Figure #1 Shanghai Stock Exchange vs. Greater Emerging Markets (left y-axis represents Emerging Markets index; right-most y-axis is China)

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Tyrone Hart
5 years ago
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the Emerging Markets. Figure #1 Shanghai Stock Exchange vs.

1 Market Letter April 21, 2013 A Synthetic Emerging Markets ETF x-china The Monthly, Big Picture Emerging Markets Chart in figure #1, shows a major divergence between China & the Emerging Markets. Figure #1 Shanghai Stock Exchange vs. Greater Emerging Markets (left y-axis represents Emerging Markets index; right-most y-axis is China) Page 1 of 6

2 While it s clear Emerging Markets are on the way up as a whole, China still has quite a ways to drop. The Shanghai Stock Exchange Index, $SSEC, will likely trough in the area of on the Right y-axis. Unless backed-out, China would become a major drag on Emerging Market returns. In Figure #1 you will note that the Chinese Bear Market spanning (~6½ years) categorizes it as a Primary degree Bear Market, one-quarter the magnitude and of 1/16 the destructive force as the US Bear Market. By same reasoning, once China bottoms, in wave 2, its wave 3 impulse should exceed the trajectory of wave 1 by at least the Fibonacci 1.618x multiple, most commonly found in Nature s growth patterns. We are currently invested in the inverse Emerging Markets ETF, EDZ for the swing trade, however when we reverse to long, with EDC, we will want to back-out China, with the highest weighting, will no longer be going our way. To optimize performance, in tandem minimizing volatility risk, we will short China via the inverse ETF, YANG, concurrent with the long Emerging Markets, EDC. All boats rise & fall with the tide For perspective, the Left y-axis, corresponds with the unlevered Emerging Market index, EEM. (The newer ETFs lack the longer price history of the original Morgan Stanley Emerging Market index (MSCI). Since all boats rise & fall with the tide, we can interpolate the newer, levered funds, EDC & EDZ, with the longer EEM data to arrive at the Big Picture Elliott perspective. Same logic used to create synthetic, unlevered ETFs This is the same logic as we utilize to back-out the leverage in our 3x levered ETFs, while maintaining the high liquidity & small bid/ask spreads of the levered ETFs. Although currently still in cash, we intend to substitute half the cash backed out of the levered ETFs with the unlevered long, T-bond ETF, TLT, and half with the Australian Currency ETF, $XAD, to maintain purchasing power as the Dollar index plunges in lock-step with the US Equity Market. Once we re on the homestretch, we can easily put the leverage back on in increments by adding to the levered ETFs while concurrently reducing the cash alternatives. Page 2 of 6

Funds flow out of US stocks & the dollar into appreciating currencies As the dollar plunges, commensurately with the dive in US Equity indices, foreign capital will flow out of US stocks into

3 Funds flow out of US stocks & the dollar into appreciating currencies As the dollar plunges, commensurately with the dive in US Equity indices, foreign capital will flow out of US stocks into appreciating currencies such as the Euro & Yen. With the US equity Markets in free-fall, foreign investors will seek to maintain purchasing power. A debased $US dollar results from the long-term Quantitative Easing and other monetary stimulus in a delusional attempt to reverse the Business Cycle. The 2011 Emerging Markets wave 1 in Figure #1, corresponds with wave 1 Figure #2 below, on the weekly magnification, more precisely in October, Figure #2 EDC, Emerging Markets levered ETF To reverse EDC the long Emerging Markets chart above, into its reciprocal, EDZ inverse we transpose it. The bullish i iii in EDC above, become bearish i iii in the EDZ chart below, to indicate the primary direction of the count. In other words, to continue making money while we wait for the trough in EDC, we ride-out its reciprocal EDZ. Page 3 of 6

The crowd is usually wrong, but being blindly contrarian will not necessarily reap outsized profits, unless backed by exceptional timing sourced in the Elliott Wave count.

4 Figure #3 Inverse Emerging Markets for the Swing trade Obviously, by the time the entire puzzle is in place, it s too late to make much money. Sentiment is always overwhelmingly Bullish at tops and very Bearish at bottoms. The crowd is usually wrong, but being blindly contrarian will not necessarily reap outsized profits, unless backed by exceptional timing sourced in the Elliott Wave count. Below you see YANG, is not entirely correlated in time to the Shanghai Exchange index. Some of this disparity is likely sourced in distinction between A & B shares. The A-shares were intended exclusively for Chinese investors, to the exclusion of foreign investors. This explains the differential in the process of converging as restrictions are slowly being lifted the domestic and foreign shares should converge. Page 4 of 6

5 Long, money losing Bias in Bear Markets What distinguishes Exceptional Bear is that we are driven by profit, sourced from the Market s larger trend. We remain flexible to go short as readily as long, with the ebb & flow of the market. In a Bear Market, 90% of profits derive from shorts or inverse ETFs. On the other hand, the majority of investment professionals have a sub-optimal long, bias, & have really no idea what a Bear Market entails. Many are bound by charter to remain long no matter what, as if going short were un-american. There s no patriotism in losing money! On the contrary, its far more patriotic is to make buckets of money so you can pay higher taxes, tax-loss carry forwards will not offset the deficit. My first mentor ascribed to the idea that one dollar in taxes should equal one vote, a bit extreme, but certainly far more logical & constructive than the current system. Page 5 of 6

We often disagree with the trend-following Consensus When our market perceptions are at variance with the general consensus, is when we score home runs.

6 We often disagree with the trend-following Consensus When our market perceptions are at variance with the general consensus, is when we score home runs. That s when the majority is wrong, and the losses of many become concentrated as the profits of a few. This is the case currently with interest rates, and several other correlated asset classes. Recession-proof & Depression-proof To anticipate the Great Recession, we are guided by technical analysis, which invariably presages the relevant fundamentals. In free-fall, when the best and the worst companies within an industry collapse in unison, there s little advantage to a market neutral strategy. With very few exceptions, such as the $VIX volatility index, the only investments to profit in this Bear Market are short & inverse. These are the recession-proof and depression-proof. If you subscribe to Stockcharts, please vote daily your vote is critical, this link will take you directly to our page you have 3 votes daily. Eduardo Mirahyes Page 6 of 6

Investment Tips for the current Bear Market

November 18, 2014 Investment Tips for the current Bear Market According to Jesse Livermore, most people don t want to study the market or invest intelligently, they just want tips to play the Market, in