We nailed the top on this one rather accurately, see our July blog. At the time this looked like a diagonal but the 30 year plus chart was even more clear. Here again we do not think that the first wave is complete, nor do we believe there is a triangle in the more detailed part. It could go a few dollars higher but then the whole thing should continue down to about $45 for starters. For your convenience we repeat the July charts;
We go to Paris to find out what is going on in Washington. "Après nous le déluge" was the attitude then as expressed by Madame Pompadour. Freely translated it could be understood to mean “not in our time”. The problem is that it is going to be in our time if this chart is telling the right story. As near as I can tell we are presently in wave 4 of 3 of 1. Regardless of where we are in the count we should under all circumstances get to about 3800 on this round. That would only complete a first wave down! The Fed. would loose some credibility if it does not raise rates at least 1/8. But then Mrs. LaGarde would loose credibility after having impressed upon Yellen that she should not do that. Looks like a no-win, no-win .
P.S. Today, Sept. 16, the OECD, Organisation of Economic Co-operation and Development, also domiciled in Paris, in a real Chateau no less, through it’s chief economist Catherine Mann, issued a warning to the Fed. as follows;
“Which path they take is really going to be key,” Mann said. “The disconnect between the dot path and what the market expects represents a real communications challenge for the Fed.”
So what are the “dots” ? They reflect what the voting members on the Fed. board individually expect to see in the future. Here it is from Bloomberg. What it says is that collectively they think rates will rise to 3.4% or so by 2017. For chronically short-funded organisations, that is most financial institutions, this is a wake-up call.
Also it is not, apparently, a good idea to discourage your daughter from studying that dismal science, economics.
Open Text has followed our script rather precisely, please see previous blogs. We have a nice initial 5-waves down and have nearly completed the first retracement. This may go as high as $65 but we would certainly not wait un till the last moment, in fact we really would not wait at all! From here, or a little higher, we expect wave 3 ( or C) to start and drop towards the wave 4 level of previous degree, that is to about $25. That could be all there is if this is an A-B-C zig-zag correction. However it could also be just part of an initial 5-waves down for a much larger A. In practical terms you do not want to stick around for a $40 drop.
This chart is from www.chartoftheday.com , it is free and anyone can subscribe to it. This particular one depicts the S&P 500 earnings on a semi-log scale which tends to add a little drama to the picture. It may be reproduced but only without annotations and therefore there is a stylised version , home made, next to it.
The chart shows how quickly things migrate from the “financial” world to the real world or main street. Notice that earnings managed to drop to about the same level as they did during the Great Depression. In those days much of the world lived in isolation from their neighbours, with globalization that is no longer the case. The world is very interconnected and the proverbial butterfly wings flapping on the other side can have an enormous impact. No big “black swan” has stepped on stage yet but there are certainly half a dozen extremely worrisome trends that are already recognizable, never mind those that haven’t come to the surface yet.
This blog does not try to predict anything, rather it tries to uncover, using mostly EW, what might be just around the corner. If the count is correct we could be starting wave 3 of C at any moment – waves 1 and 2 are not discernable on this chart. If correct things will get very, very messy. Let’s hope the count is wrong!