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.

ABX then, Sept. 2017 and now.

ABX Sept 2017ABX Aug 2020

So roughly two years ago we anticipated that ABX would trade  down to about $16 and then back up to slightly over $40. Had you bought at that level you would have paid a few dollars more than absolutely necessary but in any even you would still be looking at a solid double + in 2 years. The two counts that we had at the time are still valid so the matter has not yet been resolved. My guess is that this is the green scenario, that is the B wave up in an otherwise ongoing downward trend so I would be inclined to sell. Fundamentals that might support this view are that whereas gold itself has made new highs this stock has not. This despite the fact that production costs, mainly diesel fuel, are substantially lower now than at the previous peak. Also there is a dividend increase and talk about getting listed on the S&P. Given all that the stock should be much higher but it isn’t. Early this morning gold dropped by , give or take, $80 right on the open so perhaps the stuff itself is also turning.

We have no idea where gold might be going at this time but looking at the chart below (Macro Charts) it certainly looks like it is long overdue that the spread between gold and stocks should narrow.The blue line represents stocks, the other gold.

2020-08-11 13_07_46-gold Price vs Stock Market - 100 Year Chart _ MacroTrends

Dow Jones Industrials

This is the Dow Jones industrial Average.dow jones  april 30 2020

The chart is on a semi-log scale, and the y-axis is adjusted for the CPI, so the values are in “constant dollars”. It uses monthly closing price which is why yesterday’s close is recorded as 24633.86 which is easily six thousand points above the actual low that was recorded during this covid episode. That was on the 23d of March at 18213.65 – which was also not shown as it was not a month end. The point is that this chart is very granular and has a very low resolution which is normally a hindrance but if you are looking at the Big Picture it often helps by smoothing the sharp edges. Despite that I have adjusted the graph  by adding in red what actually took place. The distortion on earlier dates is always much smaller as the values of the index are so much lower.

The boys in Gainsville have always maintained that this entire wave from the depression lows to today is one single structure that actually started in England some 300 or so years ago, the Dow itself is only about 125 years old. If we accept that then this is the 5th wave and looking at this thing it seems to have all the attributes of a 5th wave, contracting diagonal in the ending position. These should structurally look like a 3-3-3-3-3, that is all 5 waves within the diagonal should be 3-wave affaires. As far as I am concerned that could be the case, certainly for 4 of the 5 with one a little more dubious. This is important as it explains why we stopped where we did, it also unequivocally calls for a continuation far lower as these structures more often then not retrace themselves entirely.

Having said that I should point out that the whole virus episode barely registers on this chart as, so far at least, it looks quite small. This is what a log chart does. Also time barely registers. This covers well over a hundred years so a single year or a fraction thereof is almost imperceptible. Patience is required!