Bear Market in Remission

“I find the whole thing astonishing
and what’s remarkable is
the amount of anger, whether
it’s Republican or Democratic.”
Blackstone CEO–Self-satisfied Billionaire Hedge Fund CEO of Blackstone

 

The jackass quoted above is a classic DAVOS man: A soulless man, technocratic, nationless, cultureless, severed from reality. Operating from a managerial capitalism that reduces economics to mathematics and separates it from human action and human creativity (Mike Krieger).

This dude is one of about 85 men whose money and influence buys politicians and makes policy in this country today. The middle class has no chance of re-emerging until every last one of these sonsobitches are gone. Or gelded.

So much for my rant. Now, about the market. For all the furor this week, the near collapse on Wednesday did nothing to alter the likelihood that we will see a new high in the Dow Industrials before rolling over into the serious part of the bear market. This is my feeling, and here’s why:

The pattern: The August decline was incomplete. It came down in three waves. A fourth and fifth were needed to turn the primary direction down. The crash this week held at a critical uptrend line, setting up the possibility of a triangle sequence, with a wave up, a reaction, and a final wave to a new high.

Momentum: As the market was coming down in the days before the big event, momentum was slowing in my short term studies, indicating exhaustion. On Wednesday, the extraordinary downside momentum of the early morning was stopped by noon, and the aggregate figures  at the end of the day showed even less momentum than the day before.

Sentiment: On Wednesday, Zero Hedge was posting gobs of negative comments from all the usual suspects and some that never comment. Since the turnaround, the prevailing view of the bears seems to be, “Sure, we’ll get a bounce, but it won’t go far before we really crash!” The contrary opinion would be that we’ll keep going like the Wave Principle suggests, and get to a new high before turning back down again. Contrary thinking is tricky, but I favor it in this instance.

Whether we head back down right away or otherwise, it makes no difference if you’re in cash. But the value of knowing the possibilities lies in what happens to your state of mind. If the market does the unexpected and makes a new high, bears will be disgusted and discouraged (maybe even turning bullish), and bulls will have their hopes falsely renewed, even though they didn’t make any money on the way up, owing to the narrowness of the market: fifth waves are typically not dynamic, with very few stocks following the average to the top. Grist for your mill.

Cheers,

Rod

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