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Friday, August 19, 2011

The Market This Weak Week

Except for a 40 minute episode of repelling rapelling at yesterday's opening, the week was pretty uneventful.  Following a stunning lack of support from the 200 day m.a. at 1285 back in wave 3, the former trend channel at around 1280 and a potential barrier at 1175 (that I probably imagined) failed badly, enabling a steep drop of about 50 points in yesterday's opening period.   A move that dramatic is almost certainly a third wave at some low level of trend.  Subsequent action has been within a new downward sloping trend channel.  Henceforth, 1150 might be a new resistance line (that I am imagining.)

In the bigger picture, this is a five wave impulse unfolding from the May 2 intraday high of 1370.58.   Wave 4 up ended with Wednesday's 1208 high, and wave 5 down is developing.  Wave 1 lasted a month and a half, so this will take several days, at least, and possibly a few weeks to unfold.

I still like my 1000 to 1050 estimate for the end of this phase of the decline, and an intermediate bottom, with lots more room on the downside to follow.

Meanwhile, gold has gone to an insane level.  The rise from 2000 (Y2K) to almost 2000 ($$$) has been exponential - aka a bubble.  This is a horribly mistaken substitute for a flight to safety.  Anyone who bought gold in the last three or four years will be wailing and gnashing their teeth, unless they sell some time soon to a greater fool.  The timing is unknowable, as is the ultimate high.  But bubbles always burst, and this one will not be an exception.  It might take years to play out, but the initial drop will probably be a terrifying panic.  You can expect gold to eventually end up back at the $250 to $400 level.

This will occur in the context of a strengthening dollar and collapsing Euro.  The risk of inflation at this point is essentially nil.  The real risk is deflation, and I am very, very afraid.

For an almost, but not quite, completely different assessment, refer to Dr. Doom.

1 comment:

The Arthurian said...

This series on the market trends is interesting. Off topic, I think the post-to-post continuity adds value to each of the individual posts in the series.

Hey Elliot, is there any significance to "wave 3" as opposed to "wave 4" or the others, apart from a sort of recognizable, sort of repeating pattern? Looks like 4 is an uptrend and 5 might be a down trend. But that's all I can see there.

By the way, I'm quoting your paragraph on gold for my 8 o'clock post.