Bearish Diag II - the example of Crude OIL

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Nickolas Alban Gibbs
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Sunday January 11, 2015 Bearish Diag II - the example of Crude OIL After a 46% decline in 2014, nearly everyone expects oil to drop to $40/barrel from year-end price of $55.

such trend-following. Rather than getting your financial news from TV, a much better source is the Financial Times.

1 Sunday January 11, 2015 Bearish Diag II - the example of Crude OIL After a 46% decline in 2014, nearly everyone expects oil to drop to $40/barrel from year-end price of $55. (this is an excellent example of Shiller s observation: people who get the news from the same sources & talk to each other, tend to from a subliminal consensus; Financial writers are as guilty of such trend-following. Rather than getting your financial news from TV, a much better source is the Financial Times.) In this example, a continued drop and a long-term persistence of low prices are totally out of context. Notice how linear projection makes the $40/barrel a consistent expectation, to provide a tremendous opportunity for those who can perceive cyclical price patterns, from a New-Wave Elliott insight. Page 1 of 8

Above weekly intervals, below 2-hr Crude Oil. What s more, notice that the initial a-b reversal from bearish to upside corrective geared magnitude down 50%, in December.

2 Above weekly intervals, below 2-hr Crude Oil. What s more, notice that the initial a-b reversal from bearish to upside corrective geared magnitude down 50%, in December. Since then, a second, lower degree, a-b reversal, geared down magnitude an additional 50% in anticipation of the complete stop, where we are now. Like an automobile s transmission, you can never reverse without first coming to a complete stop. The chart currently evidences huge insider accumulation, as a spike in volume; the Smart Money is buying. Unlike a run-of-the-mill Bear Market plunge, this one is a wave iii of a Bearish Diag II, which requires a minimum bounce to retrace wave i, and usually fill-in all gaps in the chart above it. However, on occasion, retracement of the uppermost gaps may be postponed until the second retracement in wave 2. The result of such gaps being filled-in is a sound foundation from which to blast-off, in either direction. Only after gap slightly above $105, can oil plunge much lower in 5 waves. Final retracement of the 1946, Bullish Diag II in 30-year T-bonds Bonds demonstrate the same Diag II structure inverted. Once the trajectory initiating from a Diag II completes, the first touchpoint is always retraced, as demonstrated in the Page 2 of 8

2.46% intraday low on Friday, Jan 9, 2015. Safe Haven, 30-year T-Bonds have dropped to yield below 2.

From here, the incorrigible trend-following crowd could force yield to drop another quarter point drop, but from here on out

3 2.46% intraday low on Friday, Jan 9, Safe Haven, 30-year T-Bonds have dropped to yield below 2.5% for the third time to retrace the initial touchpoint of the post-ww II trough bullish Diag II in From here, the incorrigible trend-following crowd could force yield to drop another quarter point drop, but from here on out T-bonds are certificates of guaranteed confiscation, the risk-reward ratio favors major losses, versus a trifling, short-term gain. 1 st touchpoint of Bullish Diag II retraced 3x Page 3 of 8

The immense Stock Market Collapse to include the Dollar & T-Bonds From a currency translation perspective, the strengthening dollar made US sovereign bonds more attractive for foreign investors with

4 The immense Stock Market Collapse to include the Dollar & T-Bonds From a currency translation perspective, the strengthening dollar made US sovereign bonds more attractive for foreign investors with higher relative rates than available abroad. T-Bond buying sourced from Europe and Japan, where both rates and growth expectations are lower than in the US, have temporarily replaced the Fed s massive T- bond purchases. However now that the $US Dollar, T-bonds & the Stock Market have all peaked, they are lined-up to plunge in lock-step. T-Bonds - Safe Haven no longer The plunging dollar can only result in abrupt currency losses for the same investors who have bought T-bonds of late, only then will the weight of termination QE be truly felt, meanwhile the European Central Bank s QE is just beginning, and can be expected to drive the uro and European bourses far higher for several years. We prefer the short side of the Market simply because the ascent of 18 years reverses into 3 years of plunge, to imply six times the velocity of appreciation. Simply put, since markets plunge much faster than they rise, the profit from Inverse US equity ETFs will likely outpace the rise in the European stocks 6:1, and outstrip Emerging Market appreciation 3:1. Macro currency issues far outweigh bottoms-up stock picking The Bear Market is not the time to be bottoms-up value stock pickers, in the style of Warren Buffet & Mario Gabelli. Bear Market plunges are indiscriminate - a bear decline sees the baby get thrown out with the bathwater. Only after the panic, do the outstanding Bear Market companies bounce back those that provide temporary escape like the movies and liquor, cheap luxuries like Coca-Cola and those companies which all consumers to save money on necessities like Amazon.com. Page 4 of 8

5 Dollar-denominated Emerging Market Debt Just as this is the worst time to hold savings in US dollars, it s as pejorative for USdollar denominated Emerging Market debt. Best switch to out of dollar denominated emerging Market debt into debt in the local currencies, otherwise the dollar s depreciation could take a big bite out of yield. Now that the dollar is high, linearly projecting investors expect it to continue higher, even as the final stages of a dramatic reversal, are in place. The big money, 80-90% of the profit, is made in the trend reversal, when most others are wrong. Once this becomes common knowledge, the demand and purchasing power of the dollar will plunge to benefit the uro first & foremost, as the second largest monetary union. Mexicans should repatriate Pesos to sidestep devaluation In reverse thinking, Mexican citizens have habitually kept much of their wealth in US dollar deposits, as they have been conditioned, after a series of unexpected devaluations which confiscated as much as 2/3 of the Peso s value overnight. The reverse is now true, Mexicans would be well advised to convert their dollar holdings back into Mexican Pesos. Meanwhile for conservative US investors, Pemex Bonds yielding 7.4% and are due for some substantial capital gains as the price of oil bounces back & becomes compounded by the peso s dramatic appreciation against the US dollar. Divergent Central Bank activity is at the root of currency moves. Just as the US has needed the QE to pump liquidity into the market & result in a huge bear market rally, is likely to be repeated in Europe, it s not a Bull Market, but rather a 3-wave Cycle Wave II Bear Market Rally within a larger 5-wave decline to indicate is the larger Bearish trend. Commodity Cycle going into the C-Wave Rally of the Correction Global Deflationary tide sourced from slowing economies and excess capacity malinvestment have the CRB commodities index reverting back 5 years, concurrent with low from the financial crisis in stocks. While the two are not necessarily related, when US stocks, bonds and the currency all crash at once, investors have been conditioned to move funds into commodities and Emerging Markets as they did in The last leg Page 5 of 8

6 of the commodity Cycle will benefit commodity producers like Australia. The Aussie dollar has just bottomed against the USD. Page 6 of 8

False breakouts occur often at Major Market Reversals Conventional wisdom that drives prices in a herding fashion, becomes obvious in shortterm moves near major market reversals.

7 False breakouts occur often at Major Market Reversals Conventional wisdom that drives prices in a herding fashion, becomes obvious in shortterm moves near major market reversals. Gold has jumped the gun, prior to completing a trough. That s why we have sold Gold. Such false break-outs often become magnified by trend-following suckers. Rather than tag along with them, it s far safer to step aside. Should the gold rally become extreme, it will be an opportunity to short gold. Such false breakouts are the exception to the required stop before reversal, of a true trend. Like a herd of stampeding Wildebeest, direction can swiftly reverse without warning. Rather than a trend a false breakout is founded on wishful thinking and delusion. False breakouts are b wave sucker s rallies, where the reversal is mistaken for a new bull run, where the enormity of crowd sentiment is most pronounced. It s far safer to swing trade false breakouts against the trend, once prices go to extremes. The reason that all false breakouts eventually crater is absence of a sound foundation. The purpose of a sound foundation is to shake-out wishy-washy investors those who function on the basis of magical thinking other such delusions. Page 7 of 8

The US is the riskiest of all markets While the US is still viewed as the only source of growth and stability, this perception is based on the past and no longer applies.

8 The US is the riskiest of all markets While the US is still viewed as the only source of growth and stability, this perception is based on the past and no longer applies. In the absence of QE, after a prolonged period of artificially surge in the Money Supply, the US is the riskiest of all markets, we are now due for a dramatic reversal to squeeze out the excesses of the past as well as those based on Fed artifice. S&P rose 11.4% & had total return including dividends of 13.7% in 2014, compared with 29.6% & 32.4% in The decrease demonstrates a tired market with negligible upside and enormous downside risk, as Benoit Mandelbrot proved, our financial paradigm remains in denial of such fat tail risks, to imply the rare outliers beyond the normal distribution associated with the bell curve. If you subscribe to Stockcharts, please vote this link will take you to view our entire portfolio in weekly increment charts, showing the a-b reversal to bullish in all the inverse funds. You will note that identical structure at the top-left previously reversed inverse funds to bearish at the 2009 peak, corresponding to the trough in long stocks. Eduardo Mirahyes Page 8 of 8

Has Oil Bottomed yet?

November 14, 2014 Has Oil Bottomed yet? Oil has bottomed intermediate-term. The next move is a bounce to the area of at least $100/barrel within a span of ~12 months. Once that upside completes, oil will