The Shape Of Things To Come?
Letter 2 of 2007
Some time ago, whilst reading an article by Dan Basch: (http://www.safehaven.com/showarticle.cfm?id=4333) I was introduced to the rising wedge type pattern as shown in the Nikkei chart below:
The count isn't elliot wave, just numbering to help identify the build up of the pattern. This pattern must have stuck a chord with me, its one of those that leaps off the chart when I see it. I went back too, looking for previous examples and found it a few times, the Dow 62-66 being a favourite:
I'm not too fussy about timescales, I've seen the pattern on 15 minute, hourly, daily and weekly charts. What got me thinking was the comparison between Japan 97-00 compared to the current global situation. I then found the following:
"Inertia in market interpretations meant that, after these practices were discontinued, it was not unusual for market participants mistakenly to read in purely liquidity management operations a policy content from time to time. It was partly in order to avoid such confusion that in March 2000 the Bank of Japan stopped announcing the "excess liquidity" prevailing at different points in the maintenance period, a concept which had been used as a low-key policy signal to steer the overnight rate until 1995" (B.I.S - May 2000 - Monetary Policy Operating Procedures In The United States, Japan and EMU: A Comparative Assessment by C E V Borio)
A liquidity scare took place, shaking out the inertia but causing the resultant drop in the Nikkei. This tightening (or talk of tightening) had been preceded by a period of increasing liquidity to try and move Japan forward from the deflation of the 90's.
A quick check of money supply figures for the global economy and its obvious that a similar period of monetary liquidity expansion surrounds us today. This time around it is not just a Central Bank throwing cash around, the whole financial world seems to have the freedom to create money and lend it out for just about any use. Most of it used to speculate and it truly is global.
Below are a selection of charts, all have one thing in common. That rising wedge/pattern. What?s more they look either complete to the "bearish advance block" or have already began to roll over. Most have the base that leads up to point 1 in June / July 06.
Mexico, a slightly different start but the result is the same:
Here is an example (Turkey) of the shape/wedge that played out recently, starting from Nov 05:
This is an interesting study, the BSE 500 contains 2 examples, firstly starting in Sep 05 and secondly one starting in Jun 06:
This is the chart that suddenly got me looking at the markets again, silver is already playing out the fall (with thanks to Clive Maund):
I should also like to thank someone I only know as "Blackstone". I have never met or talked to him, just swapped messages on a public bulletin board. He and I used to look for patterns in charts and after I pointed out the wedge we have been looking at today, he gathered the charts above and posted them on a site.
Anyway enough thanks, its time for a conclusion. I can only see 2 possibilities. Either the charts continue to rise on a never ending wave of excess liquidity or someone (The Lenders) pulls the plug and decides the game has run its course.
Looking at the charts and noting the synchronicity across the world, tied in with the selling in commodities, I suspect The Lenders are already yanking on the plugchain.