Some of my readers have asked me why I am providing this information. The above picture gives part of the answer. Even after several "Titanic" warnings, investors continue to pile into stocks. This can only end in one way...
Below are my short term updates with the most recent update first.
November 6, 2001 - Pattern Recognition Alert - The short term pattern is the same as the DJIA topping pattern from December 1999 - January 2000, just on a faster timescale - which is good if you're trading options. If you bought spx calls 4 days (and 500 DJIA points) ago, you could have tripled your money! But let's not dwell on the past. This pattern points to a top around 9,750. The DJIA then has 1,750+ points to fall all the way down to "retest" the September lows (or more likely make a new low). Put options are still relatively expensive due to the recent correction and downward trend over the past 2 years, but they should still yield at least a 500% return during this correction. The timing of the correction is always a concern with options, since they expire so quickly. I expect the market to finish topping by early next week. Using the 1999-2000 topping pattern/correction as a guide, the correction should take roughly 1/2 as long to bottom as it took to top. If the final top of the middle of the "W" is next monday, then that would be 36 trading days to top. Therefore we can expect about 18 trading days from the top for the correction to bottom. That's almost 1 month which makes it tricky to trade Dec puts since they lose value as they approach their expiration date. The correction would be from around November 12 - December 5. Of course, this type of time comparison based on a pattern is rarely accurate (as I've proved in the past), but is still food for thought when preparing for this correction. Good Luck.
October 4, 2001 - Did I say 9,000, I meant 8,000 - Yeah, well, let's not dwell on the past. The near future might just be predictable. I've got some charts for you to see. Look at this one first:
As you may have gathered, I believe the current 2-year pattern is a larger version of the '98 pre-topping pattern. If I'm correct, then the DJIA will break 12,000 less than a year from now. But the really exciting news involves the short-term prospects:
This last chart is the current daily chart of the DJIA. The one above it is a closeup of the 1998 pre-top correction (wave 4), which I think is the pattern to watch. I've seen many "W" shaped corrections before, and if this isn't another one, I'll eat my hat. As you can see from the charts, I believe that we are near the top of the middle of the "W". What an opportunity if I'm right! The DJIA should immediately drop to around 8,000, hit bottom (think 7,900), then bounce. If you time it right with call options on the steepest up day, you can quadruple your money in 1 day! Stay tuned.
September 16, 2001 - WORDS CAN'T DO IT JUSTICE - The events of September 11 are still so surreal and unbelievable. We now live in a different world than we did one week ago. For several years now I have been ready for a crash, but never for this. I have before stated that the current period of history will be looked back on as "The Golden Age of America". This event might mark the end of that age. It might be the turning point analogous to the burning of the libraries of Rome. This only underscores in my mind that so much more is at stake here than financial well being. The last grand supercycle bottom led to the American Civil War. What a terrible conflict that was. This war (WW3) could make that one look like a minor skirmish. If Elliott was right, then there will be over 1 billion dead before the end of WW3. That can only mean that it will end with either 1) Nuclear or 2) Chemical warfare. I don't like either option. There are now approximately 15+ countries with nuclear weapons. Many are communist including China which has little love for America and, with a population of 1.2+ billion, is a sleeping giant. Now, with the destruction of the World Trade Center, the American people have given President Bush a blank check to retaliate. If not handled properly, retaliation could escalate in ways that we never could have predicted. America has many enemies and I'm afraid that we'll have even more after we finish invading and bombing all of the different countries suspected of harboring terrorists. Living in a nuclear/chemical age is a precarious situation. I'm hopeful that we still have a couple more decades of peace before the conflict really breaks out. I expect that conflict to be the result of many years of struggle and resentment from the countries that we have and are about to place sanctions against. Germany in the 1920's, 30's & 40's is a good example. The German economy was severly sanctioned after they lost WW1. History shows that you can't keep a proud people down, and in fact, they only come back stronger, with a vengeance. Saddam Hussein and Iraq are just one current example of this, and they have chemical weapons. OK, enough doomsday talk. The market's inexorable sideways might continue. The next significant move will be up around 12,000 on the Dow. This might happen 1 month or 1 year from now. The important thing to note is that when it does finally happen, it will immediately be followed with the final "Wave 4 retest" correction down around 9,000. After that, it's up all the way to the final top (14,000+). The terrorist attacks on NY will have a mutable effect on the stock market. We might see some downside on Monday (or when the market finally opens again), but the resistance at 9,000 will hold. It's kinda' funny, but talk of a stock market crash seems almost acceptable right now. That's precisely why it won't happen yet. The mood's not right. The mood needs to be the same as it was regarding the safety of the World Trade Center Towers BEFORE the disaster. It's the same mood that the passengers of the Titanic had the night BEFORE they hit the iceburg. It's the feeling of total safety - "Not even God can sink this ship". Maybe it will be 1 year from now with the DJIA at 15,000 and the headline will read "Not even the destruction of the WTC can sink this market". As we have just witnessed, reality can be stranger than fiction.
May 24, 2001 - Sideways for a month - That's my prediction. There is an eerie similarity on the charts now between the past 2 years of sideways and the sideways in early 1929 just before the crash. If we continue, then we will move sideways for about a month, staying above 11,000 for most of it until the end of the sideways, then shoot up to Dow 12,000! Then come all the way down to 9,000 again! Quite an opportunity! The only concern I have about trading it is that the S&P and Nasdaq have decoupled from the DJIA. I expect it to be similar to the correction in January of 2000, where the DJIA put in it's high early in January, but then the Nasdaq and S&P kept going up to put their tops in in March. The whole top and correction could look like a larger version of the DJIA correction that started in January 2000. You could trade Dow options (djx), but they don't have as much leverage as the spx. Still, you could make about ten times your money buying a djx put with the DJIA around 12,000 and selling it when the market dips below 9,500. Happy trading.
May 6, 2001 - ACCOUNT LOCKOUT! - I've been meaning to update this page for several weeks now, but my Tripod account was disabled, and support was not being much help!. I'm sorry for the delay. Below is the update that I would have published on April 12 if Tripod would have been more cooperative. As you can see, my prediction that "there will be one day next week that the Dow will go up over 400 points" almost came true on the day that it went up 399 points! Two things made that predictable. 1) Charting. The same old "W" correction again. and 2) Extreme pessimism from the financial media. Whenever you see that kind of pessimism, you know a bottom is near, or has already happened, and the market is ready to blast off again. So what's next? I expect the DJIA to put in a new high around 12,000 within the next few months, then crash all the way back down to around 9,000. The crashing should happen around the end of the year, exactly when the media is predicting a market "recovery". You can almost always count on the financial media being wrong, in fact, you can do pretty well predicting the exact opposite of what they expect. For instance, shortly after this last correction, there were extremely negative headlines, the general consensus was that the market would go lower, then grope around a bottom until the end of the year when it would finally come back up again - exactly the opposite of what I predict.
April 12, 2001 - Prediction Time - Stories of my death have been greatly exaggerated. I did warn you to expect a long sideways, my words were "this sideways could easily last 2 years", and for the Dow, it has. Although I have realized that my measuring of the top could be in error. Perhaps I should use January 2000 since that is the all-time-high, no matter if it did take 9 months of upper-sideways to get there. If we measure it that way, then the DJIA has been coming down from it's peak for 15 months, and the Nasdaq for 12. I've just been studying the '98 correction again, and it's interesting how the Nasdaq moves as opposed to the DJIA. The DJIA moves up and down in quick bursts, but really spends most of it's time sideways. The Nasdaq, however, moves in more of a straight line. Review the charts at the bottom of this page to see what I mean. The recent "W" bottom was an obvious bottom for several reasons, the most important being the DJIA resistance level of 9,300 which was the top in '98 just before that correction. The question, as always, is what next? This correction could be the mid-point for the sideways that we are currently in, analogous to the 1974 correction. I see 3 possibilities. 1) We march up to DJIA 11,000, then come back down continuing the sideways pattern for another year, then break out to the final rally-to-the-top which should get us through Dow 14,000. 2) The DJIA marches up to a new high over 12,000, the Nasdaq does not confirm by staying well below it's peak, the market then corrects down to just below this most recent correction, similar to the whole 1998 'Mountain' Pattern. Then the final rally-to-the-top begins, with the entire pattern looking like a larger version of the 1998 correction/rally. 3) The last few days are just the beginning of the final rally-to-the-top. All 3 indexes make new highs within a year, then push to the final top mid-2002. It's hard to know for sure, but I'm sure that it will be perfectly clear in hind site. :) The short-term, however is something that I'm more sure of. Looking at the current "W", I just can't help but make this prediction: There will be one day next week where the DJIA will go up over 400 points. We might correct a bit before that, but the recent correction's resistance level, the bearish sentiment, the "W" pattern that I've seen so many times before all point to the DJIA over 10,600 in short order. See the chart for yourself. The best free charts are at http://www.quote.com. Click on Dow, then click on the chart. This will take you to live charts. Change the Int: from 10 to D (interval 10 min. to daily). You should see the DJIA daily chart and the obvious "W" that I'm talking about. You can also quickly switch to other indexes by clicking on $SPX.X for S&P500 and $COMPX for Nasdaq. Pretty cool, huh?
October 5, 2000 - 17 Months sideways, but a NOTICEABLE PATTERN EMERGES! - Remember what I was telling you about patterns repeating over different time cycles? Compare these 2 charts:
Notice the triple bottoms in both charts with the third bottom being lower than the previous two, but above the yellow trendline. Notice the long sideways from 1978-82, compare it to the sideways from April until now. Especially notice the hump at the end that we are close to the bottom of right now. I have seen patterns similar to this one in the shorter-term, all with the same results, a burst to the upside. This indicator tells us that the market can only remain sideways for maybe 1 more month, if that long, before it begins it's next leg up. If you have been buying options like me over the past year, you have lost money. Now's your chance to make it back, and more! Even if you don't trade options, you can still make a killing off of this next rally (not to mention the crash that will follow it). Just buy some Microsoft (MSFT) right now. It's almost big enough to be an index in itself, and is down more than 50% from it's high! This bull market is not over and MSFT is a part of 2 indexes, the Dow and Nasdaq. Logic follows that it must go up and make new highs! Even if you sell at it's previous high, you still more than double your money! Happy investing.
August 4, 2000 - 15 Months sideways - At least for the Dow, anyways. How long can it last? That seems to be one of the most common market questions whether it's asked about a Bull, a Bear or a sideways Bear. It's conceivable that this is the last sideways before the wave 5 top. I could have mistaken the '97-'98 sideways for that. If so, then this sideways could easily last 2 years, but there is a better indicator. The current pattern clearly shows a triple bottom, just like '97 - early '98. I believe it's finally about to burst to the upside. The Fed meets on Aug 22, and their hands are tied by several factors this time. But don't expect the market to wait for that day. Most likely, the rally will start several days before and will appear like a rocket when that day comes. This has been the longest sideways since 1989 in which the market took 20 months to break above the 1987 top before the crash (if you can call that a sideways). The longer the sideways during a bull market mania means the bigger the rally following it. We are getting closer to that final rally-to-the-top. It will be the most violent rally yet. Happy hunting.
May 15, 2000 - Over 1 year sideways - I'm sorry I haven't updated for a while, I've been distracted lately. Or maybe I'm bored, the DJIA has been sideways for over a year now and the consensus is starting to turn bearish and you know what that means. It is about to burst to the upside, but like usual, it's just a matter of timing. We are forming a very large "W" on the chart and are still near the second bottom. It's interesting that there are two smaller "W's" at the bottoms of the larger "W". Right now we are poised to shoot up 2,000 points in the next 2 months, starting right around Tuesday's FOMC meeting - what a coincidence. Does it matter what the Fed does? Even if they raise 50 points, the market is looking for an excuse to rally right now. It is believed that this will be the last hike for the year due to it being an election year. In any event, it's a good time to buy some call options right now, September or December, the longer, the safer.
March 23, 2000 - Wow! I thought the market was sick when the Dow went up 1,000 points in a month. This time it did 1,000 points in 5 trading days! We are definitely on target, this is the beginning of the last, most insane rally-to-the-top. This last rally is not wasting any time. After moving up over 1,300 points in 7 trading days, the Dow looks like it has actually reached an upside resistance level. The resistance might only last for about a week, though. I think the market has made a pretty obvious bottom and reversal and the direction now is up, up and away. My target for the top has now moved up a ways. My new target for the top is Dow 13,800-14,800. So feel free to buy calls after every dip. We could actually make October for the crash, but I'm not counting on it. Below is the current chart of the Dow. Notice the "W" pattern once again. This is the third "W" correction since 1998. There will be one more "W" correction, it will be the crash. It will have similarities to these previous 3, so study them well.
February 26, 2000 - OK, OK, so maybe I didn't have a handle on this correction yet, but here are the facts: We have repeated the 1929 pattern just like I said we would, but it did take 9 times longer! All large corrections (10%+) are steepest toward the bottom. We are getting toward the bottom of this correction. Ultimate downside support is at 9374, which is the top of wave 1. That being said, Monday could give us the mini-crash that I've been waiting for. The other possibility is that the Dow will find support where it's at, or around 9,600. Actually, what makes the most sense is that we are at the bottom of the left part of the "W", assuming that this will be yet another "W" shaped correction. That means we would bounce up for at least a week, before making the final bottom around 9,500. Once this correction does bottom, it's nothing but upside for what looks like the rest of this year. If we continue at this pace, then the top won't come until at least December 2000. Brace yourself for the next, last buying frenzy of the greatest bull market of all time.
February 20, 2000 - OK, I think I've finally got a grasp on this correction. We should be close to the bottom of the right shoulder. The market should bounce up over the next few weeks to the right shoulder top around or just below 11,000, then plunge all the way to the support around 9,500. The timing of this coincides nicely with the FOMC meeting on March 21. The correction should happen just ahead of that meeting, causing them to only raise rates .25 or keep them steady. That would then fuel the final rally-to-the-top.
February 12, 2000 - Mini Crash on Monday! This is the most sure I've ever been of a mini-crash happening this Monday. The first support level for the Dow is around 9,900 which is just over 500 points below where the market closed today at 10,425. The next, possibly final support level is at 9,500. The call/put spread is still bullish! This, along with the pattern almost guarantees that the Dow & S&P500 have further to fall, and the steepest part is just ahead. To take advantage of this, buy djx or spx puts on Monday morning, I will be. Then be prepared to buy calls when the bottom comes. Don't worry too much about timing the bottom, the short-term aftershock will be the opportunity to buy calls. This should be 1-2 days after the mini-crash of 500+ points. The Nasdaq should continue to float near it's high. I wouldn't buy Nasdaq puts right now, only calls after the mini. Happy bargain hunting!
January 30, 2000 - Down she goes! I must admit, I did not live up to my name on this one, but fear not, the right shoulder is near. The Dow has shed more than 1,000 points in just 9 trading days with hardly a 250 point, 3 day bounce. It can not continue down much further without a week long sideways bounce. We broke through an important resistance level at 10,800, which confirms to me that THIS is the correction that I have been waiting for, the last correction before the final rally to the top. The Dow will either find support where it is at or could continue down to the support at 10,500. Either way, we should then see at least a 400 point-week long bounce at which point I will be buying both DJX and SPX puts. The Nasdaq is too unpredictable for me to trade, it might float over the correction just like last time, although it would be worthwhile to buy Nasdaq calls (QQQ) at the aftershock-bottom of this correction. It will probably continue to outperform everything else, and with this being the "blowoff" rally-to-the-top, the Nasdaq should be quite amazing. Everybody who is not already kicking themselves for not buying these .com's will surely be after seeing this next, last rally. But, back to the correction at hand. I expect this to have a lower bottom than the last correction, true to form of the '98 correction. There is stiff support at the top of wave 1 around 9,400. Judging by the steepness of this first wave down, we could make that target. The right shoulder will give us a better indication of where the bottom will be. All in all, this could look exactly like '98 bottoming right around 20%. It has started out even steeper that '98 and appears to be moving faster. In '98, it started out losing 1,000 points in 13 days, then bouncing for 2 weeks to the right shoulder top, then losing another 1,300 points from there in the following 9 days. The steeper, deeper part of the correction is always after the right shoulder - and that is where we will make our money. Stay tuned.
January 26, 2000 - Decisions, Decisions. After seeing the recent volatility in the Dow, I must consider two other possibilities for the market. The first possibility that I would like to get out of the way is that 11,750 was the final top. It's eerie how closely this top matches the top of 1966. The one MAJOR problem I have with it being a final top is that it is barley 400 points higher than the previous top and comes at the end of a long, 9 month "sideways" period. I believe that the final top will be way above any preceeding "sideways" period by at least 7% (800 points) - just like '29. Even so, it must be considered.
The second possibility is that we are just at the beginning of the 10% correction that I expected way back in July, only it will be more like 15%. This pattern is a larger version of the 1998 top and is now VERY OBVIOUS on the chart. The mistake I made then was expecting the top at the end of that "sideways" with the Dow barely higher than the previous top (sound familiar?). The one hallmark of this possibility is that it rests on the belief that the market has, once again, taken longer than I expected to complete a pattern. Here's what to look for: My original expectations need the Dow to keep support at 11,000 and should hover around 11,400. If the correction continues on down to 15% and then makes an obvious bottom around 10,000, then we can assume that my second possibility above is correct. If, however the correction continues past 20%, then we should consider that it might be a "right shoulder" correction which leads to "The Crash". I know that makes it a bit hard to trade. I would consider buying some puts after the Dow bounces above 11,200.
January 1, 2000 - Y2K OK. Happy New Year, Century and Millennium. Let's reflect for a moment. My main tool for predicting how this bull market is going to end is the chart of the DJIA surrounding the 1929 Bull Market/Crash. This tool has made some good calls over the past year, but wasn't much use in 1998. Back then, I realized (and stated) that this tool would become more and more accurate as we got closer to the final top. That statement holds true now, 2 years later. Let's review the predictions this tool enabled me to make in 1999. On 4/12/99, with the Dow at 10,339 I wrote "I expect the market to float up around 11,000 and then move sideways". Then in my 5/3/99 update I told you that "we should remain sideways for the next 2 months". This brings up another thing that I started to realize 2 years ago, the market always takes longer than I expect. This 2 months sideways turned into a 5 month sideways. In that same 5/3/99 update I told you what to expect for the next correction, that it "should be about 1/2 as big as the one from 7/15-8/31/98. The target is around 10%". We of course then had the 11.7% correction which was very similar to the 7/15-8/31/98 correction, so similar it's almost spooky. It even had the "W-shaped middle bounce" which told me exactly when the bottom was so that on 10/17/99 I could tell you that "This correction is over". I was so convinced that I even bought some call options! This is why I don't like to be classified as a Bear. I am an opportunist - and what better opportunity is there than the biggest crash of the Century! Lastly, this tool, along with some common sense told me that Y2K will be a "non-issue". Here is what this tool is telling me now. January shoud be sideways, followed by approx 2 month rally to 12,500, followed by 3 month sideways followed by 1 month rally to final top. This puts the crash around, you guessed it, October 2000. This gives us some more time to generate some more "seed money" by playing the swings until then. The next opportunity for buying calls should be toward the end of the next sideways period.
December 10, 1999 - MANIA! Just for a frame of reference, in a normal stock market IPO's of new stocks start trading around $1 and usually don't move very much the first few months or even years. OK, now let's look at two recent examples of what the present Stock Market Mania has done to IPO's. First, VA Linux opened at 30 and flew up to 239! The following day, FMKT opened at 48 and went up to 280! This is Stock Insanity, plain and simple. It doesn't get much crazier than this. These are the type of indicators that reassure me that I am on the right track. The acceleration in the Nasdaq is another indicator that we are nearing the end of this great bull run. In his 1982 book "Strategic Investing", Doug Casey predicts that near the end of the next great bull market the Nasdaq will outperform all other indexes. More specifically, he said that investors will have lost concern for "risk" and will be more concerned with getting higher returns. He couldn't have said it better! The Nasdaq has gone up over 85% in the past year! Compare this to 27% for the S&P and 29% for the DJIA. Don't think that it can't go higher. It can and it will. It will put on at least another 1,000 points before the top. I expect it to surpass 5,000 before it's all over. It will truly be something to behold.
I have not been as forthcoming with you as I could have been. On October 17, the date that I told you that the "correction is over", I began buying call options. I did not suggest that my readers do the same for several reasons: 1) I didn't want to be liable 2) I wanted you to think for yourself (My goal is not to give away fish, but to teach you how to fish) 3) I thought it might jinx the whole thing. Anyway, as you can guess, my call options have done very well. The below chart shows how I did it. The funny thing is that you will probably never be able to use this chart again. That's how market patterns are, as soon as you figure out what the pattern will be, it's almost over! You can clearly see the relationship between the correction bounces on the left and the rally pauses on the right, just like the '98 correction - just like I predicted, this correction was 1/2 of the '98 correction. Enough with that, let's determine how you can make some money from this point forward. OK, here's what I expect the market to do. The current correction should bottom with the dow below 11,000 (see blue support lines on charts below). At this point, I will be buying SPX call options. This should probably happen next week. The ensuing rally will take all 3 indexes to new highs putting the DJIA around 11,500 - briefly. See the charts of the '98 correction below for what to expect. I will be selling my calls once the DJIA reaches 11,500 intraday. It's important to sell your options while the market is still moving in your direction (UP). The most recent top is a good example of this. I did sell them perfectly on the tops with help from the below charts. The day after I sold, they lost 50% of their value! Trading options is like waging guerilla warfare on the stock market - you have to get in and out as quickly as possible. Do not hold them any longer than you have to. If they have doubled in value and you are uncertain of the future then SELL!
This pattern tells me that Y2K will be a non-event as far as the general public is concerned. The "sideways" immediately after the next burst upward should fall over Jan 1. This is a "wave 2" sideways correction that could last well over 2 weeks. This is immediately followed by the "wave 3" rally which will be the meat of this last advance to the top. This "wave 3" should look sort of like the "wave 3" that took the Dow through 11,000. It is immediatly followed by the "wave 4" sideways that we are all too used to. In fact, since 1966 we have spent over 17 years in some type of "wave 4", first from 1966 to 1982, then from 8/97 - 9/98, then from 5/99 - 10/99 (1/2 of 8/97-9/98). It sort of follows that the final "wave 4" should be about 1/2 of the 5/99 - 10/99 which could be as long as 3 months! Also, it should be about twice as long as the "wave 2" which lies just ahead of us. Here are the charts, good luck!
November 14, 1999 - It's like deja vu all over again. You can clearly see the double-bottomed "W" pattern on the chart now, just like last summer, and like usual, the market is moving much slower than I expected. This top looks like it might happen around New Years. This is reminiscent of both the 1966 DJIA top and the 1990 Japanese Nikkei Top - they both topped out in January. Although the implications of this top are much worse than either of those previous tops. The window for the top is 11,800 - 12,800. I put 11,800 here only because of the previous, shorter-term tops that are not much higher than their wave 3 tops during the "sideways" pattern just before their final tops. The 1966 top is particularly discouraging (see purple chart above). If we have a repeat of that pattern, then the dow will only make it to about 11,900. That being said, I still expect a top around 12,500-12,800 because our long term pattern more closely matches the 1920's than any other period in history.
October 17, 1999 - 11.7% Correction (intraday) Don't Panic! This correction is over. Several months ago, I told you to expect "about a 10% correction that would look like a mini-version of the 1998 correction". Well, we now have exactly that - 1/2 the volatility and 1/2 the duration. The "bottom bounce" lasted exactly 1/2 as long as it did from 9/1/98 to 10/1/98. At the aftershock bottom on 10/8/98, two of the major indexes made new intraday lows, Nasdaq and S&P 500. This time, we also have 2 indexes making new lows, S&P 500 and DJIA. This "double bottom" correction is just a 50% "echo" of the correction last year. See for yourself. The first chart below is a closeup of the 1998 correction. The second is an intra-day of the past 6 months. You should also compare the second chart below to last years correction charts of Nasdaq & S&P 500 at the very bottom of this page, they are very similar. There's also something else to notice about this second chart. Does the pattern look famaliar? It should, it is a shorter version of what happened from 8/97-10/98. Compare it to the red chart above, you'll be amazed. What these charts are telling us is that the market is about to go straight up - again. I expect some sort of a bounce tomorrow, with the CPI figures on Tuesday a perfect excuse for a straight up rally. There is stiff downside support at 10,000. The next firm support level is around 9,500. Here are the charts:
September 26, 1999 - 10.4% Correction (intraday) - Remember that 10% correction I told you to expect 2 months ago? If you've been following me for a while, then you know that I am willing to admit my weaknesses. They are 1) My short-term outlook and 2) The market always takes longer to complete patterns than I expect. It's amazing how consistent I am when it comes to this. Watching the Dow move these days is like watching 1929 in slow motion, 1/2 to 1/6 as fast! It's almost painful sometimes. My estimations were based on the *hope* that we would have an October-November crash just like 1929. I can see now that this is not going to happen. I guess that would have been too easy anyway. It's funny how, in hind-site, the market makes complete sense. The financial press is very wary of October. By definition, this crash has to happen when people least expect it, when confidence is at an all-time high. It's ironic that October is now set up to be the biggest one-month rally ever! We could see a 1,500 point rally on the Dow during October! And the really funny part is that all the market needs is for the Fed to hold rates steady on 10/5. This correction is a miniature version of what happened from 7/15/98-8/31/98. Remember that the Fed lowered rates after the '98 correction to help "stabilize" markets. This sent the market shooting straight up to make a new high less than 2 months later. It looks like a "reverse" crash on the chart (see red chart above). The same reaction can be achieved this time just by the Fed holding steady on rates!
Now that this "left shoulder" correction has occurred, I can give you a timeline for the crash. The top should be put in around mid-November with the right shoulder bottom happening roughly 1.5 - 2 months later around Jan 1, 2000. The market should then bounce to form a right shoulder and then proceed to crash late January or February. I had predicted that the current correction would be an "echo" of the one last summer being about 50% as big. Looking at the chart, you can see that it is exactly that (assuming that we have bottomed). There could still be some fall out on Monday, but there should be stiff support around 10,000. The '98 correction can also be used as a "road map" for the crash. This can be illustrated by first looking at the same pattern in 1929. In the first chart below you can see the first correction in May of 1929 was a roadmap to both the "left shoulder" correction AND the crash. I have numbered the 8 major turning points to make it easier for you to see. 1 is the top, 4 is the right shoulder bottom, 5, the right shoulder top, 6 is the crash with 7 & 8 being the after-bounce and after-shock. Now look at the left shoulder correction in August of '29. It was a 50% echo of the May correction. Do you see it? I was amazed the first time I noticed this. Now look at the "red" chart. We have a road map to the crash! It looks like we might not get a very big bounce for the right shoulder. The right shoulder looks more like a "pause" than a bounce. Once this market starts down, it's going to move very quickly. This crash is going to rewrite the book on crashes. I wonder how many suicides we will have this time. Please make sure that you are not one of them.
September 11, 1999 - What next? The Dow appears to be directionless, but the market is going up. The Nasdaq closed at a new high on Friday, and, while the Dow was off 50 points, the breadth was still positive at 1.2. If the final rally-to-the-top has started, then the Dow will be above 11,500 as quickly as one week from now, and the next 1,000 points should be the quickest yet, even surpassing the rally from 10,000 - 11,000 which took just over 1 month! This market has been moving sideways now for almost 4 months. It is physically impossible for it to top out anywhere below 12,000. This sideways consolidation period is a smaller version of what happened from 8/97-9/98. It will be followed by a burst to the upside. How high can it go? My target for the top is 12,400 - 12,800. Can we be there one month from now? You bet we can. Several of my readers have told me that SPX options are not the best options to use. The arguement is that there is "more liquidity" in other indexes. I disagree, and I have done some research to back it up. What I've found is that the SPX has more liquidity that any other index options out there. My findings can be viewed in the following text file - opteval.txt.
August 24, 1999 - Fed hikes again (but does anyone care?) - It's amazing watching the market rally to new highs one day before an expected rate increase. So far, the Fed's "Neutral" bias has had them raising rates two meetings in a row. Investors are so detached from reality, that they are ignoring rising interest rates and pushing the market higher and higher! Like usual, the market is lumbering along much slower than I expected. It appears that we might not have seen the correction that I was looking for yet, although it's possible that the recent 5% correction was all that we're going to see before the final rally to the top. It's important that we don't rule out the possibility of a December-January crash. Japan's stock market index, the Nikkei topped out on December 29, 1989 before crashing in January. To view a chart of this, go to www.lowrisk.com.
August 10, 1999 - The Ominous Parallels - Below is the first half of a news story entitled "Drought is worst on record for four states" which came out on 8/6/99.
--------
WASHINGTON - Four eastern states are experiencing the worst drought on record and there is little hope of relief until winter, President Clinton and government officials said Friday. Weeks of withering heat without rain in the mid-Atlantic region have destroyed crops, stressed livestock, dried up wells, and forced some areas to restrict water use.
Maryland, Delaware, New Jersey and Rhode Island are being parched by the worst drought on record, officials said. Meanwhile, New York, Connecticut, Massachusetts and West Virginia had the second-lowest rainfall from April to July since the government started collecting data 105 years ago. ``Throughout much of this country we have seen the worse drought since the Dust Bowl days,'' Clinton said, referring to the 1929 drought that worsened the Great Depression. Forecasters said there was little sign that the drought will ease before winter, when cooler temperatures will allow moisture to soak into the soil. Currently, extreme heat is causing any rainfall to evaporate, officials said. ``This could be a drought that continues on for a long time,'' James Baker, head of the National Oceanic and Atmospheric Administration, said at a briefing.
--------
The FOMC will meet four more times this year. The dates of their meetings are as follows: August 24, October 5, November 16, December 21. It is good to know these dates because the market focuses much of it's attention on them. These are the dates that Alan Greenspan and the FOMC decide to raise (or lower) interest rates. Any one of these dates might be close to a major turning point for the market. The way this current correction is lumbering along, I expect the final top might not happen until early October (Note the Oct 5 meeting).
It's important not to get too close to the day to day movements of this market. The danger is that you might start to believe all of the explanations for this markets insane valuations. This market is more than twice as high than the market of 1929. It's important for us to be able to step back and look at the big picture. The two charts below should help you do just that. The first chart is the great bull market of the 1920's followed by the crash of 1929 and 3 year bear market that caused the Great Depression (which wasn't identified as the "Great Depression" until the 1950's). The second chart is the greatest bull market ever from 1982 to 1999 with the inevitable crash yet unrealized, but obviously not very far off in the future.
July 30, 1999 - Mini Crash Alert! - The Dow didn't make it to my 11,500 target before the correction began. It did make it to 11,252 intra-day and still fits the pattern that I was looking for. A 10% correction would put it around 10,126. A 500 point mini-crash on Monday would put the Dow at 10,155. This correction should be sharp and bounce back quickly. The Dow should be at new highs again within 3 weeks (seems incredible, doesn't it?). I still believe that we will make it above 12,000, but I will have to start watching it very closely once we get up to new highs again. If this correction should continue down more than 20%, then we should consider that 11,252 was the final top, although this correction appears to be too flat to be a final top. All of the previous major tops have been very sharp and pointy looking on the chart. If we do follow this pattern, then the final top looks to happen mid-September.
June 20, 1999 - Sideways for the Feds - An article entitled "Will Stocks Belly Flop This Summer?" appeared on Yahoo financial news a few days ago. This article reaffirms my belief that investors think that the market will do what it did in the previous year. This is like driving while looking in the rear-view mirror. The article goes on to compare the many similarities between this year and last year's market activity. They are actually expecting a 30% correction this time! They might actually get a 30% correction, just not when they expect it. And now, we have the fed about to raise interest rates again. Before anyone thought that the Fed would raise rates at their June 29-30 meeting, I knew that a certain "pattern" should occur during that time. Here's what they want you to think will happen. The Fed will raise rates. The Dow will correct 20-30% just like last summer, then bounce back up again to close out the year higher. The paranoia surrounding this expected correction reaffirms that the market still has much higher to go. Here is what I think will really happen this year. The Fed will either keep rates steady, or barely raise them on June 30. This will be credited for the rally that takes the Dow up above 11,500. Then, the market will correct about 10%. This should put the Dow around 10,400 which is just below the recent low we just had. From here, the market will begin it's final rally to the top which should be around 12,500. I can already hear the jubilation near this final top. Market optimism will reach an all time high. Virtually no one will be warning of an eminent correction, much less a crash. Ironic, isn't it? When they warn you, you have nothing to worry about. It's when they don't warn you that you should be concerned. It happened in '29 and '87, don't think that it can't happen even bigger this year. This top will then lead to a 25-30% correction which they will no longer be warning you about! The market will then bounce up about 50% and then crash at least 50% from the top. This puts the Dow around 6,000 at the bottom of the crash. Just before the crash, you will be told that "The danger has passed". Don't believe them. They have been wrong during every major market correction.
May 3, 1999 - DOW 11,000!! It's barely been a month since my March 29 update of Dow 10,000. In that short time, the Dow has put on another 1,000 points! 12,000 doesn't seem so far away anymore, in fact, the actual target of 12,400 looks very realistic now. The market has some more room to go up, but it will not happen the way most people think it will (gee, what a surprise!). What should happen is that we should remain sideways for the next 2 months. Call it the 11,000 point barrier. I then expect a quick burst to the upside (around 11,500) followed by a mini-crash to new lows (below 11,000), followed by, what should be, the steepest rally yet to the top. The timing of this is all very interesting. If we continue to follow this pattern, then the mini-crash before the final rally should happen in July. People seem to think that the market will do what it did the previous year (even my broker falls into this trap), but they are wrong. This mini-crash should be about 1/2 as big as the one from 7/15-8/31/98. The target is around 10%. If the Dow is at 11,500, then that means it will bottom around 10,400 before the final rally to the top begins. I expect the current rally to be a shorter version of this whole Bull Market since 1982. It will go higher and last longer than most people think it can. I expect the final rally to last about 1.5 months (2x longer than in '29). If this rally starts around 7/15/99, then the final top should be around 9/1/99. I expect the market to top out late, just like in 1929. Of course, it's hard to pick dates, even if you know the exact pattern the market will follow. The really amazing part will be the total euphoria around the market top, just a couple of months before the biggest crash ever. We definitely live in interesting times. I've already secured my lifeboat, might I suggest that you secure one for yourself?
April 12, 1999 The danger of a mini crash might be over. Today's 165 point rally had positive breadth of 1.23. This breadth is sickly at best, but relatively healthy in the short term. We still might have a small dip, but the general direction of the market is still up. I expect the market to float up around 11,000 and then move sideways. The next 1,000+ point correction should come after this "sideways" period and will be the last correction before the final rally to the top. The timing of this is interesting. It looks like this correction will happen around the middle of July, which is when the big correction started last year. This correction should be about 1/2 as big as last years and then the final rally to the top should begin. This is just the kind of "fake-out" I've learned to expect from the market. The bulk of the final rally would then happen in August. I'm still looking for a top around 12,000. If I had to give you a number today, I would say 11,800 for the final top.
April 7, 1999 - MINI CRASH ALERT! The Dow rallied 121 points today with negative breadth of .81. This is the weakest breadth I've seen with a 100+ point rally on the Dow. This is too early to be the final top. I expect a correction sometime in April. It should be steep and brief, and the market should quickly bounce back up to make new highs. The market might float up a few more days and even get above 10,200. The correction could then be over 1,000 points with support around 9,000. Of course, we might have a smaller correction, but today's breadth is in agreement with the Elliot Wave counts. We are ripe for a fall.
I find it usefull to look at several different indexes when determining Elliot Waves. One thing to note is that there are many more stocks out there now then there were in 1929. It's truly phenominal how much money is currently pouring into all of these separate issues. You can look at the DJIA and think that this current bull market is amazing, more than doubling the bull market of the roaring 20's, but that is only half of the story. The Nasdaq hardly existed 20 years ago, at the start of this bull market. Today, it contains over 7,000 stocks! You see, not only is this market high, it is also wide. It is truly an amazing spectacle. We are nearing an all time peak in social mood. Complete optimism for the future rules the day, so does complacency. The Nasdaq contains mostly small companies and technology start-ups. This is also where most of the money currently seems to be flowing to, the riskiest of investments. This is just a sign of the times, we are getting closer to a final top of epic proportions. Here are the charts of the DJIA, S&P 500, & Nasdaq, in that order.
March 29, 1999 - It's time that I come out of hybernation. All good bears should hybernate for the winter! It's quite refreshing! I have moved my old 1998 update page to update98.html so that it may be reviewed. I hope to be able to learn from the mistakes made there. Basically, I was right about "a" crash happening last year, just not "the" crash. But enough about the past, we still have "THE BIG ONE" to look forward to, and to prepare for, so let's get busy.
The Dow closed above 10,000 for the first time today, breaking the "Extra Digit Barrier". So what's in store for the market next? The market media would have you believe that the market will continue to hover "sideways", but they are wrong (like always). The market has been in a "sideways" pattern from 8/97 - 9/98. This pattern is a "Wave 4" in Elliot Wave Jargon. This is similar to the longer pattern from 1966-1982. This "sideways" pattern is also called a "consolidation period". What always follows is a burst to the upside, just when people have gotten used to the market moving sideways. Another thing to note is that the market never goes down very far after such "consolidation periods", and if it does go down, it is immediately followed by a big rally to new highs.
The '29 top was wave 5 of 3 in the Grand Super Cycle. The '66 top was wave 3 of 5 in the Grand Super Cycle. We are currently forming wave 5 of 5 in the Grand Super Cycle. The three charts below tell me that we are roughly 50% of the way up to the final top from the 7,539 bottom on 8/31/98. I believe that we are just starting the "middle" wave 3 from that bottom to the final top. My target for the top is around 12,000. I know that this number may be hard to believe, but this is the mother of all bull markets. It must form the mother of all tops, and then be followed by the mother of all crashes (which will lead to the mother of all bear markets (which will lead to the mother of all depressions (which might lead to the mother of all wars))). Do you get the picture?
I will update this site when I see something that changes my opinion. I will not start updating on a weekly basis until we get closer to the crash. The market is safe until the Dow gets above at least 10,600.