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Monday, August 17, 2015

Market may be setting up for a massive rally


Market setting up for a massive rally

I see a trade coming that could turn out to be one of the best we've seen in years.

Note: I've had to rework and revise this article (originally published 8/17/15) after the recent global market Rout. "Rout" is the cutesy term the main stream media has decided to run with when trying to explain away a shake out in global equities which basically only lasted only 3 days. This was after trading sideways for almost 5 months! Not what I would call a capitulation top.

We did see the $TED spread (anyone who traded the '07 crash should be familiar with this indicator) make a sudden rise, which indicates a tightening of credit, but does not explain the selling of the past 3 days. I personally believe this retest of the lower end of the range has to do more with keeping the market from topping out at the wrong time, than anything else. All Signs were pointed toward Sept, and there's a lot of internet chatter from alternative media, and even supposed prophetic prophecy surrounding Sept 23th - 24th. Linked below is a little snippet of what I'm taking about. Financial Expert Correctly Predicted Black Monday Weeks Before Collapse

Before the recent market Rout, even I was a little nervous about what might really be going down in Sept., but now it appears that the timing has been changed.
It's been a while since I've blogged, but the market has remained rather dull, and directionless over the summer, which ended with an unexpected shakeout.

Re: "The $VIX" - If you missed my article on the $VIX I suggest you read it, and regularly review it. Not only will it help you to measure fear in the markets over the coming weeks, but it will help you separate emotion from your trade over your entire lifetime. The week August 22nd, we saw total panic above $VIX 20, and the huge market moves associated with a high $VIX. The Dow shed 1000 points as fear peaked out (in this case around 52), and volatility remains high, and the dow is now poised to rally 1000 points off the bottom, and if the $VIX remains high we could see the market gap up several days in a row.
Market breadth has remained lousy for some time, meaning although the market traded to new highs earlier in the year, many stocks and sectors have continued to under perform. Carter Worth made mention of this not soon after I began pointing it out, and to be honest I wasn't very familiar with the term at the time, but now every one seems to be talking about "market breadth". So what does it mean? The broader market remained in oversold condition even as it was making new highs earlier in the year. In other words; while the market traded to new highs, the majority of stocks did not, and according to my sentiment indicators the market remains oversold ever since the October surprise, when we saw the $VIX quickly rise to 31. Commodities; namely Energy and Metals, and more recently retail, China, emerging markers, continue to underperform, while Tech, Biotech, Healthcare, and certain defensive names chug ever higher. There's a very good chance we're about to see a rebalancing, and a return to normalcy. Either a sector rotation, or a broader market rally.
As most of you know I have been predicting for some time that the market will trade into a broadening top pattern, as a reflection of the larger broadening pattern of the past 20 years,  (AKA "a child fractal"), as I mentioned in my interview with Dale Pinkart at, and a video blog (vlog) entitled "The Climax of the Broadening Top revisited",  I posted back in 2013. I have not given up on this pattern because this is exactly the type of emotionally driven pattern you would expect to see at a generational top.    

We've been watching this 1900 target for a long time, and although that could end up being the beginning of the great bear market, I think it's much more likely that we're going to make at least one more run at the top of the larger pattern (in blue on the chart above), into the end of the year.

For further study, and reference see Symmetrical Triangle
Elliott Wave Principal: Key to Market Behavior page 49.  Reverse Symmetrical Triangle

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