Attack of 15970 Probable for Dow Jones Industrial Average

The Behavioral Analysis of Markets Model was built after studying the similarities of the pre/ and post 1929 stock market crash price-action as well as the pre and post 1987 stock market crash price-action.   And after multiple years, and multiple dead-ends, I finally noticed the exact same pattern of human emotion had unfolded during both of those periods– as well as a common topping count (waves of price-action) also tied to human emotion.

 

And while many analyst talk in terms of optimism and pessimism driving price action into highs and lows, I found that description to be deceiving for one simple reason.  All bull and bear legs (at any degree I’ve studied) terminate (form TOPS or BOTTOMS) on a combination of factors.  For example, a TOP is formed due to a combination of optimism (actual net new purchases of shares) as well as short-covering of shares.  So in this example, the net new purchases can be attributed to “optimism” but the fund managers and traders that either capitulate or forcibly cover their previously shorted shares are not optimistic at all.  Their short-covering is strictly a function of their own capitulation or the forced margin call (broker or risk desk).

 

But more importantly, I discovered what I later came to describe as “retest” levels.  Behavioral Analysis retest levels are completely different than the “retest” levels described and identified through using Technical Analysis.  Retest levels derived through the study of Technical Analysis are typically created on price breakouts or breakdowns and they’re obvious to anyone willing to look at a price chart.

 

Behavioral Analysis “retest” levels (the ones that I discovered, and the cornerstone of my price target work) are completely hidden to the naked eye when studying price charts and were only revealed to me when I took a reverse engineering approach to dissecting the 1929 and 1987 crashes.   In other words, I looked at the final price destination the crashes reached and then worked my way back in time looking for any odd activity that might have occurred at those same price levels during the past weeks, months, and years of price-action.

 

…Which brings us to the reason behind today’s post….

 

Today’s price-action in the DJIA once again shows a completed BAM TOPPING count, and more importantly, a similar (albeit smaller) version of the price fractals I discovered back in 1929 and 1987.  So assuming the DJIA tracks the historic price-action I’ve used to identify multiple mini-crashes, we should see a violent attack of the 15970 level in the Dow Jones Industrial Average during the 7/22–8/12  window (adjusted on 7/26) with the most likely Flash-Crash or mini crash occurring during the 7/28-8/8 period. (adjusted on 7/26)

 

The Behavioral Analysis of Markets Model long term forecast is predicting a July 2016 TOP in this area followed by a massive bear market decline carrying price back below the 2009 low.   We remain bullish Natural Gas, but not much more at this point…

 

*Disclosure:  I am long SPY PUTS at various strike prices and various expiration dates.

 

 

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“Stretching the Tape”

First of all I want to reiterate the BAM Model’s prediction calling for a stock market crash.  I also want to reiterate it’s prediction calling for a crash in Crude Oil–taking that market back to/through 36 dollars per barrel into year-end.

According to our model, we should see sharp downside moves in both of those mkts into Friday (October 9th) and, yes, we’re sticking with our SPX target of 944.

The BAM Model–as far as this bearish forecast is concerned is locked in place and there’s nothing that will change the forecast.  Could it be temporarily wrong?  Sure.  But based on everything I’m seeing, I’m confident we’ll be crashing very soon.

So what’s with Monday and Tuesday’s big rally?  (yes we’ve heard that a lot)

Well…the bounce of the last two session was a necessary element if we’re going to see a crash, in fact, all crashes experience a period of “stretching the tape” before the crash accelerates to the downside.

Stretching the Tape

This stretching of the tape is a result of bulls and bears fighting it out and it’s what creates the “resiliency” to pain which is what allows people to hang on to losing positions way too long which in turn forces the inevitable “capitulation” that comes at the bottom.

By the way, this dynamic happens fairly frequently if you study fractal-level intraday charts.

So could the market make another higher high?  Sure it could.  But I seriously doubt it will and if it were to occur, we’d be even more aggressive in buying November PUTS on the Nasdaq and Russell 2000 Indexes.  Is that reckless.  No, not according to our model.  According to our model, this is the time we must step up and follow its instructions.

The “Set-up”

This market ‘set-up’ has taken months and years to fall in place–as do all market crashes or melt-ups according to our work–and although the exact turning point can be tough to identify, I’ve never seen a single set up like this fail during the 90 years of stock market data I’ve studied.

But what about all of this talk about “resiliency?”

The stubbornness–many have been calling it “resiliency”–is exactly what is necessary to create a crash.  Think about it.  In order for a market to crash, you must have the majority on the wrong side of the trade.

By its very nature, a crash requires a boatful of investors on the “wrong side”–not simply a handful.

One thing is certain.  We’ll all know the answer to the October crash question soon enough.

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MARKET CRASH: What ETF Gambling, $VIX Complacency, and Risk Appetite Tell Us About Investor Resiliency

These juiced ETF’s are excellent trading vehicles but there’s no question they’re very, very dangerous.

We recommended the $FAZ to our Twitter followers on September 23rd when it was trading at about 19.57 but we also tell followers and subscribers that these are positions we’re involved with and that if they should want to invest in our “model portfolio” to use no more than 2-12% of their invest-able dollars.

For us, a more interesting take-away on the ETF debate (we have a model based on behavioral analysis theory) is the way in which the leveraged ETF’s are feeding the publics appetite to gamble.

History teaches us that we humans tend to go through periods where we love to speculate, followed by periods where we hate to speculate.

Unfortunately, markets are very large now and that means that when risk appetite plunges (after a big feast) everyone runs for the restroom at the exact same time. (sort of like 2008).

Back in 2005-2006, we were able to predict in detail what would occur during the crash of 2008-2009, (see weekly report archives on the blog) because the BAM Model predicts when market participants will be resilient to pain (losses) and when they will not be resilient to pain.

Ironically, when people are NOT resilient to pain, they close incorrect positions out very quickly and the markets tend to trade in a more normal, more stable manner.

It is when resiliency is high that investors will allow a position to “get away from them” and it’s that dynamic that causes large price moves–either bulls riding losing positions down or bears riding losing positions up–that sets up the compression that allows the market’s inevitable “capitulation.”

There is never a capitulation set up in markets with low resiliency and there is always capitulation in markets with high resiliency.  (Our model tracks market resiliency–all of the markets we’re tracking –on 7 “fractal” time period ranging from monthly, weekly, daily, hourly, 5 min, 1 min, and 25 tick.)

Today’s market, interestingly–and for the first time in the history of my market data–is registering resiliency at an all-time high for both bulls and bears. This is a dynamic most often associated with expanding patterns whereby price makes higher highs AND lower lows during a trading period where both bears AND bulls have a very high level of conviction that they are “correct” in holding positions (stubborn).

Today’s macro environment is obviously a disaster to anyone wishing to use common sense and for that reason the bears think they’re correct but, because government intervention has provided a perpetual “backstop,” bulls feel correct in anticipating an eventual recovery and they’re also probably playing the odds w/ respect to the old adage–“never fight the FED.”

Unfortunately, that dynamic (complacency created by government interventions) has, along with unprecedented fast-money in hedge funds, placed us in a position where our model says we’re going to witness the largest crash in the history of markets as we trade forward.

We all understand what happened in Japan and it seems odd that we’re repeating many of the exact same mistakes they made. I’ll leave the fundamentals to people specializing in that field and we’ll stick to our behavioral analysis work.

Our model is predicting a massive crash and we have a target of SPX 529 over the coming 2-5 months.

If you are interested in following our work in real-time each day, go to our Twitter page .

Here’s our press release from 9-21 with our forecast of a 50% crash in the stock market as well as our crash call in crude oil.

Press Release: BAM Investor shares predictions on Twitter for Free

CommodityOnline: “A 50% crash in stock markets may happen soon?”

TechNews.AM:  “How accurate are BAM Investor’s stock predictions?  Check Twitter”

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Hey Gordon Gekko…Greed is not ALWAYS Good

The greed and optimism in this tape are setting records in my work and although the fact that we just made a marginal new high is insignificant, the nature of the advance is a BIG deal. 

As you remember, the Nasdaq triggered a capitulation sell signal at the 1979 level on 7-29 and we stalled and started down prior to today’s marginal new high. (No change in that signal and we should drop like a stone based on that signal alone.
What’s remarkable though is the fact that today the SPX and INDU FUTS just triggered a capitulation sell signal.  Granted, most of you will think I’m dead wrong on this call but we’ll only know that answer weeks and months from today if, as i expect, the market is much closer to the march lows than this morning’s highs.

BIG PICTURE

Based on the bearishness of the overnight FUTS model this weekend–as well as what’s been unfolding in China (the bulls are ignoring China’s 2 week 20% crash)–I would think we now have a good chance to see the expected US market crash sparked by China.
The fact that my US dollar model looks like it wants to melt-up into 8-25 next week and the fact that my US 30 YR bond model wants to melt up to that 130.30 level and the fact that my crude oil model wants to crash, seems to be consistent with an “opps” type of unwinding.

The catalyst could come from anywhere, but I’m focusing on China because it’s the most obvious train-wreck according to the BAM model.
Based on the China stock index model, it seems logical to me that we’ll see them breakdown to new lows on high volume and, assuming I have that correct, all of the other forecasts should work coincident with and instantaneous to that event.

The TRANS model sees a sharp decline leg into September 3rd so that matchs well with the Crude Oil model’s call for a crash into September 2nd (ish)
(I’m not  fan of DOW theory but it does look to me like the TRANS will fail to confirm today’s new INDU high on this move off the March low)

As I’ve said before, I really like the energy sector shorts.  (XOI)
I also think a tremendous amount of money can be made being long the DUG (ETF) into Q1 2010.

I also think the swine flu will hit worker productivity/earnings very hard this fall and into next spring.
The gov warned as much yesterday but people simply ignored that.
-JGS

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