Russel 2000 update

rut 21 febr 2021  rut log 21 feb 2021

This is the same chart as the one on IWM a little while ago. The Russell 2000 is displaying an exponential function which, put simple means that you start horizontally and end going vertically, straight up. On a semi-log scale it becomes a straight line in which the angle of attack is a function of the variables relative size on the x and y axis.

We have hit the upper trend line 4 times over the past 40+ years. Each time the index reverses and loses about 1/2 of its value.  This is of course a very crude measure, certainly in terms of timing but it does strongly suggest that exiting this market is the most sensible thing to do. Keep in mind that this index climbed some 1300 points in the recent 9 months. That is a rate of 1700 points roughly in a year. It took an entire lifetime to get to that level before!

I would now sell both Royal Dutch RDS.b and General Electric. Both have roughly doubled over the past year. They could go higher but this was the “sure” part if there is such a thing.

Dow

dow 19 feb 2021 dow log scale 19 febr 2021

We may have peaked about a week or so ago on the Dow, see my previous blog.

This is all predicated on the idea of a diagonal triangle 5th wave, all the way from the lows of the 1929 depression (or, if a triangle in the post WW2 lows of 1947 or so). Each leg does not need to be a 5-wave affaire in this scenario. Note that both the RSI and MACD have been dropping for quite some time. Also, the ten year US bond yield doubled in the past few months and that may well be the Achilles heel of this financial Alice in Wonderland that we are living in.

IWM, Russell 2000 index

iwm dec 2020

This chart is from yesterday, December 10, 2020.

This chart is pretty clear to me, particularly the very distinct b-wave in 2019. It is part of a larger corrective structure which makes the covid related drop a 4th wave. Sometimes it is hard to embrace the logic but obviously all the stimulus that was put in place immediately, in amounts unheard of ever before, including arm twisting at the fed as well as all kinds of regulatory and fiscal policy changes etc. etc led to a very positive climate for some, mostly large, corporate assets. As 10 people own 1/2 of all stocks there never really was that much pressure to sell, so against expectations we actually got a very sharp V-shaped recovery. Just as counter-intuitive all that was, the coming years may prove equally counter intuitive. Vaccine or not, it is time to pay the piper. Expect the market to drop precipitously.

Dow Jones update

Dow sept 28 2020

We have to consider the possibility that we are looking at a two year triangle 4th wave. If correct we could be going sideways for a few weeks in a little triangle and then have a thrust up to 30000/31000. It is possible that this minor degree 4th wave will not become a triangle and that we go straight up from here. We would hit the upper trend line a little earlier so more at the lower end of this range.

Whatever happens, the drop from there should take us down to at least the 19000 level of May this year, but more likely a lot lower.

For the big picture, see also previous blog repeated below;

dow  oct 1 2020

This is a wedge right from the lows after the depression.