144 Days Until the Final High

I still believe more than ever that we are playing out the three peaks and domed house pattern. I believe it's playing out most perfectly in the Nasdaq 100. Below is a picture I took of the Rydex 2x Nasdaq 100 fund over the past year, and below that is the good old three peaks and domed house pattern. (Continued below...)

I believe we have just arrived at point 15 and are about to start a strong decline lasting probably a week or two. I believe point 14 came right at the end of November. And you'll notice that the three peaks and domed house pattern actually has a timetable from point 14 to the final high at point 23 of 7 months and 10 days. What more could you ask for? Counting that out, it takes us to July 8, which is a Sunday. So I'll say July 9, the Monday, for the final high. But obviously I will claim victory if it comes anywhere around that week or the previous week.

Just because we reach the final high doesn't mean all hell breaks loose immediately after that. First we have to come down and back up to make the right shoulder at point 25. Then we have to go down even farther and come back up to point 27. It is after we reach point 27, as Jerry Favors used to say, that all hell breaks loose. It could take two or three months to get from point 23 to point 27. Which takes us right up to the election. I think whoever gets elected is going to get caught holding the bag on this one.

And you'll remember the other part of my game, other than the three peaks and domed house, is looking at the positive versus negative numbers, particularly in the Nasdaq 100. My story has been that for over a decade of watching those numbers, the highest ratio I ever saw was at the 2007 market high, where we reached a ratio of 2.6 times the money on the positive side versus the negative. But that bar went up and up and up and up going into 2011 as we traced out the three peaks part of the pattern, up to the highest ratio ever at 7.26 right at the highs last April. So I have figured all along here as I've watched this pattern play out that we were going to at least up to that number and probably higher by the time we reach the final high on July 9, as we have the classic case of everyone jumping on the bandwagon -- literally everyone -- and we have the mother of all declines.

We had been running pretty high on that ratio over the last couple months, getting above 4.0, even above 5.0. But just this last week, there was a huge jump to the positive side, leading to a positive versus negative ratio today, Tuesday, February 14, of 7.29, the most money on the positive side versus the negative side ever. Ever. So that adds weight to my believe that we are at point 15 and are now going to have a strong decline down to point 16, probably a shockingly strong decline. And then you see from the pattern that we'll go back up to approximately where we are right now, then another decline to approximately the same low, yet another move back up to approximately where we are right now, then back down still again, although probably not quite as far as the previous two lows, totally wearing everyone out to where they get out and stay out for a little while, as we finally go shooting up to that final high, first doing the left shoulder, coming back down, and then on up to point 23.

The whole point of my blog has been to show that this is going to play out, not for the reasons that the conservative radio shows say, and not because the rich don't want to pay up like the rest of us, but simply because we are playing out a basic pattern of human greed and getting way, way, way too many people on the positive side trying to get rich. I do see Greece coming to America, but not for the reasons everyone thinks. If you want a bad guy, I still say it's the Fed, who refused to let normal business cycles happen for decades, always manipulating things so we continue going up, and now, all the little business cycle declines that should have happened for decades are going to combine and happen all at once.

As I keep saying, I hope I look totally stupid on all this. But even if it happens, I believe we will work our way through it, despite some horrible, horrible times. And as Jerry said, when we finally reach the low of all this (which I personally still think will be around Dow 1,000 -- yes, 1,000, not 10,000), it will be followed by probably the longest and strongest bull market in history, lasting years and years, probably decades. And if I'm correct about the positive versus negative numbers, you can see why. The bottom will only be reached when almost everyone throws in the towel, gets out of the market, even though they swore they'd never sell, but they will, and they will swear they'll never get back in the market again for as long as they live. And up we'll go. In the meantime, you should stock up on food.

Rob