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

Transcription

1 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) since 1932, which actually occurred at Supercycle Degree. Between 1982 and 2000 the market appreciated 15.5x, that was more than in its entire previous history. From SPX 100 it reached SPX For the Big Picture chart see the last chart in Figure #13. Figure #1 SPX monthly arithmetic scale Page 1 of 15

2 At the bottom left of figure #1 is the Bullish Diag II, which heralded the long Bull Market ahead. After the IV th Cycle Wave you see two magnitude transitions gearing down, before the reversal into bear territory. What distinguishes the stretch from 1982 to 2000, is that only the impulse waves gear up, while their corrections remain respectively stunted two & four degrees of magnitude lower, to merely pause, rather than correct the previous rally. This phenomenon occurs to the same degree in Bear Market Plunges, that is the reason for Crashes they merely pause, rather than correct to the upside. The a-b-(a); a-b-(b) magnitude transitions, represented by alternating dots & dashes in purple, are the precise location where magnitude transcends, and is one of my contributions to the Elliott Wave Principle. Although these structures were labeled diagonal triangles (Diag >s) by RN Elliott, they relate much more than dramatic reversal ahead. Each of these, post a 4 th wave, either gears magnitude up or down. Note that there are no 5 th waves, on the way up to the year 2000 Bull Market Top, each 5 th wave gears up to the next higher degree, so that Primary 5 is entirely replaced by Cycle Wave I at the higher degree, just as Supercycle Wave (III) replaced Cycle Wave V in its entirety. Since Elliott had no idea where magnitude gearing occurred, he labeled these synonymously they are not. From the Bear Market perspective since 2000, a colossal Bearish Diag II far more massive than its reciprocal Diag II, is in evidence. To put this in perspective, note how Bullish Diag II approaches the dimensions of the lower degree Diag II fractal in wave A. (a fractal, as coined by Benoit Mandelbrot is a structure that is echoed in its parts and sub-parts, yet remains the same no matter how much it is blown up or shrunk down) Just as there were echoing fractals at the beginning of waves A & C, the Bearish Diag II structure will repeat at the start of this decline. Below you see the same chart of the S&P in log scale, note how the magnitude disparity between the Bullish & Bearish Diag IIs becomes deceptively minimized. A more realistic picture would be semi-log scale, where each increment doubles via power laws, rather Page 2 of 15

3 than 10x increments of the Richter Scale used to measure the destructive capacity of earthquakes. Figure #2 SPX monthly log scale A Bull Market turned on its head Best described as a Bull Market turned on its head, it is the lead up to a massive Bearish impulse wave a Crash by any other name. That is to say, its structure is inverted from structure characteristic of Bull Markets, with the 5 s being the free-falling impulse waves, and the 3 s as upwardly corrective in principle only. The Diag II is the prelude to, and an integral part of Cycle Wave I. As you see below, the 4 th wave overlaps the first. (from the bearish perspective, the number become letters in waves D & A) Below is a diagram of the Bearish Diag II fractal, similar to those you see at the beginning of waves A & C above. Page 3 of 15

4 Figure #3 Note below the 2-hour chart of the SPX also echoes the Diag II to begin the 5-wave plunge below. Waves 2 and wave 4 will likely retrace the entire upside to the smallest fractal s first touchpoint, marked by the green dotted line at the top. Figure #4 SPX 2-hour candles Page 4 of 15

5 The Purpose of a Supercycle Bear Market The Diag II structure is the main reason why Markets don t just crash out of the blue. To achieve their self-correcting role, they must first lure-in the maximum number of investors, many of them margined to the hilt, to destroy the maximum amount of capital possible. The excesses of the previous Bull Market, compounded by the Fed s unprecedented Monetary interventions, must all be backed out via bitter deflation. In other words, the Fed s entire balance sheet must be wrung out of the Market before the economy can heal. Below you see a chart of US deflationary expectations, just as in price charts, The Diag II means the beginning of a long plunge into deflationary Depression. Figure #5 Deflationary Expectations coincide with a plunge in Global Stocks & the $US Source: FT Page 5 of 15

6 Optimally traded, these structures are the ones that can make you as an investor for a lifetime, if not for generations. At a time when most other would be financiers will be crushed for the long-term. In Bear Markets, an irregular top, exceeding the Bull Market s Orthodox top as in B & D, in figure #1, occur to gear up magnitude for the plunge ahead. Just as the Diag ^ geared down magnitude prior to the peak, they geared back up in Bearish mode between 2010 and Now the market is once again reversing for the final killer plunge. Below see how the inverse S&P reversing in a new Bull Market, that s correct, when the long index goes into a Bear Market, its inverse ETF naturally morphs into a Bull Market on steroids, fueled by fear as opposed to greed. Of the two emotions, fear is by far the stronger. Below you see the SPXU bottoming and reversing into a very nice elliptical upside. Figure #6 SPXU the inverse SPX reversing into a New Bull Market Page 6 of 15

7 Meanwhile the US$ is very close to completing a Cycle Wave II Bear Market Rally, originating in I estimate the high will reach near $102.5 on the index before plummeting into a Wave III. Figure #7 The US Dollar index soon to peak Page 7 of 15

8 Next you see the inverse Small cap stocks, of the NAZ 100 & Russell 2000, going into the same Bull Market indicated by the Inverse S&P 500. Page 8 of 15

9 Figure #8 Inverse Small Cap stocks reversing into a new Bull Market Page 9 of 15

10 Figure #9 Inverse Financials New Bull Market Next on the International scene, China, represented by YINN, is beginning a substantial Bear Market Rally, which should be soundly profitable for us, and interpreted as a new Bull Market by most. In other words, the Shanghai Exchange is just slightly ahead of the larger US indices in the process of crashing rally occurs before a second far more severe plunge. Page 10 of 15

11 Figure #10 Below you see YINN mapped out, to overlap at least the first touchpoint of the Diag II, near 53 from the current 22. That s 140% gain. Of course, there will be ups and downs in the interim, we expect to compound the straight line return by swing trading sell overbought & buy oversold Page 11 of 15

12 Figure #11 YINN China Bullish is a misnomer Below you see the German DAX, much in sync with the other developed markets, including the US, and due for the same thrashing. Page 12 of 15

13 Figure #12 The German DAX signals a nose-dive in Europe s strongest economy Page 13 of 15

14 Below is the Big Picture Dow, so you can put the above S&P in perspective, here the same structure is labeled in Grand Supercycle Degree as (A)-(B)-(C). Proof that this is the correct count lies in the parallel lines of the Channel at Supercycle Degree, Elliott got as far as the Cycle Channel , and theorized the one shown below. For an in-depth description follow the link to New-Wave Elliott part 2 Figure #13 The US Market since 1900 Prepare To Win like never before! Eduardo Mirahyes Page 14 of 15

15 Page 15 of 15