High Confidence, High Risk

Sauve qui peut!

I used to read The Economist Magazine. Great reporting, written in prose that brought out the Anglophile in me, made me feel smart. Too bad it didn’t help me with what I most wanted, which was to know what to do about investing.

Even the best journalists are subject to the influence of social mood, and when mood is at extremes, they can’t help but “forecast,”  meaning, extrapolate the situation of the moment, either really good or really bad, out into the future. Stare at the chart of the Dow Jones Industrials below. Note the Economist’s magazine cover and comments just before the lows of 2009, and those of the current issue:



Obviously, the right thing to have done in the fall of “08, when the Economist saw only disaster was to have bought heavily.

The call by the analysts at Elliott Wave International was to cover short positions. Today’s Economist forecast is for a great advance. The March issue of the Elliot Wave Financial Forecast calls for a further decline over the short term, followed by an advance to the final highs later in the year. After that, a bear market of Grand Supercycle dimension. Nothing like this has been experienced by anyone alive. It promises to be more severe than the Great Depression of the thirties. Not something to take lightly.

The Elliott Wave Principle is the most valid method of analyzing markets I’ve found in my fifty years in the market. It is based on pattern and the math of nature: the Fibonacci series. Support for the analysis can be found in measures of investor sentiment, valuation of the market, and momentum. At extremes, they signal a change in direction. This is one of those times.

Valuation is very high, momentum has been slowing for some time, as volume declines and fewer stocks continue to advance.

Sentiment is positively off the charts, everything you would expect to see at major tops. Individual investors, investment advisors and large speculators are betting the house. The commercials, major professional firms that tend to be right, have their biggest short positions on in years. You could look it up, people. What side do you want to be on??

Right frigging here is when anyone with money in the stock market ought to haul themselves off to a mountain top to do some serious navel gazing. If this is you, take it as understood that you’re in bad company. Best bet is that you’ve got six months or less to the end of a bull market that’s 143 years old, due any moment to begin a long, painful journey to ruin.

I don’t give specific investment advice. I do specifically advise you re-read the March EWFF and make up your own mind.

Traders are calling the run up since the election the Trump trade. In hindsight, it will have been the Chump trade.



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