Of Trends and Portents

The sun shall be turned to darkness, and the moon to blood,
before the great and terrible day of the Lord comes.

–Joel 2:30

We must, perforce, make an estimate of our financial future. So, shooting from the hip, we extrapolate a trend from the conditions of the moment. My neighbor looks about and sees lots of business activity. The market is making new highs. He projects: tells me things are going to be great. He remains confidently fully invested in stocks and bonds. Nothing in the neighborhood prepares him for a reversal. When it comes, he will be flabbergasted, slow to accept a new reality, and then crushed.

In modernity, we have the illusion that we can deal scientifically with uncertainty. We employ the “science” of economics, otherwise known as the dismal science, due to the perfect record of its practitioners for being wrong at major turns.

Old Testament prophets were more concerned with change than trends. They derived their forecasts for change from their empirical observations, passed down through the millennia, of natural phenomena that correlated with change.

The ancients spent their time outdoors, closely observing nature in its entirety, as well as man’s seasonal tendencies, for portents of change (Ecclesiastes), based on history. We go inside, sit in front of a flat screen, and listen to Larry Kudlow bloviate about trends.

We chuckle dismissively because we do not see any relationship between the occurrence of blood moons (we just had one, and three more of these rare events are due within the next eighteen months) and the financial outlook.

The empiricist Ralph Elliott didn’t laugh. In Nature’s Law, Elliott’s monograph on markets, he wrote, “Man is  no less a natural object than the sun or the moon…Human activities, while amazing in character, if approached from the rhythmical bias, contain a precise and natural answer to some of our most perplexing problems.”

Through meticulous observation, Elliott discerned patterns of advance and retracement in the market that repeated at various degrees of trend. He noted that the relationships within the patterns contained Nature’s math-the Phi ratio (.618) that is found in every living being. After the market bottom in 1932, an advance got under way that stalled in 1935. While economists, and the public generally were convinced that the retracement meant that the bear market would come back hard,  Elliott stated firmly that the lows were in and predicted a great bull market that would unfold in a series of waves that would be astounding.

Sixty-five years later the Grand Supercycle bull market he predicted came to a top. Since March 2000, the market has traced out an A wave, the first decline of the expected bear market and, since the low of March 2009, it has risen in a B wave, which, new highs notwithstanding,  is a counter trend rally. When the C wave down gets underway, the target will be a decline to the area of the 1929 Supercycle top of 391 in the Dow Jones Industrials.

My brokerage firm (where we keep our funds in money markets) loves this rally. They say, “…sales are expected to gradually trend higher for the rest of 2014 as job growth and the overall economy accelerate.” They do not give any reason for this robust forecast.

My studies of the Elliott Wave Principle indicate that all of the requirements for a top in this wave are in place, that the measures of sentiment, valuation and momentum today correspond and exceed those at every top in the last 150 years, and that three large trading cycles of 50, 32, and 7.25 years duration  are simultaneously coming into lows in mid 2016. These are observable portents, and given that blood moons have often occurred around the time of past natural disasters, I don’t know that I want to be completely dismissive of that implied correlation, either.

So, you pick your poison.

The end is Coming

Cheers,

Rod

No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.

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