I have noticed that during times of stress the market becomes very Elliott wave conformant.  So I expect this to be the case during the coming collapse as well.

Here is the current chart.  The green line was the quickly modeled next move, the red is what actually happened.  The blue line is the model's future prediction.  These are meant to show the approximate shape and direction of the graph.  This first breakdown is a confirmation of my model and should not be ignored.  I would sell any sucker' bounces that you might be lucky enough to get at this point.  Again, not advice, just what I would do (am doing).

More importantly, this harsh treatment shows how the shares were priced for perfection and what happens when perfection is not achieved.  No bad news will be ignored anymore as it has been ignored for the entire time that the Bernanke put was in place.  That's right.  The real news is not that AAPL took a dump here as modeled but rather that it has market wide implications.  "Wall St darlings" are having to put out or get out.  No more free lunches.  And it will be increasingly difficult to deliver the goods going forward.  That applies to everyone from "untouchable JNJ (whose stock chartI have been watching with interest) to PCLN and to even IBM.  The coming collapse is all about credit deflation, not company performance.  Stop letting stock salesmen misdirect you with their magick (sic).  What matters in a debt Ponzi Pumped market is the level of margin debt and that is controlled by interest rates which are now on an upward trend.

This is my first post on Priceline. In short, shareholders should probably run away screaming.

I have held off on posting anything about Priceline until now (years of waiting...) because the graph was just too strong looking.   But I now see 5 waves up ending in exponential panic buying with a 5th wave throw over of the the 1-3 line.  That is generally nosebleed territory for Ponzi Pumped shares like these.  Trust me when I tell you that a market cap of $60 billion for this POS is a dot bomb redux joke.  I have been watching it all the way up but too afraid of the exponential move to jump in.  I knew that the safer play, believe it or not, would be to wait for it to run out of gas and then ride it down.  Kudos to anyone who caught any part of the phenomenal move from $40 to $1200, but trees do not grow to the sky and so this one is about ready to fall over IMO.  This is currently viewed as ridiculous thinking by market participants.  Priceline is currently a Wall St darling.  Here is my model for the shares.

Of course, I could have written those generic words all the way up, and been wrong the whole time.  That is why I don't trade on gut feel only on the wave count. I don't always get it right but I always know as soon as I am wrong because the model tells me so.  And the model is telling me that PCLN just finished 5 of 5 and now all the risk is in holding the shares, not shorting them.  A break to a new high will negate the view and you can slip out the back for a small loss if that happens.  This might just happen if what is forming now is a 4th wave expanding triangle.  But if that is the case then it will see the 5th wave in a matter of a few weeks and then it will plummet.   These are so overbought that I think I will go for some puts.  In order to allow for one more final wave up, I would seek the safety of more time (or higher strike).  I'm going to review the options chain in detail tonight and purchase a nominal amount of puts before PCLN reports earnings.  If it disappoints then they will be good but if they report great earnings then the 5th wave will need to play out and I can purchase more puts at lower prices.

I don't think it has a month but let's say earnings are really trumped up one last time.  It could suck the life out of puts for another couple months.  But eventually even if bad news doesn't emerge (which I think is unlikely given market conditions), traders will have to sell their winners in order to cover their losers.  And when you have a 30x move up since 2006, there are a lot of winners in the shares.  Time will tell!!

And now we shall see about the fear.

In recent posts I predicted that fear was coming to the markets in a big way.  In anticipation of that I bought into VXX a bit too early but was vindicated by the massive move up in VXX and down in XIV (they are inverses - great for looking at the waves from both sides of the lake as it were).  Of course nothing goes straight up or straight down and so in anticipation of today's sucker bounce (at least that is how I am modeling it right now, I sold my VXX for a nice little profit but kept my goog june 14 840 puts (too high of cost to be in and out for short term direction changes.  It was a tough call since I had to get on a plane back to the US but I thought a profit is a profit and I expected a 10% sucker bounce so might as well side step that on VXX.  I probably should have sold the FAZ as well but I have seen that the bankers are weaker than other issues so I decided to take the short term hit to profits as insurance against my model being wrong.  I will say that I nailed the peak in VXX to within 1/3 of 1 percent just by counting the waves.

Well, the markets are getting their expected bounce and everyone is happy again.  But I think the markets are damaged.  I think confidence is fading and that "buy the dip" has turned into "sell the bounce".  I could be completely wrong about this.  Just because the 5th wave is called properly doesn't mean it is the 5th of 5th of 5th.  In other words, they can extend longer than one would think.  But there is a lot of other evidence including Bernanke tapering so I'm sticking with my market peak  call.  I think what will happen is that tapering will cause trouble but restoring the fed action to 85 bn will no longer be good enough.  The fed will have to sweeten the pot.  But since most Americans have no $$ in the markets, they do not like the CPI price inflation and since interest rates are probably on the rise now the margin debt will be harder to take.  So more pumping will be needed to produce the same results as the last 2 years and I think the American people are weary of it.  Add it all up and I think the Ponzi Peak Pump is over.

So, back to short term charts.  Here is XIV over the past several days.  You are looking at 5 waves down and then an a-b-c retracement to the 50% fib.  That is bearish for the pump.  So now I am going back into VXX because I think tomorrow and the next day will take us into wave 3 down and it should be a real doozy.  The XIV should plummet while VXX goes up perhaps 15-20%, maybe more.  There is just too much risk to own stocks here.  Short sellers are going to take the markets to a bad place by the end of January and there are only a few days left to do it in.

Monday, January 27, 2014

Google collapse begins

In this Jan 7 post I showed some models that suggested that GOOG shares were near a significant trend change downward.  Those models have been proven to be fairly accurate.  In that post I also suggested that my price target of $845 could come quickly and that Google puts were underpricing risk.  I wrote:

"I like the June 2014 $840 puts that are going for $4.20 at the ask.  The VIX is so low right now that these options are waaaay underpriced.  I expect those puts to become 7-10x more expensive before March.  Of course, options are for total gamblers and I would never recommend them to anyone.  I will buy some myself however.  A double whammy exists in that the shares are peaking while the VIX is too complacent.  That will goose the already high multiplier effect of this play."

In fact, I waited for the throw over to arrive and picked up a modest scoop of the 840s at $3.50 ($350 per contract).  Today someone looked at the GOOG shares in free fall and decided to buy some of that insurance.  At the very best, the recent collapse was A of C.  That is absolute best case according to my model.  C is never the smallest wave and is generally the strongest.  So at the very least I think the shares go down to $1015 very shortly.  When they do bounce it is likely a to be a 2nd wave vee so I will probably take the money (3x by then) and then wait for the vee recovery and then go back into Jan 2015 puts.  If the markets are down at the end of Jan then expect a recovery followed by a "walk away in May" 3rd wave down.  I mos def want to be in some out of the money puts for that event. 

I don't recommend the use of options to anyone.  IF you want some of this bear meat and you are not an experienced trader, look at VXX.   You can get in and out quickly and without high fees or the issues associated with illiquid options markets.

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