The Probability Problem

The mind wants to know all the world,
all eternity, even God.
The mind’s sidekick, however,
will settle for two eggs over easy.


—Annie Dillard, Teaching a Stone to Talk

If you are on my distribution list, you got an e-mail from me in May telling you that the new high in the Dow Jones Industrial Average I was anticipating may not be the ultimate top. Rather, a new high within the next couple of months has more of a look of part of a massive correction formation-an expanded diagonal triangle-that should lead to a severe drop to below the low established last Christmas Eve to complete a corrective 4th wave. The correction should be followed by a final impulse wave to greater highs with a likely final top in the Grand Supercycle Bull Market that began in the 1780s. At this point, the probability is that the final high should occur sometime in 2021. Here’s a look at a diagram of the pattern:

The close this week at new highs satisfies the pattern. Anything can happen from here, I suppose, including the high we just reached being the final high. It is a very low probability because the decline from the October high was not impulsive. Best bet is that the market goes down violently into a low somewhere below the Christmas Eve low, and then rally in a final impulse wave, probably ending within the next 15-18 months.

The period ahead should be very difficult for fully invested stock investors. E waves typically are crashes, causing enormous stress, and a fair amount of liquidation. The final rally will bring regret, and even have some get back in. It will be a major whipsaw, with no winners at the end.

I won’t be tempted to do anything other than to continue rolling forward 2 year Treasury bonds until markets reach a bottom in the bear market. My best wishes to all my family and friends. I hope you are able to go through this period safely.

Cheers,

Rod

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