A November Low Forming?
Breadth Summation index remains Bearish
Last month I warned of the possibility of a Panic near either of the Cardinal Moons which can exaggerate the emotions involved, but even I was surprised to see the depth of the moves on both Moons although the October 10th low was the real Panic. What is troubling is the readiness to buy this decline and call it a buying opportunity when none of the problems that took the market down so fast have disappeared and new ones are being added weekly, like the real possibility of a GM bankruptcy. The rally from the Election ended too quickly and raises the possibility of testing the October lows again and probably the 2002 lows as well before the market can form a good low. The 2002 lows are near 775 for the SPX and not too far, but the Nasdaq 2002 lows are near 1100 and that is a full 30% lower than now and leaves the Nasdaq very vulnerable. The Breadth Summation index (BSI) is slowly improving but must climb out of the bearish zone decisively to mark a good low and we are not there yet.
The Weekly BSI is made up of a dozen Breadth and Momentum indicators and is a good measure of oversold and overbought conditions. It makes a very good swing trading system that can avoid all negative periods while keeping much of the gains in the positive phases. It is interpreted as Bullish when turning up from low levels, and Bearish when turning down from high levels.
Since 1984 we have seen a sell-off after Election Day every 8 years and a rally almost every other 8 years, and the 1984, 1992, 2000 and 2008 series kept my subscribers on the right side of this one. This pattern is not surprising because of the 3,141 days PI cycle which is 8.6 years and drags down the market every 8 years or so. The Election of 2000 remains our most favored path since it came soon after the all-time high much like today, but the 1984 Election matches the low dates more closely, but both of them made further lows after a 5% bounce in 2000 and a 2-3 day pause in 1984. This fits in well with the 4 day cycle which suggests a high early next week and a decline into the Full Moon of the 13th which is statistically a low.
Full Moon of November 13th and New Moon of November 27th
The Moons are very good at marking exact turns when the markets get very emotional and volatile, and this is one of the most emotional and volatile period we have seen in a long time. Full Moons are statistically lows and the next one falls on the 79 year anniversary of the final November 13th low of the October 29, 1929 crash and since we made an October 28 low this year it could mark the final low here as well. If we see a deep low near this Full Moon of November 13th, then the next New Moon of November 27th will most likely be a high, but if we do not see enough selling by the Full Moon, we may continue to decline towards the New Moon as well.
Possible Elliott Wave Counts
The SPX made a typical Wave 3 low on the Panic of October 10th and Wave 4 may have ended in an A-B-C-D-E with the Election high as the 8 year cycle suggests and a sustained move below the October 10th lows would confirm it. This count is marked in yellow and projects a test of the 2002 lows near SPX 775 or worse in November and remains our favored count considering the market is still short term overbought. The alternative count in white has us in Wave D of a larger A-B-C-D-E structure that would complete with a New Moon and end of month high near SPX 1,000 and then a drop in December for the final Wave 5 down. The sentiment is more overbought than oversold with the blue Put/Call line turning up from a trend line that has marked tops this year, and the white Tick line is also quite high although it could move higher one more time.
Nasdaq is more short term overbought
The Nasdaq is more short term overbought with its white Tick line having already spiked to the maximum bullishness last seen at the October 07 highs and more recently near the early June and late September highs which preceded serious declines. This potentially very bearish setup so close to the lows is surprising, but the fact that the Nasdaq is not closer to its 2002 lows like the SPX is odd as well and we may see the Nasdaq plunge next. We can see the alternate counts here as well that show an expected Wave 5 low in November or December of this year.
Only one of three SPX indicators turned up
The SPX remains oversold on the longer term and only the blue Put/Call is still turned up and that is not enough to give us a good low. We need to see more buying as shown by a rising white Tick line and decreased fear levels that would make the red VIX rise and a StochRSI breakout like in early April to mark a good low.
Nasdaq may need a capitulation low
The Nasdaq white Tick line is forming a plateau much like it did earlier this year before the final capitulation low in March and we may need to do the same shortly before we make a confirmed low.
The 13 month, 56 week or PI cycle
Martin Armstrong discovered the PI cycle and its smaller and larger octaves. Below I show some of the important dates this 1/8th octave has produced within a week of its occurence. Since November 15th is such a date, we are on the look out for a low and the ones back on October 10th and 28th are a bit far to apply and it is probably still ahead of us.
A repeating pattern 92 months apart
History often repeats and the timing of this bear market may be mirroring the one 92 months ago in 2000 with an expected Wave 3 low within a week or so of November 10th and unless the market continues to fall hard this week to complete this low, we have probably seen the lows of 2008. This chart is intended to show the probable direction of the market into the next 4 year cycle low of 2010, and is not intended to predict the price levels which is done elsewhere.
11/7/08 - Bonds near their 60 year cycle high
Bonds are headed for an early 2009 high
Bonds are likely to rally possibly for the last time into early 2009, thus ending the 30 year Bull market that started in 1980. The cycle low of October 14th and support near 112 from the trend line is likely to give us a move higher into February but it will probably be very choppy as the financial crisis turns this 30 year trend down.
The end of a 30 year Bull market
Rates are making the lows of a generation as Bonds complete their secular 30 year Bull market that caused this credit crisis just like the last debt boom in 1929. Kondratieff wrote about the importance of this 60 year cycle to the economy since the contraction in debt invariably causes a corresponding downturn in the economy. The next 20 to 30 years will see the gradual collapse of the US Bond market as holders of Treasuries convert them into better assets and cause interest rates to rise for decades further choking the economy.
The path is clear when Debt gets out of control
Once the debt bubble is broken, and the sub prime crisis leaves no doubt that it has, the result is debt deflation which destroys much of the wealth that was artificially created, there is no free lunch. We will probably not slide into a Great Depression as quickly as in the 1930's because the world is different and much more connected, but we may get there eventually if we do not return to a Gold standard that forces fiscal responsibility on the financial system.
Fed cut confirms the 6 year cycle high in Rates
The 6 year cycle high in Rates started with a pause in August 2006 and was confirmed by the aggressive Rate cut from Bernanke in August 07 and January 08. The spread of the credit problems will leave the Fed no choice but to keep short rates low into the next 4 year business cycle low into 2010. We can see that the move down in this last 6 year cycle low of 2010, which is the 1/10th octave of the 60 year cycle is much stronger and suggesting it is the last move down before rates gradually start to head higher for 20-30 years.
11/7/08 - The US Dollar 4.3 year PI cycle low
The US Dollar very overbought at resistance
The USD pulled back from a major level of resistance near 87 and will probably reach the previous break down level and lower trend line support near 80 before heading higher to finish this Wave up by the next PI cycle date of January 21, 2009.
The US Dollar acting like 1991
The US Dollar has rallied sharply much like it did in 1991 and there were banking and real estate problems back then too during the Savings and Loan crisis but that rally failed and the USD made new lows the following year, and I expect a similar outcome once the Dollar turns down soon.
The US Dollar is declining due to Debt inflation of 8%
Since the 1970's the amount of US Debt backed by the dollar has increased at a rate of 8% per year, while the dollar has declined at a rate of 3.5% per annum. Half of this debt is owned by the Fed and US itself for its pension liabilities, the remaining half is owned about equally by Americans and Foreigners. There are now over 4 trillion in global USD reserves and more than two thirds are in Asia. When these reserves start to flow into other assets like resources, they will cause price increases where they go, and downward pressure on the USD and its debt. The Currencies of countries with a major surplus like China, Japan, Germany and Russia will appreciate over time, especially the ones with large USD reserves like Asia and Russia.
Japan's rates can't go any lower and the Yen may be turning up for a while
The Bank of Japan raised Rates once for the first time in 6 years and may have signaled the end of the Yen's weakness. Each wave down in 1998, 2002 and 2005 has been on lower momentum while the waves up to 100 have been stronger possibly forming a bullish ascending triangle targeting the highs near 120 or higher.
11/7/08 - Commodities near end of correction
Commodities now at critical support
To get a clue where the selling in the Commodities might end, we need a longer term chart and the 250 level was the resistance level for 20 years and will most likely turn into support for a while, but all markets are deflating sharply with the debt bubble broken and anything can happen.
Oil near October 22nd cycle date
Oil is completing a fully extended wave near a cycle date as it reaches the 62% retracement level, and that may mark a significant low, but if that fails the 1998 up trend now above 55 should stop any further decline and send us much higher quickly.
Oil reaches 5 year cycle low in November
Oil has reached the 62% retracement of the almost 10 year Bull move that started on December 21st, 1998 near 10 and ended on July 11th, 2008 near 150 confirming its natural 5-10 year rhythm. Since the 5 year cycle low is due, Oil will probably make a low of significance soon between the 62% level near 63 and the lower parallel channel near 55.
Gold should turn up in November as well
Gold has obviously started the third decline of the correction from the March 2008 high and it will probably end near 650 which is where the 50% retracement and up trend line from 2001 are.
Gold near 2001 trend line
Gold has now reached the 50% retracement of the move from the 1999 or 2001 low and will need to at least hold the 2001 up trend line near 625 or it will likely drop to the next 62% level and previous wave 4 low of 550. However we would need to break below that level in order to even start calling the Bull market in Gold over, since the 550 level is a common pull back level in any bull trend.