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THE
OPENING SALVO OR VICTORY? "Fortune Favors the Informed" *********************************************** “Victory
has a hundred fathers, but defeat is an orphan” The forces calling for financial restraint may have a brief sense of victory. However the war has just begun. The much telegraphed rate rise came and the efforts to produce some razza-ma-tazz have now fallen flat as reality bites. The sense of excitement before the announcement was palpable. Futures traders drove their indices’ contracts up and then market gave a small upbeat of acknowledgement as the announcement came out. Was there anything to get excited about? A lousy 0.25% when we are facing a potential implosion of the financial system? We are facing record personal debt levels across the globe. Will 0.25% curb consumer spending? Will 0.25% reign in the banks as the institutions that have been the main beneficiaries of the credit binge? The public need the banks and the banks need the public just like a dug addict needs a supplier. The 0.25% can only be seen as a half hearted attempt to engineer a soft landing. It will take some time before it is realized that the “gently gently" approach doesn’t work with such massive discrepancies in the financial system. The imbalances in the financial system have no historical counterpart on which to judge attempts at saving it. We all know the figures well- consumer debt, bank and non financial institution debt and reliance for recovery on the moribund consumer. If you want convincing, read Jim’s “Storm Watch” Series. I do want to highlight the fact that we are in uncharted territory: anything can happen! Uncharted territory can offer both shoals to wreck our ship and safe deep -water harbors in which to shelter. The forces in this new uncharted territory can now build to hurricane force now that
What’s in store for the markets? Our trend analysis as follows:
Let’s look at the minor trend in more detail. I use the NYSE composite as it’s less subject to manipulation and gives the best overview of the market as a whole.
I am in constant contact with our subscribers and answered their concern about the action of the DOW TRANSPORTS that appears to add to a bullish case. This is what I wrote in our report to subscribers last weekend: “Those who follow Dow Theory tenets closely will consider the Dow Transport Index’s activity as supporting the bullish side. We’ll examine this in some detail. Firstly, I hold Dow Theory in high regard; however it needs modification to be used in the current modern markets. Secondly, the part about the transports confirming is out-dated. It is an inter-market analysis, and like all forms of inter-market analysis, can have variable relationships. This is due to the growth in the mass and complexity of the markets since Dow first produced his theory. The two charts show 1. Part A on the left, an overview 2. Part B on the right, a blow up of the last 2 months The heavy blue line is the main resistance line. The others are “harmonic” and “resonance” lines on either side of this. The modern market turns are like a probability function around the main line. We are still with the “likely” probability zone (2SD)for a reversal. This is a quantum phenomenon.
The current run up is also the 5th leg of an Elliot Wave. This is a fractal phenomenon. Summary: The transports are likely to reverse. Who wants transports with high oil prices?” The jury is still out on whether this analysis is correct, but the action of 1 July as I write now supports the view I expressed above. This method of analysis is explained in “Mugs Mavericks and Mystics” Let’s recapitulate: there are huge scary forces in uncharted territory. It is these forces that will shape the major trend. We expect the intermediate trend to turn down with a selling climax before the Major Trend that is currently up, resumes. We wait in awe for the major trend changes and just hope that we can find our own deep and safe harbor! May the chart be with you, John Tyler
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