Payday!

For the last few months Berk and I have been preaching the gospel of what we (and several other EWT aficionados out there) commonly refer to as a 3 of (3) motive wave. However, reading and talking about it is one thing – experiencing it is quite another, especially if you are actively trading the markets. Let me illustrate what actually has transpired in the first 7 trading days of this month:

Massive Destruction of Wealth

What we are witnessing here is the destruction of wealth on a massive scale. The first 7 trading days bestowed the market with a continuous series of losing days – and that my dear evildoers is the good news. The bad news is that those 7 days also managed to wipe out a combined 2 years worth of equity gains. The prior 2 months managed to relieve the bulls of ‘only’ 3.8 years of equity gains – not bad but amateurish compared with what we’ve seen this week (and it’s not over yet). Being on the receiving end of such a wipeout must be rough, but then again – as some of you remember, I swore on the eve of Sept. 19th that my revenge would be brutal and merciless – and as you can see, I wasn’t kidding. BTW, I’m just getting warmed up.

So, let’s look at today’s stats, which warrant closer examination (plus I know you’re a bunch of math nerds). NYSE breadth was absolutely horrible today – the Dow closed at 30:0, the $SPX at 33.9:1, and the $OEX at 96:1. NYSE volume was slightly over 2 Billion, not bad but not in record territory either just yet. Mr. VIX marked a new record today, closing at 63.92 (and temporarily trading at over 64) – exactly 10 years and 1 day after marking the last record at 60.63.

Those numbers reflect the state of panic that is now finally starting to permeate markets worldwide as investors are starting to realize that they can run but they cannot hide. I am sure many of them are licking their collective wounds right now, and are looking forward to a slingshot bounce which must surely be overdue right after such a sell off.

WRONG!

More downside expected

Little do they know that a wave 3 of (3) cares little about technical support zones and has the nasty habit of simply punching through them without ever looking back. Although we are nearing the bottom of 3 of (3), its wave count is not complete at this point and probabilities favor further downside. I have tentatively pointed out some target zones for the SPX in the chart above, but they are rough approximations, so please use them only as a guide.

Corrective wave {4} is probably a few days away, and should eventually lead us back towards the peak of the prior fourth wave of its next lower degree (which is wave iv) at around 1070. Do I expect a slingshot rally all the way up to that point? Not necessarily, it is possible that we’ll gyrate around for weeks and make only little progress, but it should give us all plenty of opportunity to load up on shorts and put positions. Towards the peak of {4} I expect Mr. VIX to have simmered down a little, if we’re lucky we’ll see it at below 30 again, which would make option buying a lot more fun.

Gold most likely spiking before continuing descent

Gold missed out on most of today’s fun, and closed at 920 – remember that the GC futures pit closes at 1:30pm EDT. I’m pretty sure we’ll see a bit of a pop tomorrow morning but it’s clear that there is a seller lurking at the 925 level (guess who that is) that would need to be taken out in order to continue an uptrend. I’m actually glad that a more clearer {a},{b},{c} has been forming, after which I expect the downside journey towards 700 to continue. I know all this is a bit hard to believe at this point, but Gold represents a clear and present danger to the PPT’s effort to maintain a strong Dollar and to prep up our equity markets. Those unenviable gold bugs already had to endure six months of extensive market manipulation, as there is little doubt that Gold should be trading at well over 1500 at this point. However, against the backdrop of a financial meltdown, o.i. in Gold futures today sunk to nearly 321,000, which is the lowest level in two years. It is clear that many gold speculators have been leaving in droves at this point, rightfully fearing further price manipulations by the PPT through bullion banks and primary dealers.

All attempts of shoring up investor confidence and to unfreeze the credit markets have been a complete and utter failure as I have been predicting. Similarly, the current currency manipulations by calling in treasury debt which must be paid in U.S. currency will soon come to an end as well, which should result in a free-falling Dollar. But in the interim we still expect there to be plenty of upside for the Dollar and inversely plenty of downside for the Euro. As a sidenote – the Yen has been going strong despite the smack talk it has received in the last few days. It managed to surge 19 percent versus the Australian dollar, 14 percent against New Zealand’s currency and 8 percent against the euro in the last month, that is some real action and fortunes were made in the FOREX markets. It’s also at the psychological 0.01 level right now – which means you can get one Yen for one U.S. penny.

That’s all I have for tonight. It’s been a fantastic day for us bears but I encourage you to stay humble and stick with the program (i.e. keep your exposure limited and don’t get greedy). If you haven’t cashed out today I would recommend that you continue to at least reduce your positions starting tomorrow. Yes, we could be falling a bit further here, but obviously we’re getting closer to a snapback.

Congrats to everyone who banked coin today – making money in a bear market should be considered an art form. If you managed to do so in the last few weeks and in particular today then you are part of a very small and exclusive minority. Count yourself lucky but bear your gains with humility and don’t get too excited. After all, overconfidence is a trader’s Achilles Heel.

And finally, on a more serious note, please read this new posting by Karl Denninger. Our country is in deep trouble right now and unless our ‘leaders’ take appropriate action immediately we will face the next Great Depression. Yes, one can only hope our government chooses the ‘right path’ for a change – but who am I kidding?

Cheers!