No
more sellers left – Explosive upside ahead!
The
strongest rallies take off, from the most highly oversold, fear-driven
positions, just like the present. When all the fear has been translated
into selling, there and there are no more sellers left. Then the smallest
amount of buying is greatly magnified by concurrent short covering. The net
effect: the previous downward stampede abruptly reverses to the upside.
Below
you see the Dow actual chart, corresponding with the stylized chart below it.
As
you can see in the Relative Strength Index (RSI) above, the b wave to the far right is verging on oversold. On
the two previous occasions we‘ve reached this level, the market has
swiftly reversed, and when wave 3 was
involved, the subsequent move went into overbought territory, as in Roman
numeral wave III. The main reason
the herd gets spooked, is its still looking for bull market characteristics in
a Bear Market Rally. Since the market turned down in 2000, the primary trend is
down, which acts like previous bull markets in reverse, while
upside moves are corrections. Refer to Bear Market Perspective
for a detailed explanation of a market turned up-side-down.
Here’s
the stylized Diagonal triangle you’ve seen before, where the aqua line is
a downside exaggeration of the transitional b
wave. Wave 3, up next should exceed wave
1, likely reaching just short of the
previous high. A diagonal triangle in this position acts like a coiling spring
mechanism, packing energy into the final Spike. After 3 we sink back again to near the current level
before the Spike can begin.
Financials have started down, but wave 2
consisting of a-b-c
has yet to complete the correction. The minimum likely is to 530 on the index. By
definition a correction is a counter-trend move, here to the upside, above the
endpoint of wave
1.
Summary
Anything with two or more
Diagonal II is great, and has a very high probability of outperforming the
averages by a wide margin - the more and the larger (primary) Diag II’s
the better.
While
the fiscal and monetary stimuli will pack a punch into the final Spike. Like a
couple of aspirin every 4 hours, it will serve to swiftly relieve the pain, but
like previous stimuli under Greenspan, also aggravate and prolong the economic
illness by blocking the market’s self-healing forces. The Spike
should take us into a September peak, followed by a dramatic, and likely violent reversal with an eventual bottom
far below anyone’s current expectations, and not for another 5-7
years. Make hay while the sun shines!
Regards,
Eduardo Mirahyes
“Opportunistically timed
investments that maximize wealth”