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The bearish
Dow theory primary trend change that occurred in August remains intact. As
price moved into that low, and the October low that followed, bearish
sentiment was at levels not seen since 2008. However, I said then, in
articles written here, that not all Dow theory trend changes were created
equally. I explained that rather than a meltdown, my work was suggestive of a
low and that higher prices would follow. This has all proven correct. I also
said then that this was all part of a much larger trap for both the bull and
bear alike. In light of the volatility seen following the August/October
lows, this has been proven correct as well. But, I also continue to believe
that there is still a trap being set on an even larger scale, which has yet
to be proven correct. What I mean is, the higher the rally out of the
August/October low has gone, the more comfortable the masses have become with
the rally. We are now seeing a sense of optimism and people have by and large
forgotten about the pain and fear they experienced into October. All the
while, they do not realize that its
all really part of a bigger setup.
As I listen
to the mainstream commentators, the public conversations around town, and
even my local news, it is obvious that optimism is high and that the masses
are completely clueless. William Peter Hamilton, the great Dow theorist who
followed in the footsteps of Charles H. Dow, warned against allowing "the
wish to father the thought." I have listened closely to the public,
reporters and interviewees on the news and there is no doubt that their
optimism is allowing "the wish to father the thought."
Wishing and optimism has no more of a basis for sound analysis than does fear
or pessimism. Also, what someone thinks, how the public feels, what some
bogus reports say, or the latest jobs or Fed announcement is simply noise.
None of this matters. It has been sound technical
and statistical studies that have allowed us to successfully navigate the
financial waters of the past and that will allow us to navigate the financial
waters of the future.
Long-term,
the evidence continues to suggest that we are still operating within a
secular bear market, which began at the 2007 top. Based on all historical
measures, the bottom likely did not occur in March 2009. Rather, the evidence
suggests that the phase I low of the bear market occurred at the March 2009
low and that the rally separating phase I from phase II has been underway
ever since. According to Dow theory, secular bull and bear markets alike
unfold in three phases. It has been the continuance of this rally that has
served to lull the pubic back to sleep and the continuance out of the
August/October lows was simply a part of this process. The average person
sees that the markets are rising and they naturally think that the worst is
behind us and I understand that. However, this lack of understanding of the
big picture setup that is unfolding, the false optimism and the wish that the
worst is behind us is ultimately going to cost the average investor dearly
once this larger counter-trend move concludes. It is for this reason that I
continue to warn and if one wants more detail on this ongoing financial
disaster and how this setup is apt to conclude, that research is covered in
great detail in my research letters. Fact is, the financial reporters on CNBS
did not warn of the 2010 decline, or of the 2007 top and what was to follow,
or of the 2000 top, or of the top in housing in 2005. Fact is, Cycles News and Views did know because of my research.
Furthermore, even if the mainstream reporters did know and understand what
was occurring they would not tell us because they couldn't.
I'm telling you, based on the statistics, this bear market is likely not over
and once the proper setup is in place, there is more financial trouble to
come.
Gold is up
some 16% since its late December low. The Industrials have moved up some 24%
since the October low. The NDX is also up some 24% as is the broad based
Wilshire 5000. Gasoline is up some 20% since the October low and crude oil is
up 38%. No doubt, these are not bad moves for such a short period of time. Interestingly
enough, this has all occurred in the wake of the Dow theory bearish primary
trend change and an even longer-term bear market rally. Point being, it has
been moves like this that have continuously lulled most to sleep and allowed
the "wish to father the thought" while the bigger trap is
being set. I have identified a common technical setup that has been seen at
every major top since 1896. Odds are, this same
setup will cap the bear market rally that began at the 2009 low and when it
does, the risk to the market will be far greater than most anyone expects.
Trouble is, it will begin like any other correction and people will think
that it's just another decline like we saw into October. As a result, they
hang on. The deeper the decline goes, the more convinced they become that the
bottom is near. But, it won't be and that is how the bear sets people up for
a much larger trap and in the end, there is a climatic panic as the wash out
into the bottom is seen. Unfortunately, once the realization occurs, it will
then be far too late.
Tim Wood
Editor, Cyclesman.com
Copyright © 2004-2008 by Tim W. Wood. All rights reserved.
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