Irrational Exuberance

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Bruno Hall
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November 27, 2016 revised Nov 28 Irrational Exuberance from a historical perspective As demonstrated by a tripple bottom in the Bearish Dollar ETF, UDN, the

From there, we see by two irregular bottoms have sequenced. Just one more, lower degree a-b, is all that s required to begin the longterm rally in dollar shorts.

1 November 27, 2016 revised Nov 28 Irrational Exuberance from a historical perspective As demonstrated by a tripple bottom in the Bearish Dollar ETF, UDN, the Dollar is currently peaking. The realative strength (RSI in lower chart) clearly shows the orthodox bottom occurred in the first Q From there, we see by two irregular bottoms have sequenced. Just one more, lower degree a-b, is all that s required to begin the longterm rally in dollar shorts. If the inverse dollar is about to surge, the Greenback is most definitely on its last legs. Fig. #1 UDN, the Bearish Dollar ETF, is in the final stages of reversal since 2015 Page 1 of 9

Shown inversely in the in the monthly chart of the US Dollar index below, the long dollar is on in the final stretch of the B-wave, Bear Market Rally, within the A-B-C Dollar Bear Market.

2 Shown inversely in the in the monthly chart of the US Dollar index below, the long dollar is on in the final stretch of the B-wave, Bear Market Rally, within the A-B-C Dollar Bear Market. You can hardly miss the fact that the Dollar is lagging the Stock Market Bear by just 12 months. This precisely as we might expect, since sellers of stock up to now have always turned to safe haven T-bonds, to inest the proceeds from equity sales. Such buying augments demand for the greenback and its value as measured by the US dollar index. Our top tick target for the Dollar index in Fig. #2 was just revised upwards slightly, from 1.03 to 1.07, to adjust for a likely diagonal triangle, Diag >, concurrent with the RSI at 66, to signal a dramatic reversal soon afterwards. Several examples of the Diag > can be seen in these charts, each time it infers an impending reversal. Students of Elliott would benefit by comparing them.the essential is a pattern, composed of 3- wave corrective patterns in all but for the final 5-wave thrust. An alternate count of the dollar index would continue rise to 1.04 top, without a pull-back, to complete the upside several months sooner. Fig. #2 US Dollar A-B-C Bear Market Page 2 of 9

3 Next you see FXE, Euro Cash, in light blue in the chart below. Prices on the left y-axis, at a longterm bottom are equal to the 2000 trough. Overlain in candlesticks right y-axis, is the Euro priced in dollars. Late last week, clients of Exceptional Bear established long positions in ULE, the levered Euro ETF at or very near the low. Another way of perceiving the second largest monetary union, now bottoming in synch with the topping dollar, is as a safe money surrogate for T-bonds. At current prices, unlevered FXE, is notonly selling at a discount to the dollar, but is also far less volatile and highly suitable for widows and orphans, as a low-risk/high return investment. FXE is a far safer haven than today s US T-bonds, where currency risk lies beyond the bounds of mathematical risk models in our current paradigm. Rather than thinking in terms of dividend income, you might consider the Euro as a dividend-bearing instrument. By simply selling 1.5% of principle semi-annually, equal to the 3% T-bond yield, capital appreciation would soon exceed aggregate withdrawls, without eating into principle. Capital appreciation will more than compensate for such withdrawals, at a fraction of the currency risk in US T-bonds. The likely upside for the Euro, as in 2009, is again to the area of $1.60, from a current price of approximately $1.06, or slightly over 50% appreciation over the next 2-3 years. Something T-bonds can never hope to match. Page 3 of 9

loss. No one takes on risk judiciously with the expectation of losses, a far better

4 Fig. #3 The Euro Cash, FXE, and priced in Dollars Further support for our enthuthiastic uro forecast comes from the chart of US T-Bonds below, demonstrating a likley min 15% capital loss. No one takes on risk judiciously with the expectation of losses, a far better alternative is Euro Cash. Fig. #4 30-year T-Bonds likely suffer at least 15% capital losses Page 4 of 9

In equities the larger pattern is the most Bearish of all corrective patterns, the Diag II, proportional to its colossal dimmensions since 2000 in its capital-destructive capacity. Fig.

5 In equities the larger pattern is the most Bearish of all corrective patterns, the Diag II, proportional to its colossal dimmensions since 2000 in its capital-destructive capacity. Fig. #5 Spike down next in S&P 500 Monthly below Next is the S&P Daily, where wave D is synonymous with wave [B] in the monthly chart in Fig. #5. Just as in the Inverse Dollar ETF, UDN, in Fig. #5, magnitude has transcended higher, and all that remains is one final a-b to begin the required long-term plunge, not coincidentally within the same time as the $US dollar. Note the bearish Diag II since 2015, is a echoing fractal of the larger structure since In Wave E, identical to wave [B], all 5 th waves will converge into one massive Tsunami. Page 5 of 9

Fig. #6 S&P 500 Daily Chart is a Fractal of the Monthly, all 5 th waves concurrent Historically scarping bottom, the Volatility index adds yet another dimension by tracing the Bearish Diag II seen in

6 Fig. #6 S&P 500 Daily Chart is a Fractal of the Monthly, all 5 th waves concurrent Historically scarping bottom, the Volatility index adds yet another dimension by tracing the Bearish Diag II seen in stocks inversely, as its Bullish reciprocal Diag II. Just as the Bearish Diag II must break through the floor, the Bullish Diag II in the VIX will break through this chart s ceiling as the longest 5 th wave. (Bullish or Bearish, after a transcending magnitude in the 4 th wave, the 5 th is always the longest of waves 1, 3, & 5) Meanwhile the $VIX in Fig. #7 has been steadily dropping since its March 2009 peak, synchronized with the interim trough in stocks. In the next move it will Spike to a high at least the Fibonacci 1.618x the perpendicular height of wave 3. Whether it takes one month or three, it is inevitable. When the odds are so heavily stacked against you, it s better to be a little early than too late. This market is like powder keg set to detonate in reaction to any catalyst, real or imagined. Page 6 of 9

Fig. #7 $VIX Volatility index traces the S&P Bearish pattern as Bullish According to Russel Napier s Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms, Bear Markets can be considered

7 Fig. #7 $VIX Volatility index traces the S&P Bearish pattern as Bullish According to Russel Napier s Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms, Bear Markets can be considered complete only at troughs beyond a 60% discount from fair market value, shown below by the red line punctuated with yellow dots at minus 60% in Robert Shiller s data massaged by Smithers & Co. From a long-term Value perspective, 2009 trough labeled C, barely grazed the fair market value at zero, far above the minimum 60% discount required. In Shiller s Nobel prize-winning research, the market swings from highly overvalued to highly undervalued, rather than stopping at historical fair market value, as in Page 7 of 9

Fig. #8 Historical US Equity Values & min 60% Bear Market retracements Conclusion: In other words, contrary to what Ben Bernanke would have us believe, this Bear Market s trough lies ahead, instead

8 Fig. #8 Historical US Equity Values & min 60% Bear Market retracements Conclusion: In other words, contrary to what Ben Bernanke would have us believe, this Bear Market s trough lies ahead, instead of behind us. Rather than the end of the Bear Market, 2009, was an intermediate-term low, comparable to which must still be eclipsed by a much lower trough. According to this Bear Market s Supercycle magnitude, a 90% discount trough, similar to 1920 is most likely As an aside, you will note that each time Equity Values dropped below 60%, they coincided with wave 2 or 4 Bear Market, where magnitude, as well as expectations determined the trough s severity. Page 8 of 9

A reasonable investor would prepare himself for such a Tsunami, while fools take a wait and see attitude, as if the Market Crash were to provide more precise timing than you have here.

9 A reasonable investor would prepare himself for such a Tsunami, while fools take a wait and see attitude, as if the Market Crash were to provide more precise timing than you have here. That s why more than ever, fools who ignore history s lessons are destined to repeat them as legendary short-seller, Jesse Livermore avowed, History repeats itself nowhere more often than in the Market. Eduardo Mirahyes Page 9 of 9

Visual Evidence of a Dramatic Reversal into a Bear Market Free-fall

October 10, 2015 (revised Oct 12) Visual Evidence of a Dramatic Reversal into a Bear Market Free-fall Below you see the SPX in arithmetic scale since 1982, this was the only segment of Supercycle (III)