Monthly Archives: October 2008

Capitulation is FINALLY Close at Hand!

Depression, Crash, Disaster…Hey, They’re Starting to Use OUR Words! 

Three years ago I started telling you all that the secular bear market the model saw coming looked worse than anything I had ever tracked in my model including the 1929-1932 period or the 1987 period.  The reason for this comment was that, as opposed to 1987 when the model saw a crash coming within the context of an ongoing bull market, or 1929 when the model saw a crash followed by a slow steady grind lower, this period (2008 through 2012) shows multiple crashes within a monstrous SECULAR bear market.  This forecast, assuming it’s followed, will go down in history as the most devastating decline of all time for the US stock market. 

Sentiment:  Panic or Bottom-Picking 

Here’s what I heard on video clips I reviewed Saturday. 

“This is simply pure panic; it has nothing to do with fundamentals.”  (CNBC)
“This is a liquidity crisis NOT a financial crisis.”  (CNBC)
“The problems are already baked in the cake.”  (CNBC)
And here’s my favorite-
“Psychology is not allowing what the economics textbook says should happen to actually happen, said strategist Doug Peta, of J & W Seligman NY.” (Wall Street Journal) 

Wow!  God forbid the market strays from “the textbook” and besides, what the hell does the textbook tell you to do when about 90% of your economy’s financial companies have managed to bury themselves (and US too) with tens of trillions of derivatives bets gone bad? 

My answer to this kind of thinking is to simply say “psychology” is what markets are all about in my opinion and the fact that you all just watched a “behavioral analysis” model predict what the market was going to do hours or even days ahead of time should put to rest once and for all the false impression that price action within markets is based on textbooks or “random” “chaotic” “unpredictable” movements. 


When I reco’d a purchase of the DUG (Ultrashort Energy) at 36 and 38 dollars I said the model expected us to double our money in that position into year-end 2008 or Q1 2009.  Well, as of Friday’s intraday HIGH, the DUG had moved up a whopping 140% so we met and exceeded that target with 2 months to spare! 

That’s pretty amazing, but what’s more amazing is that the model is so incredibly BULLISH that name (and bearish crude oil) that I have to believe my ultra-bearish forecast for a collapse in the energy bubble will be TOO BULLISH.  I said when the energy stocks were topping that I considered that index another result of Greenspan’s repeated mistakes and told you all that the model was predicting an “EPIC” wipeout even larger and faster than the housing bubble collapse.  That has now started but maybe I missed the silver lining.  IF the energy stocks and cruel oil, I mean crude oil, continue to track the model (collapse) I could easily see my 2008-2009 crude targets of 47 and 36 dollars met within the next 3-6 months!  And if that comes to fruition, our problems with oil-rich nations will soon come to an end as energy prices bankrupt their economies over the coming 12 months.

Full report coming soon



The BAM-VI, price velocity indicator—which simply gauges the size of the price moves we should expect in the near term—set another NEW RECORD yesterday when it showed the only way it would trigger a buy signal would be if the INDU closed at or below 2075 today and the only way it could trigger a NEW sell signal would be if the INDU close at or above 24,000—YES 24,000! 

Then, today, the indicator set yet another record with a buy number at or below a INDU close of 2450 and a sell signal on a close at or above 25,5000! 

As I said in my email JUST PRIOR to that INDU down 777pt session, forget the numbers, forget how I built the tool, forget that the numbers are “impossible” and simply focus on what it is warning us about. 

The BAM-VI is telling us that the market is stretching out its price range—both intraday and intraweekand that 1000 pt price swings or even 2000 pt price swings in a single session are not only possible, but VERY PROBABLE as we move forward! 

Magnet levels and overhead sell signals tell me that the bears will win this battle as overhead magnets should restrict upside to about INDU 11,327 (with a very, very, super-slim chance of a short-lived stampede to 12,167 if they have a mini-melt-up) while downside magnets at 6606 and 3971 are patiently waiting to be crashed down into at some point over the coming weeks/months. 

The bottom-line is that bottoming counts ARE NOT complete even on a very temporary basis and since we’ve been short this entire ride—and are willing to give back a bit and get even bigger if they somehow bounce them—I’m voting with the model to remain MAX short.

Full report coming soon