I never use this type of indicator as an absolute trigger for buying or selling–but I think it’s worth mentioning.

Keep in mind that this can change if the INDU can rally into the end of February (because the February monthly bar will not close until this month ends) but as of now, the DOW Industrials are more oversold (on a monthly basis) than at any other time in history according to my work.

The previous lowest monthly RSI readings were in June 1932 (the market bottomed in July 1932) and September 1974 (the market bottomed in December of 1974).

This type of oversold reading in the monthly charts is epic and leads to screaming rallies when they turn back up but keep in mind that they never allowed the daily RSI to work itself into an extreme oversold condition in my work, so we still need to remain alert for a crash as we attempt to bottom-fish this nasty bear.

I also hate the fact that there seems to be so many other bottom fishers out there right now but the BAM model has the advantage of updating every minute of everyday and that should keep us from getting buried even if I suddenly get an indication that they’re going to crash this thing as they wind down this first leg down.

Full report coming soon

The stock market continues to track the BAM model (and we’re making nice money in the model portfolio as well) so the model is off to another good start in 09.

First the bottom-line, then if you’re interested in details–read further.

It looks like they’re finally going to open down into our INDU 7370 target (or lower) so let’s focus on the SPX 757 magnet today.

-weakness into 6:45am PST
-bounce into 7:00am PST
-weakness into 8:30am PST

-Look for a low very early this morning (first 15 mins?) followed by a bounce into about 7:00am PST, followed by a further sell-off into about 8:30am PST
-Lower lows are needed after that early morning low but that low (assuming they continue to track the model) will represent only a 1 minute model trading low.
-Lower lows later today or next week but expect MUCH LARGER COUNTER-TREND BOUNCES WITHIN THE CONTINUED DOWNTREND BETWEEN TODAY AND THE FIRST WEEK OF MARCH. 
-If you focus on that SPX 757 magnet that should provide key information about when this market is going to collapse because we’ll wobble around 757 for hours and then that mark should start to create resistance just prior to the plunge to 680. 

Details-

Two weeks ago we had the perfect set up for the stock market to plunge back through and November lows, finish the BAM bottoming sequence, and begin the inevitable bear market rally we see ahead.  The bottom pickers, unfortunately, blew that for all of us and as a result, things are a bit more complex looking. 

Here’s what I see as I work my way through all of the various fractal (time frame) models-

-1 minute model-They’re going to bottom in the very short-term 1 minute model this morning on a down open and we should see a 50-100 pt counter-trend bounce. (think of this model as mini bull and bear markets that the market is constantly running through every 1-3 sessions.)

-5 minute model-They’re finally back through the November lows (which the model told us needed to be done) and they’re working their way through a bottoming count, but are NOT there yet and will not be complete if the market turns higher after a down open (this is typical as the 1 minute model can run through multiple “mini” bull and bear markets, up and down, as the 5 minute model is only registering a single bull or bear sequence over a 3-7 session period.)

-hourly model- This is the model that contains powerful BUY signals (but it requires weakness to trigger them) and these are the signals that will create the “V” bottom I’m expecting as soon as the 5 minute and 1 minute models complete bottoming sequences SIMULTANEOUSLY.  My best guess concerning the important intermediate term low is that it will come on or around 2-26.

Please keep in mind that we used to use the 5 and 1 minute models for day trading and the hourly, daily, weekly, and monthly models for investors and funds.  But that all changed when the market began trading in 100-700 point daily ranges (because the market volatility, that the BAM model warned us was coming, created a situation whereby the market was moving up to 155 pts within a single 5 minute topping or bottoming sequence.)

My job now is much harder, not because the market is harder to predict direction-wise, but because it’s harder for me to not over-load investors and fund managers with information as I attempt to ignore wiggles while at the same time warning them about coming 3-5% “bounces” within the larger downtrend. 

The market is, in essence, forcing all of us to become day-traders and this is especially true if you have to worry about weekly performance numbers as opposed to be scrutinized only on a monthly basis.

Full report coming soon

Before getting into today’s forecast, I want to let everyone know that yesterday’s upside price spike should be viewed as a “shot across the bow” with respect to the coming mini melt-up the model is forecasting.  I did warn you all about a “sharp bounce” (and forecast that in yesterday morning’s update) but I didn’t expect it to be quite so violent. 

Remember though, the low, once it comes (I think we’ll see it either Sunday in the futures mkt. or next Tuesday during the day session) should be a “V” bottom just like the one we saw yesterday.

This implies that if you’re bullish certain individual stocks–and won’t lose sleep if they move against you a bit–you should be buying those select names on weakness today and the first session of next week because, according to my model, this set up will be very forgiving in that even if you buy at a terrible price today and Tuesday, they should be right back at your buy level or above within 2-3 sessions.  (This of course assumes you’ll be buying market performers that move with the averages)

Here’s what I’m watching-

There are certain thresholds in my work that are coincident with buy and sell programs and high-emotion, high-velocity moves, and the market’s current set-up finds it sitting directly on top of just such a set-up. (Call it the ultimate cruel whip-saw set up)

What’s interesting about this set-up is that the news backdrop is such that the talking heads are all guessing whether or not the news from our gov. is likely to elicit a positive or negative response once “the news” becomes more clear (i.e. details are released.)

The BAM model says just the opposite.  The BAM model says that the emotional backdrop of participants is what determines market direction because it is that emotional backdrop or “mood” that determines the reaction to the news regardless of the actual news.  This, I believe, is the reason you often see counter-intuitive reactions to crude oil inventories reports, earnings reports, etc. etc. and this is also a part of the theory behind the “buy the rumor, sell the news” or “sell the rumor”, “buy the news” dynamic.

Anyway, the BAM model–after being more negative than any other forecaster I know of over the past two years–is warning me that market participants are ready to move from an emotional backdrop of severe pessimism to an emotional backdrop of optimism and as they do that the market should rally regardless of–and even despite–the “news.”

Full report coming soon

The question of what the FED will or will not do is irrelevant according to my work.  The market is ready to sell-off and the catalyst could be any flavor of the day from the FED cutting too little or too much.  In fact, it could even be some totally unrelated topic. 

Bottom-line…the volatility model says volatility will spike today into 10:35 and then continue to rip to the upside into 12-18.  THIS IS A VERY POWERFUL SET-UP, so look for a nasty plunge in the stock market with MUCH higher premiums on the options that are due to expire this Friday!

According to the BAM model, today should mark the start of an upside explosion in volatility and another wave of selling that will continue through the end of this year.

The model has been spot-on this entire year and from a business perspective there’s certainly no reason for me to remain bearish with the market back at the 2002 lows–I could simply pack it in a claim better performance than my competitors–but that would be a disservice to subscribers and it doesn’t reflect a discipline of strictly following the BAM model.

No change–INDU 6426 target this month and if that level breaks they could trade to 3971 into mid February.

Full report coming soon

The BAM-VI (velocity indicator) buy level remains negative but at least it’s now a -500 buy signal on the INDU.  The sell signal level however, has dropped all the way down to 15,500 (which is the lowest sell signal number in many, many months.)  What this is telling us, is that even if the market can rally on FED induced news between tomorrow and year-end (I don’t see that in my work) they should run into resistance very quickly and come right back down to make new lows early 2009.

The hourly model shows a violent set up with BOTH buy and sell signals set up and ready to trigger so although the intraday model says we’re headed lower (as does the hourly model) this should prove to be a violent thrashing move lower within a larger trading range as we decline.

When we come out of this low, the model is calling for a stampede to the upside (into March) but that shouldn’t occur until after the FEBRUARY 17-19ish period at which point the INDU might even be trading at 3971 if it can’t hold that 6606 magnet and that 6426 Fibonacci number.

I was probably the most bearish forecaster on the planet when the market was topping into October 2007 at the 14,198 level (at which time I was publishing a forecast of INDU 6606 during 2008), but the fact that I’m now talking about that 3971 target–which was, and is, a 2011-2015 BAM target–is amazing even me.

This sounds insane, but so did a crude crash to 47-36 when it was trading at 147 (and GS said it would trade to 200) but if they actually trade down to 3971 during February of 2009, I’m afraid I’ll have to start talking about INDU 1580 and even 480 into 2012-2015. 

These are disgusting number, but the greed and arrogance that led to 100x leverage and the writing of derivatives with nothing to back them is something the world has never seen before and it’s common sense that a decline after those types of mistakes is guaranteed to over-shoot on the downside. 

Full report coming soon

It looks to me like we can expect the INDU to be trading down to at least 8300 (a new magnet created today) on Sunday or at the open on Monday. 

Every single person I read about seems to be saying the bottom is in place so it’s not surprising that they’re going to be stubborn here but, mark my words, when they run out of bullets–and the market has only treaded water–they’re going to realize that they screwed up and this thing is going to crash again. 

The perma-bulls (they are buried by 50-70%) are still saying to buy, and now even long-time bears like David Tice, Doug Kass, and Bill Fleckenstien have either respectively sold their funds, flipped to the bull side or left the table with their pocket’s full of cash.  In other words, even without the advantage of my model, I don’t see a lot of evidence of any type of washout whatsoever.  The fact that even these bears are in essence picking a bottom, tells me there’s a lot more to be had on the downside. 

Two important developments today and BOTH of them were created due to the market’s stubbornness up here.  The model always has a “pay me now or pay me later” approach with regard to its forecasts and if they want to be stubborn one day, they pay dearly for it the down the road.  That’s just the nature of its mechanics. 

Anyway,  the model says we’re going to continue to crash into Feb and April of 2009 and the long-standing target for 2011-2015 (3971) just moved up into the February 2009 to April 2009 time slot.  I NEVER would have guessed this would happen but we can thank the FED and Treasury because they’re the ones who created the complacency that will be the catalyst that takes us down in a series of crashes into early next year. 

The targets for 2008 remain INDU 6426 and SPX 680 but–again because of the stubbornness of the market–it’s now possible that we’ll see at least an intraday print at DOW 4800. 

Happy weekend…

Full report coming soon

The USDJPY model says that currency pair is about to get hit again here today so I’d be expecting to see it attack the low into about 10:15ish. 

As for stocks…the currency weakness in the US dollar shook them up last night but the dollar bounce, after the opening bell this morning, today took them right back up again. 

It looks as if the stock market is joined at the hip with the dollar today and especially with this currency “pair” of the dollar against the Yen. 

My hunch is that we’re about to see the dollar break down to a new low on the year today and with that move, the stock market will resume it’s crash leg. 

We’re just coming into the first nasty zone of weakness here for stocks (into 9:45-10:15am PST) so they should roll back over and start the downside acceleration. 

The overnight model has a bearish “reset” at its low this morning just prior to the opening bell so that model is assuring me that we’re still on the correct side with our expectation of a breakdown as opposed to a breakout (which is what all these bulls are positioned for) 

 Sell signals triggering all over the place so once the roll over resumes this one should be similar to that day when we saw the mkt. drop 400 points in 12 minutes.  I’m not saying that will happen right off this high this morning…but at some point between today and 12-16, we should see a move that is even more intense than the down 400 in 12 minutes. 

We should see the 839 SPX magnet today so that would represent over a 60 pt SPX drop and that would get their attention.

Full report coming soon

Also remember that the BAM model’s absurd target for 2008 (of 6426) isn’t quite as absurd anymore with that 11-21 intraday low sitting at the 7449 level.

Velocity is off the chart, the 11-21 low was an incomplete low according to the BAM model’s bottoming count, and the zones of weakness indicate a “bear cluster” today and Monday so it looks to me like the Citi bail-out is going to prove to be the shortest lived FED-induced bounce yet…

If I want to be conservative, I say SPX 710 into 12-10/12-12 and the crash numbers are stupid looking so let’s skip them.  Bottom-line…if they crash, we’re involved.

The SKF is one of the best “tells” in my work right now because it says the financials will have another melt down (near-death) experience very soon.  That index left behind an INCOMPLETE topping sequence into that 303 high on 11-21 and that implies they’re heading back up through that level again at some point in the near future! 

Assuming the SKF tracks the BAM intraday model…that implies a gain of OVER 120% off today’s closing level of 137 and it also implies a MAJOR blow-up of one or more of the financials.

Full report coming soon

When crude was trading at 147 the model identified it as a huge bubble ready to pop and we issued a target of 57 into as early as September 2008 with an ultimate target of 36-47 dollars into the first quarter of 2009.  (We spent about three weeks in a padded room after that call but have officially handed the room key over to the guys who forecasted 200-300 dollar crude based on global demand and blah, blah, blah…)

Anyway, we’ve seen the 47 target reached now and the model looks bearish into 12-22ish so, believe it or not, I think we can actually trade to 36 dollars this month!

Bigger-picture it doesn’t matter but we’re definitely going to have to adjust the ultimate target down to about 19 dollars over the coming three years as we fall deeper into what appears to be a global economic depression.  Sorry, I’m just the messenger.

Remain LONG the DUG as it should trade back above the year’s highs as early as year-end or Jan 2009.  Notice that the DUG is closer to all-time lows than all-time highs BUT crude is closer to multi-year lows than multi-year highs!  Somebody is DEAD-wrong here, and the model says the bottom-fishers in the energy stocks are the ones who are wrong. 

Look for a tremendous puking of all energy stocks between today and year-end. 

RIMM 

The model has been short RIMM for a very long time (in fact we were SEVERELY buried in this name for many months) and when the stock was trading over 140, the model’s 15.74 target into 2008-2009 looked like an absolute joke. 

Today the stock trades at about 38 dollars and although 15.74 remains a distant target, we’ll remain short the stock (probably into 12-12 at least) to see how close they can take us to that mark.

A massive short-covering/buying stampede comes in this name after the new year (according to the model) so we’re running out of time on this crash leg and I’ll be keeping a close eye on the stock as I move closer to the exit door.

Full report coming soon

This week’s report will be short, because there’s nothing new to cover on the macro scene, but I do want to highlight a few thoughts about the word “impossible.” 

Berkshire Hathaway 

I have a set up in Berkshire Hathaway that would allow for a full 30-40% crash this week in that stock.  The majority would say that’s “impossible” but my answer to them would be, nothing is impossible when you’re talking about markets.  Warren Buffet has, according to an article written by Doug Kass, already lost 9 billion on bad derivatives bets this year–and that’s not chump-change no matter who you are.  Remember, the way in which these derivatives are inter-connected is something that not even the foremost “experts” understand.  I’ve said it before and I’ll say it again, the “financial engineers” screwed us BIG-TIME on this one and when the dust settles we’re not going to be able to fathom that WE allowed this to happen to US. 

Bone To Pick 

I have a serious bone to pick with all of these guys who got everything wrong this year and, as a result, want to convince the world that it would have been “impossible” to predict not only the current macro problems facing the investment world, but the extent to which they would torture markets. 

In this week’s Barron’s, on page 42, “Wading Back In Slowly” Howard Mark, when referring to the current market and the future direction of markets, says “nobody knows.”  And again on page 33, Harley Lance Kaplan is quoted as saying “no one can predict what will happen.”  

My answer to both of these gentlemen and the hundreds of other members of the “sour grapes” club, is that maybe they didn’t spend twenty years of their lives trying to figure out how to predict the markets.  I don’t know squat about constructing an earnings forecast but I would never have the arrogance to say “nobody can predict earnings.” 

Look, it’s fine for these guys to say “I don’t know” but to say that nobody knows, is not only arrogant—i.e. if I don’t know then how could anybody else possibly know—but it’s an insult to people like me who have spent twenty years of hard work to devise a system that CAN make solid predictions about—AND PROFIT FROM—the direction of financial markets.  That’s all…

Full report coming soon