Below is my charting of the markets through a couple days ago. The red line is the Nasdaq 100, which I think is doing the best job of tracing out the three peaks and domed house pattern that I still believe is being traced out. In fact, I'm more sure of it than ever. Beneath the market charting is the old familiar basic chart of the three peaks and domed house pattern. I think they are strikingly similar in may respects. These patterns never play out perfectly. But much of this is darn near perfect. Now that we have gotten into the area of point 10 to point 14, things have gotten a bit harder to figure out. I think there are three possible scenarios. Remember, this is playing out best in the Nasdaq 100, the red line. Other parts of the market, most notably the black line at the bottom which is the Russell 2000, have gone to lower lows, which is not what the pattern shows. But you'll see that we had the low in mid-August with the red line and it has never gone below that low, in keeping with the pattern. I'll continue my narrative below the three peaks chart.
So I think the three possibilities are:
Most likely possibility in my mind is we have completed the up-and-down stuff between points 10 and 14 and are now heading up on a great run up to point 15, notwithstanding today's large down day.
Second most likely scenario to me is that the high on Friday was point 13 and we are now turning down to point 14. If so, I would expect parts of the market to go to still lower lows, scaring people to death, while the red line stays above its mid-August low.
And the third possibility, least likely to me, is that the high on Friday was point 11 and we have some up-and-down stuff to go which could last a while and be very scary as much of the market goes to lower lows and then still lower lows.
One interesting thing that happened with today's very large down day was that there was a pretty substantial increase in the negative money in the S&P 500, which I do think is KJ ("Knee-Jerk") jumping in on the negative side, although with only a portion of whatever money he has left, not all of it. But still, this would mean KJ actually won for a day, which usually means something is up. And that something could be we're getting ready for that nice run-up of the first possibility I mentioned. He's obviously not going to get out of his negative position after winning. He'll probably throw more money on the negative side, would be my guess.
So I'm curious to see where we go from here. I'm especially curious to see if the KJ theory is correct, that when he wins, something is up. But whether we go up from here or we're only at point 11 or 13 and are going to head down from here, I still think we are tracing out three peaks and a domed house, which means we will eventually have one heck of a nice run that it would appear would run right up to the 2012 election or beyond.
I read somewhere recently that there is more short interest now in the stock market than at any time since the lows in 2009, and you've seen the nice run-up we've had since then. I'm personally staying long, and I'll be adding to my long position if we do head down, maybe a little each week, something like that.
But then again, I could always be totally wrong.
Interesting fact: The Dow is up about 50% since Obama took office on January 20, 2009. That's 50% in less than three years. What's everyone complaining about? The people who talk about jobs are just using that as something to complain about. They don't care about the unemployed. The jobs all went to China. What's the president supposed to do, lower the minimum wage to $1.50 to compete with the Chinese? They gripe about the bailouts, as do I. That was the Fed telling the president what to do, and any president, Republican or Democrat, would have followed the Fed's advice. The largest part by far of the big increase in the national debt came from the bailouts. If the market does trace out three peaks and domed house and we go shooting up, I wonder what they'll bitch about then. Should be interesting.
Having said all that, I still think some sort of crash is coming, which is the final part of the pattern. And I think it will be a monstrous crash because of that 7.25 positive versus negative number we had last April. We've never really come close to going down to where I think we need to go to get to the needed doubt numbers to have a real low, which is the Nasdaq 100 numbers going negative. It has to unwind eventually. The question to me is who will be the president that gets stuck with the bag.
Rob
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