~ This post by Ruben has been promoted from StockTock Social.
That title will be read in history books for decades to come, when the global economy came crashing down back to the market stone ages. The great washout! There is a big M pattern on the monthly SPX chart which will most likely be followed by an A to form the bearish MA pattern.
I believe we’re going down to around 720 on the SPX. Why 720? Well, I think we’re hitting that double bottom and then breaking down below. This is all manipulation to take out the weak hands before the Bull Market of 2009 can begin. This Bull Market will start sometime this year (I think November) and take us from the lows of 720 back up to the fib retracements I added in 2009/2010. I expect we will barely hit that 50% retracement at 1150, which would be a 59% move higher from the lows. It’s going to be more then enough to make the smart money take this market short again. And I think 1044 isn’t a good enough rally before a strong reversal. That 1000 mark will be some comfort to a lot of investors and they’ll start pumping it when we break above it. Now the 61.8% at 1250 is also very likely to happen, but I’m more skeptical on that one. I would sell my calls or take my profits at the 50% retrace and start swing trading or day trading again if we’re moving higher or consolidating. After that massive move up, the A will be ready to complete its journey lower and I’ll get some long term puts and enjoy the ride down. I think those 1995 highs can be a good target to cover your shorts and take those massive gains and retire. I think the break down of the A pattern will take about a year to complete, but who knows. That’s basically it guys, be safe and enjoy the upcoming ride up.
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October 23rd, 2008 at 6:56 pm
Why not just a basic double top i.e. choppy trading all the way down? Is the A part of the MA required?
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October 23rd, 2008 at 8:03 pm
I posted a very similar item a few weeks back. Here is the chart I used. A very simple rudimentary linear chart of the SP500 with the world biggest M pattern that is being formed.
http://moneycentral.msn.com/investor/charts/chartdl.aspx?D4=1&ViewType=0&D5=0&ComparisonsForm=1&Symbol=%24INX&CE=0&ShowChtBt=Refresh+Chart&DateRangeForm=1&D3=0&C9=2&DisplayForm=1&CP=0&PT=11
The one aspect I believe is different, is that if an A is to be formed it won’t be completed (or even started) in 2009. We’re seeing over a decade of leverge, being unwound here. It’s the end of the game plan of borrow short, and buy long. The significant bounce that we will inevitably see from the oct 2008 trading lows will be part of this move downwards on the right side of the M. It took 25 months for the 2000-2002 SP500 to correct. We are nowhere near the end of this long term market decline. The longer slower part of the decline, which is still ahead, is what captures too many value investors who can’t resist jumping in. If an A pattern is ultimately made, (and I believe it will, except on a longer time frame) it won’t be until the current move down puts in the long term bottom. The A move may even be an entire newly deleveraged business cycle spanning the course of a few years, but never approaching the previous double top highs of the M.
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October 23rd, 2008 at 8:04 pm
Read “Financial Armageddon” by Michael Panzner
http://www.amazon.com
We will see how your theory coincides. Read it!!
I am printing your post and will keep it with the book.
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October 24th, 2008 at 7:40 am
I’ll check it up craig, I love reading those type of books..
And great.. if it happens, look me up!
I’ll be the guy selling a lot of gold bars..
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October 23rd, 2008 at 11:30 pm
Great post. It really makes you think about the future. Technical analysis reflects the fundamentals, so what does this say about how life will be over the next 10 years? This could get VERY nasty. We have 20 years of leverage that needs to unwind, and if the air is let out of the balloon too fast, I believe that we will experience another 1930’s depression. I am truly thankful that Bernanke is the Fed chairman, because he is probably one of the few people in this country that understands how to stop the world from totally collapsing.
When we correct and reach the levels that you show on your graph, how will things be? Gold will be $2000-$3000/oz, unemployment will be 15-20% if not more, and America will be bankrupt. On top of that mess, oil prices will still be historically elevated because there is limited supply. I hope that once we make money from this scenario playing out, that a) we can get it out of the market and b) that our currency doesn’t hyper-inflate, making our gains worthless.
That being said, I see the bright side of things too. Here’s my plan:
1. Cash out at the top of this next wave
2. Sell all of my overvalued assets (almost everything if prices are going as low as you show them on the graph) such as my car, real estate, etc.
3. Use that cash to buy outrageously cheap land and build a small house with a bomb shelter under it (In Detroit I think these go for about $100).
4. Stock the shelter with food, water, physical gold bars and coins, and books
5. Install solar panels on the roof.
6. Sit in my house while the world collapses around me, and read every great book ever written (of course, this is so I’ll be a super-genius later when I’m king)
7. If nuclear war is started, repeat step 6.
8. Once the dust has settled and my assets have appreciated while EVERYTHING else in the world has become dirt cheap, I’ll buy up everything and make a fortune over the duration of my life.
This wouldn’t be so sad if I weren’t half serious. The world as we know it will likely change forever. In the meantime, refocus on God and family so that the financial slaughter that you’re about to endure doesn’t seem as important to you (unless of course, you follow my 8 steps to world domination above).
Good luck to all. At this point we can’t do much but just watch the fireworks.
Josh
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October 24th, 2008 at 7:39 am
All good comments guys,
First of all I haven’t even thought about hyperinflation making the USD pretty much worthless.. Is the Euro going to survive? Who knows.. All I know is that the only currency to survive every war and plague and every kind of man made disaster to ever cross the earth is gold!
It’s been around the longest, it’s the strongest and most expensive.
Silver is right there in 2nd place.
Our best hedge against this being played out in 2010/2011 is to start building up either a position in Gold stocks (which I don’t recommend at all, cause who knows how manipulated the market is going to be by then, and this is post the great crash ofcourse).
Physical gold bars could be the answer if you know how to trade them. But our best bet is to start building up a position on gold or silver bars you might say.
Like what I decided to do a while ago is to take 10% of all my earnings and invest it in gold.
I’m going to start as soon as I get myself a safe.
Now about the M pattern or double top..
I highly doubt we’re going to see a straight fall down to 400 from here on.. The best scenario I believe is the M/A pattern, It’s highly accurate in normal tradings and very brutal.
If you take the market psychology in play here it’ll make perfect sense..
A year or two from today when we start to make higher highs and higher lows on the market, the smart money who took large positions today at the lows will start to take out their money for gains.. Also if things keep going like their going right now small businesses won’t be able to beat the competition and you’ll have more and more companies that rely on small business revenues going under. Modernization will cause for more people to get laid out and this will be the start of a global recession..
Now the last bear market is fresh in everyone’s head and we’ve all learned to trust the chart and to be very careful with our money during this market. And that’s where the sellers come in.. At first sight of panic, people will start taking gains and this will cause a major crash.. I believe what we’re seen recently won’t be anything compared to what we’re about to see.
It’s going to be catastrophic and this one will mark the true bottom of the market.. This rally we’re going to see very on the monthly chart I believe will be the MA pattern.
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