In the last update, I discussed how to apply simple market geometry (a form of Natural Law) by using the highly visible pivot-point from the sub-prime panic low on March 6, 2009.
At that crisis low, the date (time) was March 06, 2009 and the SP500 Index bottomed at about the 667 price level.
Then, using this time and price pivot, we derived a new harmonic time and price target to expect a change in trend (CIT) that is immediately ahead of us.
Natural Law Market Geometry
Another key concept beyond fractal geometry is a key concept about W.D. Gann's 45 degree angle (one unit of time equals one unit of price) whereby time and price can harmonically interchange with each other.
When this time-price harmony occurs, and especially when it can also be verified by other cycles or natural law theory, a high probability change-in-trend (CIT) is possible.
Additionally, in this example, we harnessed the power of a basic yearly cycle.
Seasonal cycles as they are also called, are amongst the simplest to understand annual cycles. Nonetheless they are still very powerful. Farmers and the financial commodity market participants were the first to observe, utilize and rely on seasonal cycles in their trading.
In a nutshell, if a key event happened in mid August, it created an anniversary or cycle date the following year in mid August according to seasonal cycles.
So, in the last update I pointed out, that according to a near perfect time-price geometry target using multiples of two, as we approach early March 2011 (an anniversary date of the sub-prime panic low) it provides us an approximate SP 500 Index target of about 1334 (667 times 2 or about two times the crash low).
Equally, and at the same time, we are approaching this two times price level at exactly the two year point. Therefore the multiple of two becomes interchangeable.
Again, if time and price are interchangeable, they must be harmonic and be following a Gann angle of 45 degrees. We can also note that two, is a Fibonacci number, and given the approaching anniversary date - seasonal cycles are also involved.
In that last blog, I further pointed out two slightly different methods of calculating time.
The first was using our standard calendar years of 365 days. Two years from the March 6, 2009 panic low would then work out to a time target of March 5, 2011.
However, I also demonstrated an alternate time system based on a 360 day cycle, which would cause the time target to shift forward by ten days to a target of Feb 23, 2011, assuming one counts both the first and last cycle day.
Although no one has a perfect crystal ball, cycles and Natural Law clues provide us incredible insights and clues into how the financial markets really work.
Elliott Wave Adds Value
As we firmly attest and teach here on this blog - the financial markets work primarily according to Natural Law - exactly as the great W.D. Gann alluded and taught over one years ago. The research work that I have completed over decades, has not only proven that Gann was correct (and obvious financial genius for his era), it has further proven alternative natural laws as viable and valid, beyond those which Gann studied.
As we also have Elliott Wave aficionados visiting this blog, I thought I might briefly introduce how to apply a simple EW pattern as another forensic Natural Law clue, to assist new Elliott Wave students to improve their predictive ability to see market tops ahead.
Remember that many forms of Natural Law are predictive in nature, as we have clearly proven here. This does not necessarily mean that one must use such powers as a swing trader going against trends. Many of you should continue to be trend followers.
I begin by first stating, that Elliott Wave is another form of Natural Law. It involves repeating patterns or cycles. Although many EW teachers make Elliot Wave very complex, the predictive power is normally found in it's simplicity.
This however assumes there is no cycle inversion(s) or Elliott Wave extension(s), which by definition are rare events. At present this is hotly debatable, especially given the tremendous intervention of Central Bankers in recent decades. These as I have pointed out, are Man-made upsets (specifically upset mechanisms) that deliberately interfere with natural cycles.
So, we need to acknowledge and to thus point out or teach, that the classic Elliott Wave patterns leave definitive forensic clues of an impending or imminent top. How?
Some of you already probably know this basic EW theory, as is characterized by the EW 4 wave. But did you also know that W. D. Gann knew of this same four wave clue, even before Elliott?
Essentially, in a prolonged bull run - just before the final peak - there is usually a sharp counter-trend correction down which is called wave four.
The Elliott Four Wave is therefore a warning that should be acknowledged or even feared by all bulls, because frankly, it is the final signal or forensic clue in EW theory that a trend may soon change direction.
Fortunately, there is still a little time left in the primary up trend, as the bulls in their ultimate greed will see this as another opportunity and reliably take the market back up - ONE LAST TIME in what is called the final wave five. There are many clues to spot a terminating and final five wave, but these are best left for another day and topic.
At this terminating point, the former up trend or longer cycle, and thus the buying pressure becomes totally exhausted , and the market capitulates by turning down in a major change in trend.
Although I cannot go into details on individual stocks withing the SP500 Index, I will say or remark that several stocks are now or have already experienced this Elliott Wave Four Down - as a forensic clue of a final top.
This means these stocks are now making what looks to be their last or final fifth wave rally up.
One such stock that has a clearly defined recent wave four down is Juniper Networks or JNPR on the NASDAQ.
See the JNPR daily chart as below. Can you spot how Juniper has a clearly defined wave four down that is now complete. The chart below and this previous wave four down forensic clue, now implies that Juniper Networks is in the final fifth wave rally (also within a larger scale wave five). This implies that Juniper Networks is extremely close to a very important change in trend (CIT) or reversal to a new down trend.
Although most of you probably are not aware of this, besides R. N. Elliott, the great W. D. Gann also realized and recognized the power of this forensic sell-off clue just before the final top rolled over.
Gann called this same Elliott Wave four or last counter-trend - the over-balancing of price.
In summary, we should acknowledge that by applying market geometry and our previously calculated time-price target, we now are very near this potential important and final termination point (assuming no cycle inversion or Elliott Wave extension).
We also should be watching over the next few days to see if we can spot any wave four sell-offs (even in a small or minuette EW pattern) in advance of a final SP 500 top or even in advance of a top in our favorite financial instrument that might closely correlate as we demonstrated with Juniper Networks.
Bernanke Sandcastles - Mission Accomplished - High Inflation
Only a fool would deny that there is a very significant danger in the current USA stock market.
Consider the bellwether SP 500 Index.
The SP500 index consist of large-cap blue-chip USA equities that invariably are mature companies, and as such, are not normally known for their high growth rates.
Yet in the last two year, the average SP500 stock has now returned 50% per year. Expressed slightly differently, the SP500 index has doubled in value in just under two years.
This type of equity rate of return in mature USA companies highly statistically abnormal - if not absurd. It also begs the question - why? How can anyone explain such huge and abnormally high returns in large-cap mature USA equities?
To find another such similar era of highly abnormal USA bull markets returns, Wall Street statisticians will have to look back over 75 years. This statistic alone tells us we are now living in a rarefied equity delusion that will not last. Yes, only once in modern equity history (looking back about 110 years) did such a huge return happen. It was in the 1930's.
Let us consider the previous era that such abnormally bullish stock market performance also took place. Again, it was in the 1930's.
Looking back at that time, it was the onset of the Great Depression and after the famous crash of 1929. Wall Street and America then too attempted to deny or marginalize the economic depression by inflating stocks abnormally after the 1929 crash.
What happened then? Well, after that enormous stock market dead-cat-bounce of the early 1930's, stocks crashed again. The second time, this crash of the 1930's was far worse. People slowly came to realize that the Depression was in fact - real. In the end, it took until the 1950's for stock prices just to even break even.
So, we should all be asking; is this equity market rally real? Or, is it based on something artificial - like a sandcastle - that will soon crumble under new tidal forces.
Mr. Bernanke and his Wall Street and FED friends take credit for this stock rally and also the so-called return to USA economic health. After all, something should have happened as we just witnessed, the greatest expansion of money, corporate bailouts, and global stimulus programs in history. But at what cost?
One might even begin to think that the USA is on the dawn of the greatest economic boom in USA history by such massive USA stock returns. Now that too is an interesting topic.
How can any mature economy like the USA - have the biggest global stock market returns? After all, all around the globe emerging economies and new giants (India, Basil, China etc) are nipping at the USA economic heels.
Even, in the recent political turmoil in Egypt - virtually most global stock indices sold off - some sharply. But not the USA or SP500. Is this just more of Bernanke or PPT manipulation. Or is it irrational exuberance?
Alternatively, one might falsely conclude that the USA housing and sub-prime collapse never really happened.
Mr. Bernanke might have us all believe that it was just sugar-plum fairies dancing in our heads. Yes, according to the breaking news at the FED - the housing and sub-prime crash was just a figment of our imagination.
Mr. Bernanke and his banker (some read this as bankster) friends on Wall Street and at the FED, have obviously prolonged and over-stimulated the USA economy, (and now also the stock market) by quantitative easing, a loose and easy money supply at the FED credit window, and the prolonged near-zero interest rate policy.
Yet frankly, this is an artificial monetary policy and economic situation that must soon change.
No equity bull market can last forever, and stock returns of this nature are artificial. All trees do not grow to heaven as the FED might lead one to believe.
Stocks that go up too much or too fast have a nasty habit of snapping back or clawing back abnormal returns. Are you ready for that?
In a nutshell, highly abnormal monetary policies are similar to sandcastles. They are bound to change and wash away as stronger tides and new forces or new economic dynamics take place.
So let us not all act like delusional fools. Also, we need to ask what are the true costs? Those that could lose the most in the future - will likely be the most naive and the least informed.
For recent Bernanke FED comments click here.
Many Americans might endorse, or even praise Ben Bernanke for his monetary and economic prowess and the many deliberate FED led programs to bail out and stimulate an otherwise fragile USA economic situation.
Yet more truthfully, even a simple minded and basic American student of economics, should being asking many questions and possibly see this as the monetary hoodwinking of America.
At minimum it is totally unfair (it helps some and not others and it mainly helps the rich) and at worst, it it an outright dangerous policy of inflation and a planned devaluation of the currency.
One easy to spot Bernanke monetary flaw, is his outright repeated demand to fight deflation. What is so wrong with cheaper prices at the pumps, the supermarket, for cars or at the mall?
To fight deflation one prints money and deliberately creates inflation by massive monetary injections, programs such as QE2, and an obvious continued and prolonged near-zero interest rate policy.
Yet, Ben Bernanke denies that he or the FED policy (or other Central Bankers with similar policies) are responsible for higher inflation. This is being coy and frankly evading the real truth.
When cornered on this higher inflation topic, Mr. Bernanke immediately implies higher prices are merely a supply-demand economic demand pickup, suggesting his policies are really working.
Yet , how does higher inflation impact the average American?
Also, any armchair economist cannot help but point out that Ben Bernanke and the USA FED are at the same time deliberetaly engineering both higher inflation and a lower USA dollar.
Given that most Americans, if properly educated would want a higher USA dollar (as opposed to a lower dollar) to prevent the erosion of their buying power (and also the lowering of their standard of living) one must ask where does this foolish support for Ben Bernanke comes from?
Although more complex to economically discuss (we'll save it for another day), this could also be construed as Bernanke and the FED are now deliberately engineering the greatest wealth transfer in history (out of lower and middle-class America by a hidden agenda to devalue the USA dollar) while creating inflation that is higher than it otherwise would have been .
Well, I say a very BIG congratulations should now go out to Mr. Bernanke and his Central bank friends!
They have exactly accomplished their mission in spades as one money manager in California stated. Everyone reading this has seen the higher food and commodity inflation. This was all part of Mr. Bernanke's deliberate plan. He has purposely rigged markets for higher inflation and also a devalued dollar.
World inflation is now swimming in a sea of red hot inflation according to the Wall Street Journal.
Instead of ending the former crisis intelligently by raising interest rates to stop leverage and speculation; Mr. Bernanke, and the FED, have been busy engineering a new crisis in the making.
Check out the sea of red global inflation (click here to open the link) - thanks to helicopter Ben. If you think this is the end - you might just be hoodwinking yourself. The fallout from Mr. Bernanke's deliberate monetary inflation engineering may be just the beginning.
See also the three charts as below for our traditional follow the BBTL truth of trend and technical chart update, with the usual mark-up comments.
James Kelly Sr.,
Editor in Chief, BBTL Blog
www.KRTT.com
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