Let's start with the newest piece of technical information we have this weekend. Our 20 Month/40 Month Moving Average Indicator, which is a marriage partner to our proprietary Primary Trend Indicator, a reliable long-term indicator, just generated a Confirming Sell Signal, as the 20 Month crossed below the 40 month, the spread going negative for the first time since August 2004. Here is the significance of this confirmation. It means there is a high probability that the Industrials will fall 30 to 40 percent below Friday, February 27th's closing low, giving us a long-term downside target range of 4,000 to 5,000. This is a long term signal, so shorter term countertrend rallies can occur along the way.
This confirmation signal and its downside target supports our long-term Elliott Wave labeling which expects a cataclysmic wave (C ) down starting sometime in 2009, and lasting a few years. This would be the third wave of an (A) down, (B) up, (C ) down move for Grand Supercycle wave {IV} down, which started in October 2007. At the start of the Great Depression, Supercycle degree wave (IV) also was an A-down, B-up, C-down move. The third leg, C-down, was where the worst damage occurred, starting in the spring of 1930, and by the time it was over, stocks had lost 90 percent of the value they had in September 1929. If we are going to see stocks lose 90 percent in this Bear Market, we are talking a downside target of 1,500ish. The feeling here is this Bear Market is going to be a worst case scenario, and it is easier to come to this conclusion after watching the Master Planners botch the Budget, Stimulus, and Bailout plans. How so? Hardly any cash is getting into the hands of the average American Household, which accounts for 70 percent of Gross Domestic Product. Yet, trillions are being spent, a ton of it going into the voracious black hole that sucked $30 trillion of wealth from real estate, stock, and fixed income markets over the past 16 months. This wasteful spending is replacing losses incurred by certain select financial institutions and government programs the Master Planners have deemed should remain in play. But unless the American Household is bailed out, more losses are dead ahead that will take a broader number of previously viable firms and households into the abyss. Doing an ad hoc stimulus, that ignores the serious cash needs of the American Household is a colossal policy error, that pretty much assures a worst case scenario for markets and the economy.
If one listens to the Master Planners, their rhetoric suggests the American Household has been taken care of with these plans. Not sure if it is deceit or honest bad policy at this point, but the truth is the budget, bailout and stimulus plans to date do not meet the present and coming needs of the American Household. This will be evident soon enough.
(20min delay)