The fundamental premise of Elliot Wave Theory is that the stock market is the ultimate barometer of social mood, hence wave patterns in the stock market represent the ebb and flow of euphoria and despair. Therefore, I was confounded this week when presented with two different EW predictions - one saying U.S. markets were going higher, the other saying they were going lower. Which of these two predictions would most accurately predict the peak in social mood and hence the Dow? The answer of course is - neither. The U.S. stock market is no longer an accurate barometer for global social mood because social mood peaked a long time ago. Right now, broader society is merely experiencing a manic short-term, Dow-induced sugar rush sponsored by Central Banks and HFT Bots. Only Wall Street and billionaires are at new all time highs in wealth and confidence...
I realize it's Elliot Wave heresy to state that the stock market and social mood are no longer 100% correlated, unfortunately the proof is overwhelmingly obvious. The mere fact that most bearish EW prognosticators have been wrong for several years now is evidence enough that the Central Banks have co-opted the markets and rendered historical Elliot Wave patterns irrelevant. Alternatively, we can just assume that the bearish EW predictors have no clue what the hell they are doing...Of course, with reference to the bearish prediction indicated above, I am referring to Prechter & Company at EWI, who stated on August 15th (EWT, 8/15/2013):
"Evidence from waves, cycles, sentiment, momentum and debt levels combine to indicate that downside potential in the stock market is nothing less than gargantuan."Granted they've been bearish for almost four years now, so at best the above statement is a reiteration of their prior stance. On the other side of the fence is Avi Gilburt - the hot hand right now - who called for a very short-term dip lower - likely already reached - then a run higher to a near double-top high, then a ~200 point plunge lower, followed by a new all time high sometime next year. Did you get that? He sees no potential for a crash from these levels and views the 200 point drop as a correction within the multi-year uptrend.
Chasmic Divergences
As always, I agree with Prechter's bearish prediction, but not because I in any way believe that the Dow now represents the broader social mood. There are overwhelming indications that social mood decoupled from the Dow a long time ago. The primary evidence is the fact that stock market volumes have plummeted since 2007 and upwards of 70% of remaining volume is accounted for by HFT bots trading on millisecond boundaries using monetary dopium supplied by global Central Banks. I highly doubt that HFT computers are attuned to social mood in any way shape or form. Meanwhile, global stock markets peaked back in 2007, so at best the U.S. stock market represents the euphoria of an ever-dwindling handful of ultra-wealthy Americans who still speculate on a regular basis.
Stock Market Volumes Since 2007 - A Glitch-Ridden Piece of Shit...
It's staggering to believe that HFT activity has skyrocketed during a time when volumes plummeted, even though most HFT trades last seconds. And just yesterday we were reminded that the U.S. stock market has been rendered down to a glitch-ridden piece of shit. Despite multi-year low volumes, the Nasdaq had a three hour trade stoppage for no apparent reason. Anyone who still has money in these markets is not thinking ahead to what will happen when that blue line below turns up, and the black line below (aka. the market) turns down...
Global Stocks Peaked in 2007:
This chart alone puts to rest the notion that the Dow accurately represents social mood. The U.S. is only 5% of the world's population and the top 10% wealthiest Americans own 90% of the U.S. stock market. Only half of Americans own any stock at all...
Consumer Sentiment Peaked 14 Fucking Years Ago !!!
(Jobless) consumers know that the current recovery - indeed, the entire past decade - is an enormous lie propagated by debt and money printing. Only the sociopathic buffoons in leadership still believe their own bullshit.
In this cycle, there was one last manic push to a cycle (lower high) high peak in July, followed even more recently by the biggest drop in recorded history. Today we learned that U.S. median household income is still 6% lower than it was in 2007. Meanwhile, Federal government debt per household has grown by an additional $100k in the same interval.
Commodities peaked in 2007 and had a spike higher in 2011, but have been trending lower ever since.
Of course real estate peaked in 2007 experienced a lower high this year, and is now rolling over again.
Gold peaked in 2011.
U.S. Treasury bonds peaked in the middle of last year. Interest rates (black line) have been trending up ever since. As we see below, higher interest rates derail rallies - as occurred in 2010 and 2011. The (Fed) "taper" is already de facto in higher interest rates:
Blow-off Top
In other words, at best the Dow and U.S. markets represent the sentiment of Wall Street and a handful of speculators. Given the recent manic parabolic spike in speculative stocks - Chinese internet stocks, solar stocks, recent IPOs, and various penny junk stocks - we can generally assume that the animal spirits are well on their way to working that out of their system as well. We haven't seen that much mania since 1999/2000.
Geopolitical Turmoil
The recent upswing in geopolitical conflagaration is merely the canary in the coal mine that social mood has peaked and is now getting set to roll over hard. Almost every corner of the world is seeing an upswing in social acrimony - Syria, Egypt, Spain/UK (Gibraltar), India/Pakistan, Iraq, Israel/Palestine etc. etc.
No Man's Land
Given that social mood has peaked and Central Bank alchemy is now the primary driver behind the U.S. stock market, it's critical to constantly remember that we are now in totally uncharted territory. We have every reason to expect that another meltdown will occur and that it will take the vast majority of people totally by surprise.
I finish this post with a couple of new charts showing the current disposition of the U.S. stock market:
% of Stocks Above 200 DMA
This chart is another way of viewing how "oversold" the market is. As we see it's not very oversold yet and all rallies of significance were launched from much lower levels:
20 Day Moving Average TRIN
Another view of my favourite indicator the "TRIN" (trading index). As we see, there have been no major rallies of consequence launched from this level.
