Friday, October 9, 2009
Friday Update
Aside from the last push today, mounted atop a diminishing set of predominantly sideways, sooorrrt of triangular 4th waves, pushing 30 points higher than my forecast 9,832 top, I couldn't help but notice something mildly interesting. As the Dow hovered right where an EW'er might forecast a top for what seemed like a long time, the President spoke. The speech was fairly anti-business no matter what your politics, and as he sat down, the Dow experienced a bit of a surge to above my expected high. Hmmm.
There are several ways to look at this. I'll propose three.
(1) Meaningless. Noise. Being too close to the minute by minute ticker to mean anything at all. Let's group just plain being wrong into this category too since there is nothing I can do about it.
(2) Market manipulation, a quick little dump of taxpayer money to ensure the President's kinda harsh agenda doesn't appear rebuked by the business community, or to mitigate the effects of a rebuke (see, I get the gov, I can even say, mitigate risk and branch on effects-based conditions). The timing of the speech itself, late Friday, would tend to support that view. After all, why, it is a matter of national security that the markets follow the President's lead, right? What's a few million tax-bucks to save the world?
(3) What I will call a shotgun blast, that is, some non-market influence that interrupts birds instinctively flying south. It scatters them momentarily, then, they line back up, and fly south.
Don't get me wrong, the entire foundation of EWs is that market movement makes the news happen, not vice versa. But one has to account for the possibility of something affecting markets that is not part of the cycle: an asteroid strike, whatever. Or at least these kinds of events have such a long wavelength or low sampling rate, that we can't estimate nature's plan or pattern.
So let's go backwards since (1) is uninteresting to me.
(3) and (2) can be related. And it is the relationship that interests me. If one assumes the government or campaign operations team is not particularly market savvy, the two tie together. But what if they are a more regular part of the marketplace? The wave principle should account for all the usual influences.
If you look at the ABC pattern since the 6,500 bottom and compare it to the smaller degree ending formations, and even within the ending formations of today's pattern, each lower degree reach for a top slightly exceeds the last larger degree C marker. The USD/EUR is doing it too as it reaches for the end of the first 1-2 Wave in a very large C. Is there some identifiable psychology that could drive this?
Those who follow waves know that we are constantly bombarded by frighteningly predictable daily interactions, at the personal level. Most people have no idea they executing a well defined program as they bounce through life's decisions. What do we see happening around us?
We see worry. And each tier of worry takes on a fractal flavor:
* We have "investors" (my favorite Orwellian market speak), that is, wild capital gains speculators worried that they won't recover losses. They are worried enough to apply leverage to push a C wave.
* We have short sellers worried while trying to call the turn. They sell to push up prices as they enter, with implied support at the higher ask price. They may buy if they think they misjudged.
* We have a Fed Chairman worried enough to make carefully timed remarks that create a tip on the turning point. He is worried that he has run out of ammo and must make careful use of words. He also popped the C wave a little higher than a previous mark.
* We have a President worried that he won't be able to control the markets and might absorb blame. His words/actions popped a smaller degree C a bit higher than previous.
So there is some pattern, even if it may not be completely clear to market participants. Ascending, somewhat technical but nevertheless predictable pushes at the end of each completing C fractal.
Does any of this matter in the big picture? No. Nothing changes the macro outlook, waves always form as differently sized groups harmonize. But, I must admit it does make me wonder if we won't see a slightly higher C peak than the 9,918 currently in place. Perhaps it will be the result of some carefully timed "news" from some faceless agency hellbent on exploiting an obvious squeeze opportunity. After all, a neat 1.5 Fibonacci of C over A would be more like 9,950.
It is always interesting to watch the rocks go by as Mother Nature crests the mountain.
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FDR- what chart are you looking at? daily SPX? trying to follow the patterns in the EW on the SPX
ReplyDeleteFDR!
ReplyDeleteThank you for all your insights!
Yet there is one thing I cannot understand. All your charts etc. are historical. So how can you expect to accurately say that we have reached a top today, or at 9915 etc.?? Couldn't it just as well be in a month or 2 that we reach the new highs?
I mean, it sounds like your forecasts are only gut feelings, or are they not?
So, I saw an article on the fed testing their reverse repo system that access mmf for funds.
ReplyDeleteIsn't this just replacing debt with debt? How do this reduce the money supply?
A couple of hours later & you're being challenged right on the spot... this is going to be interesting. ;-)
ReplyDeleteI will let this premature dow call slide if the S&P doesn't break 1066 ;-)
ReplyDeleteBy the way, the s&p 1066 number is based on the futures. The cash number is 1069.
ReplyDelete3 EST, and flirting around +/- 9840...
ReplyDeleteCan't fight the tape. Can't fight the Fed. Can't fight the invisible hand.
ReplyDeleteI think we top near 1200.
The waves unfold.Your Elliot work is superior
ReplyDeleteThe C Wave Top of retracement Primary 2 very near.
I am not sure I want for my Grandchildren what lies next
Oh well, it's still a higher low.
ReplyDeletetough to call it exact. we will know early next week.
ReplyDeleteGS web bots picked up your post and decided to bump higher on razor thin volume. I mean, why not? Welcome to post apocalypse fascist America where the losers win big.
ReplyDeleteThe bear blogosphere seems pretty much resigned to the idea that we tread water or go higher until Goldman Sachs reports. This is hilarious considering that the credibility of this company has been under so much pressure of late. They are widely criticized and derided yet we still wait and hang off their every pronouncement before placing our trades. Sounds like the Fed. Talk about a command and control economy.
ReplyDeleteI love your blog and your posts on MW but your calls have been questionable as of late. Maybe you should just chock up your original short call of the DOW. Everyone gets lucky once in awhile so my compliments to you but this market is insane and I don't know how anyone can expect this market to do something. Heck, most EW-er's have been getting it wrong for the past 3 months.
ReplyDeleteFDR,
ReplyDeleteI think one has to assume 10,000 on the DOW is going to happen. This number is big psychologically to most "investors" (read: clueless gamblers). After a month or three above the 10,000 mark, the herd gets bored of it and begins to cash out so they can pay for their alcohol/stimulants.
I wouldn't bet against a desperate FED. We currently live in a world where many Trillions of $$$$ in loses exists HIDDEN, out of sight, on the balance sheets of the Federal Reserve and other Financial Institutions. If these loses EVER come out of hiding and onto the books, then we shall see massive deflation. So far the mainstream media has not uttered a word about these hidden losses on the Fed's balance sheets. s. It is my opinion, these losses will stay hidden until the Fed's liquidity injections work their magic. What say you FDR?
ReplyDeleteWhen the data contradicts an hypothesis, does one ignore the data and keep the hypothesis, or does one toss the hypothesis?
ReplyDeleteIf you're taking the objective, scientific approach to it, you toss the hypothesis, or at the very least do a very serious rework of it. An hypothesis which claims to make predictions that turn out to be false is of little use.
On the other hand, if you have a religious investment in the hypothesis, you ignore the data and keep the hypothesis.
Frankly, when you're talking about something like the market, any predictive mechanism is going to have some error in it, so the fact that the Dow pushed 30 points higher than forecast isn't necessarily enough to toss the hypothesis as of yet.
But if the Dow keeps pushing upwards and goes well past the 9918 forecast peak -- in other words if it significantly defies the EW prediction, then you'll be left with the original question I posed above: do you ignore the data, or do you toss the hypothesis?
Which one you do is up to you, but realize that the *only* reason to subscribe to an hypothesis such as EW is its predictive ability. If its predictive ability is shown to be lacking, then there's no reason at all to hold on to it -- better to find something that works better in that case, whatever that might be.
There is one caveat to the above: if you have a choice between various predictive mechanisms and none of them seem to be entirely accurate, you go with whatever appears to be the most accurate. Some predictive power is better than none, after all, but if EW is the best we have and it fails, then at the least it would be wise to adjust one's expectations of it. Use larger error bars, in other words.
"Dow pushed 30 points higher than forecast isn't necessarily enough to toss the hypothesis as of yet."
ReplyDeleteThe wave principle isn't a hypothesis, it's a principle, in that it is a doctrine or law. That doesn't make it predictive.
The wave principle simply explains how nature works, how you use it is up to you.
If I know what a Cherry Tree looks like, I can recognize one and distinguish it from other types of trees. How I do this is trivial, but at the same time extremely difficult to explain.
Once I make my identification, I might choose tell people things about how it will grow and develop before it happens. If they don't understand what a tree is, and that trees grow and develop in nature using fairly complex cycles and fractal patterns, they will call what I'm doing pure magic.
Depending on the level of detail and type of prediction I choose to make, I can easily be wrong.
The fundamental principle however, that trees do develop in well defined predictable fractal patterns remains correct and that will always be correct, even if what I choose to predict turns out to be wrong 100% of the time.
Ben says the recession is probably over !
ReplyDeleteThusday , the govener of Iowa ordered 10% across the board budget cut, because of a over 400 million short fall in state tax . There could be more in January.
Iowa unemployment rate at 6.8% and rising
Hundreds of layoffs coming, but don't worry, the recession is over.
What Deflationists May Be Missing
ReplyDeleteFDR, "If nobody recognizes a defaulted debt on their balance sheet, does it exist?"
Suppose, for the sake of argument, that there is a world in which banks are allowed by their regulators to pretend their default losses simply do not exist. And, even more outlandishly, some of these banks are allowed to sell heavily damaged loans to their central bank at nearly their full original price.
What does "deflation" mean in such a world? Not much, as it turns out. At least from a monetary perspective, because money is not being destroyed at nearly the rate that would be expected or predicted by the size and rate of the defaults.
This is the world in which we currently live. Trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the Federal Reserve and other financial institutions. If they ever come out of hiding and onto the books, I think the deflationists will be proven correct beyond all doubt.
http://www.chrismartenson.com/blog/sound-one-hand-clapping-what-deflationists-may-be-missing/29151
"What does "deflation" mean in such a world? Not much, as it turns out. At least from a monetary perspective, because money is not being destroyed at nearly the rate that would be expected or predicted by the size and rate of the defaults."
ReplyDeleteThat is a world where inflationary bubbles get very big and last for decades. Once the enormous bubbles burst, they demolish economies because they've been around so long, and lots of businesses grow to expect and depend on them.
All money-for-nothing schemes break, nature grants no exceptions to her laws. Are some pyramid schemes bigger than others? Sure. Perhaps some originators of big ones even died before they witnessed the havoc they wreaked upon the world.
But ALL these schemes fail. ALL of them. If they didn't, you could create a ponzi scheme for just you and your family and you'd live in perpetual luxury.
"This is the world in which we currently live."
Agreed.
…a world where the criminal malice of Federal Reserve counterfeiting has raged for so long that the price of a single Dow share went from 40 to 14,000 without any change in value. It's a crime against humanity, one that has already begun ripping itself apart.
Best to get out of the way and let it super nova. Assuming you can find a place to hide on our small planet.
I believe chris martenson acknowledges that the major flaw in the economic system is that it must always be expanding for it to work.
ReplyDeleteHolding things constant will not succeed in the long run.
We are currently holding our breath under water thinking we have a few feet to the surface. I believe we have more than a few feet above us.
FDR, thanks for your reply to my post above regarding Chris Martensen's article.
ReplyDeleteHere's my question:
Are deflationists missing the fact that until and unless these losses are recognized on the books of financial institutions, there is no monetary deflation?
Thanks
FDR wrote: "The wave principle isn't a hypothesis, it's a principle, in that it is a doctrine or law. That doesn't make it predictive.
ReplyDeleteThe wave principle simply explains how nature works, how you use it is up to you."
An explanation that provides no predictive power is no explanation at all. It gives no insight. Saying "A supreme being created the universe" is an "explanation" for how the universe came into being, but it is also entirely unenlightening -- it tells us nothing at all about the universe that we can use.
Furthermore, if the wave principle is not predictive then why are you using it to make predictions? That is a contradiction. Either it's predictive or it's not.
I'm using the term "hypothesis" in reference to EW in the purely scientific sense -- it's a possible predictor of events, but hasn't been successfully tested enough to graduate to "theory" status. And note that I'm giving EW the benefit of the doubt here: I'm assuming that it hasn't made any false predictions yet. If it makes one of those then it's no longer a valid hypothesis.
FDR also writes: "The fundamental principle however, that trees do develop in well defined predictable fractal patterns remains correct and that will always be correct, even if what I choose to predict turns out to be wrong 100% of the time."
The key phrase here is "well defined PREDICTABLE fractal patterns". If it's predictable then that means you can predict it, and if it's also "well defined" then you can predict it with some specificity. Now, what specifically you can predict depends on the hypothesis in question.
If you're using the EW hypothesis to make predictions beyond what the hypothesis itself is able to do, then that is a misuse of the hypothesis. If the hypothesis predicts a range of possibilities and you select only one of those possibilities without mentioning the others, then that is, I think, somewhat disingenuous.
All I'm really saying here is that it's unwise to ascribe to an hypothesis more power than what it's really capable of providing.
Finally, it may be true that the real world fits nicely with the wave hypothesis, but that alone doesn't really mean much if it happens to be true that most anything would. For instance, if all randomly generated graphs are considered to "fit" the wave hypothesis then it follows that the wave hypothesis itself tells us absolutely nothing, and therefore doesn't even deserve the "hypothesis" moniker, much less "principle". And that statement isn't limited to the wave hypothesis, but applies to any behavioral explanation.
It should be trivial to determine whether or not the wave hypothesis has any explanatory power, assuming that it applies to price action over time as has been claimed: give someone who subscribes to the wave hypothesis two graphs, one being the price action of a security or market over time, the other being a randomly generated graph with the same number of data points. If that person can, by using the wave hypothesis, reliably identify which of the two is the price action graph, then it follows that the wave hypothesis (a) has applicability to price action over time and (b) has some predictive power.
But if the person cannot reliably distinguish between the two, then it follows that the wave hypothesis does not apply to price action at the very least, and in fact may have no descriptive power at all.
"Are deflationists missing the fact that until and unless these losses are recognized on the books of financial institutions, there is no monetary deflation?"
ReplyDeleteThe lack of discovery (banks figuring our that their loans are woefully under-collateralized by to deflated prices) is the main reason we don't have a few thousand bank failures today instead of a few hundred.
One could be tempted to say lack of discovery is a good thing. But of course denial is never positive. If banks did their basic job of staying on top of their business, they could quickly adapt to deflating condition by pulling back lending before they were catastrophically impaired.
But I agree, banks are horribly complacent due to 80 years of Federal Reserve counterfeiting driving prices reliably higher, so lack of discovery isn't something they even understand. Banks general incompetence will only make judgment day that much worse.
Slowly, banks will figure it out as people move and can't pay off, or lose their jobs and the bank can't recover anything significant on the house.
"An explanation that provides no predictive power is no explanation at all."
ReplyDeleteOf course there is predictive power, I make my living exploiting it.
Knowing that a Cherry Tree will sprout cherries after it blooms is a predictable event. By no means is it guaranteed. Whether you want to bet on a specific cherry appearing, or the macro event itself, is also up to you.
So how you play it can be successful or not.
Speaking of banks and under-collateralization, isn't it interesting there were no closures this Friday.
ReplyDeletePerhaps the FDIC is out of money and can't recognize anymore losses until they restore their balance sheet.
FDR wrote: "But I agree, banks are horribly complacent due to 80 years of Federal Reserve counterfeiting driving prices reliably higher, so lack of discovery isn't something they even understand. Banks general incompetence will only make judgment day that much worse."
ReplyDeleteOr maybe lack of discovery *is* something they understand.
If this is a matter of survival for them (you said it yourself: lack of discovery is why more banks haven't failed), then it follows that the banks will hide their true state by every means at their disposal. And since the bankers control the government, the government will let them, and will probably even help them.
When all the players with power collude by changing the rules to suit their own shared agenda, the end results are invariably going to be what they dictate them to be. Since the results fall out of the rules themselves, it cannot be any other way.
The independent actors are the people themselves (the "consumers"), but they generally follow whatever rules are set down in front of them.
FDR wrote: "Knowing that a Cherry Tree will sprout cherries after it blooms is a predictable event. By no means is it guaranteed. Whether you want to bet on a specific cherry appearing, or the macro event itself, is also up to you."
ReplyDeleteWell, a cherry tree sprouting cherries after it blooms isn't a "law of nature" or "principle" in the same way that gravity is a law of nature. As you say, whether or not it sprouts is unpredictable. If you have sufficient information about the cherry tree and its environment, along with a sufficient understanding of the physical principles that govern both, then you should be able to at least say how likely it is that it will sprout cherries given the conditions it's in. But without that kind of detailed information, that a cherry tree will sprout cherries becomes a rule of thumb. Certainly not a physical law or fundamental principle.
If EW is, essentially, a rule of thumb then that's certainly fine as far as it goes. It means that it's really just an educated guess, and not really a predictive mechanism as such. To the degree that you successfully use it to make a living, it seems to work for you, but that said, I suspect (perhaps incorrectly) you use more than just EW as the basis of your livelihood -- I suspect that at least some of that basis comes from your own intuition and experience, which are important tools in any endeavor (even science).
Regardless of how effective EW is for giving insight into the future, I'm glad you're willing to share with us your views on what the future holds. Even if the predictions you make prove to be incorrect, the insights behind those predictions are very valuable indeed, and I for one am grateful for them.
Is someone playing a game of chicken with the USD. Going for broke...
ReplyDeleteLooks like 9950 will easily be broken today.
ReplyDeleteAny comments on this?