HowWealthWorks.com

[Suresh]

As much as we respect technical analysts such as Rob McHugh, we should keep in mind that technical analysis is an art form. Much of the work appears to be based on personal experience forming educated guesses as to how chart patterns will evolve. The correct technical pattern, however, may not always be apparent, except in retrospect.

For instance, Mr. McHugh proposes that after the Dow Jones Industrial Average hit a top around October 2007, the index entered into a downturn. The downturn comprises three waves: an A-wave up, a B-wave down, and a C-wave up. As you will read below, he believes that the A-wave down lasted from October 2007 through March 2009, and the B-wave up will last from March 2009 through some time in 2010.

But, here's where the art of technical analysis comes in. We won't know until after the fact whether March 2009 marked the end of Mr. McHugh's A-wave down. Keep an open mind. It may turn out that Mr. McHugh's B-wave up is not a B-wave up, but rather a mere counter-trend move within a larger A-wave down.

Mr. McHugh gives himself an out. He tells you up front that a Grand Supercycle degree wave {IV} bear market (and I don't pretend to know exactly what that is) is a huge bear market in terms of time or in terms of decline. He believes the Grand Supercycle degree wave {IV} bear market will be relatively short in time, but deep in decline. But, if you ask us, if Mr. McHugh is right -- that this bear market is one for the ages -- then it seems to us that this bear market could be huge in terms of time and decline. So, again, keep an open mind.
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Safe Haven: The Sabotaging of the American Economy
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Stocks Markets world-wide are in a Grand Supercycle degree wave {IV} Bear Market. This is a huge Bear Market, meaning either in terms of time, or in terms of decline, it will be one for the ages. We believe it will be relatively short in time, but deep in decline. This Bear Market can take shape as one of three patterns, a massive sideways triangle, a flat, or a catastrophic zig-zag. If it is a Triangle, it will be a five wave supercycle pattern, and the low price has been reached on March 6th, 2009. That is the best case scenario. However, our fear is that we are going to get a zig-zag pattern, with a potential downside target close to zero. Maybe zero to 1,000 in the Industrials, and zero to 100 in the S&P 500.

Stocks are in the final wave of the eye of a hurricane of a Bear Market. The eye is the calm before the second half of a terrible storm. Once this rally finishes, we expect a severe stock market decline again. That decline should be the end of the Bear Market that started in late 2007. This Bear Market is a Grand Supercycle Bear Market, one for the ages. The first part of the storm was wave (A) down, which lasted from October 2007 to March 2009. The Second of three parts, the eye, wave (B) up, started on March 6th, and this rally should conclude in 2010, perhaps early 2010. Wave (B)'s top could arrive around the 11,000ish area for the Dow Industrials, 1,200 for the S&P 500. The third and likely final part will be wave (C) down, and will hurt.

Back in the Great Depression of 1929 through the 1930's, we saw a similar Zig-zag pattern. There was a crash in 1929, followed by a nice rally, but then the most devastating part of the market collapse followed into the 1930's. That Bear Market was a Supercycle degree wave (IV). This one is one degree larger, which means it should be worse. There is great risk to the status quo political structure of governments internationally with this Bear Market. That is why gold is an attractive investment for diversified conservative portfolios, as it has been considered a monetary equivalent throughout the ages, surviving the rise and fall of fiat currencies of nation state powers.

Chart of the Dow Jones Industrial Average 1929-early 1930s

The above chart show the Supercycle Degree wave (IV) decline that kicked off the Great Depression of the 1930's. The point we want to make here is that the initial crash was merely wave A down of an A-down, B-up, C-down move that lasted in full about three and a half years.

Wave A down lasted about three months, from September 1929 through November 1929. Wave B-up corrected half the decline from Wave A down, and lasted about six months into April 1930.

At that point, it was a critical error to assume the worst was over. In fact, it was far from over. A catastrophic Wave C-down started in April 1930 and lasted into the summer of 1932. That two plus year decline was destined to wipe out more than the crash did, and take prices down to the point where the total damage from wave (IV) was 90 percent from its wave (III) peak in 1929.

The economy then was stuck in the throes of the Depression for the rest of the decade, only to be pulled out by the onset of World War II in the early 1940s, all the associated spending that war required.

The point here is we cannot be fooled by this Grand Supercycle degree wave (IV) that started in October 2007. Wave (A)-down is over, and Wave (B)-up is underway. However, a catastrophic Wave (C)-down is coming, just like one did in 1930 through 1932.
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.

[Suresh]

We mentioned the head and shoulders chart formation in U.S. equity indices and the double top chart formation on the S&P 500 Index. Technical analyst Robert McHugh identified a head and shoulders chart pattern on the Wilshire 5000 Index.
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Safe Haven: The Stock Market Crash From April 26th, 2010 Continues. How Low Do Markets Go?
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Now we are getting the second and most dangerous phase of the Bear Market, catastrophic wave (C) down. It is just starting.

Short-term, there are several Bearish developments which took place this past week, including the crossing of the 50 Day Moving Average below the declining 200 Day Moving Average in the S&P 500 and NYSE. This "Death Cross" has also occurred in several international markets. We show this Death Cross in this weekend's expanded newsletter for subscribers at www.technicalindicatorindex.com, including coverage of historical market performance after such a crossing. We can tell you the picture is not pretty.

A second Bearish Development was the breakdown of prices in several U.S. market indices below the neckline of large Head & Shoulders top patterns from November 2009. This development is a confirmation of these patterns, meaning the probability of stock prices falling to downside targets is now high. We show those charts in this weekend's report.
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The chart below shows a massive Head & Shoulders top in the Wilshire 5000, with a downside target of zero, possibly being reached in 3 to 5 years. Between now and then we expect a stairstep plunge, a series of crashes and countertrend bounces.


McHugh's annotations on a Wilshire 5000 Index chart
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Suresh

Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture.