Sunday 22 April 2012

Take your pick, from five of infinity

The monthly index cycles are showing the first real turn lower since last October. There are of course infinite possibilities, but lets consider five of the main ones.

Sp' monthly, 6yr



Without question, the weekly and daily charts are highly supportive of a near term pullback, at least to 1340, if not 1300. However, the real question remains, what then?


The broad five scenarios

A - a near term pullback to 1340/00, then a significant wave up to new post-2009 highs, either 1430/40...or if broken over..probably 1550.
B - a further move to the base of the huge giant broadening wedge, 1100/1150 by around October, before a further huge up cycle - 'inspired' by QE3 ?
C - a bounce off the lower wedge floor, before a lower high, and a further major break lower in 2013
D - Assumes the wedge is taken out in the next wave, with a backtest more likely in early 2013, before significant carnage across much of 2013 - a highly deflationary outlook
E- Assumes an economic 'shock' + overall deflationary pressures, the 'straight down into hell' scenario.


Not just an academic curiosity

I can understand some suggesting such considerations are pointless or mere academic curiosities, but, I would argue even the short term traders should be keeping such things in mind. The coming days and weeks will probably be critical in where we trend for the rest of this year.

We have seen significant pullbacks beginning around this time both last year and of course in 2010. The central banks have managed what many thought unthinkable, kicking this stinky can along the dirt road over and over again. The system is largely a CONfidence game of course, and if the masses ever do awaken to the reality, then scenario E could become the scary reality. Although, lower stock prices are not exactly the prime concern for many these days.


So...which one did you choose?

For the record, my 'best guess' right now, is scenario B, where I believe the Bernanke will initiate QE3 after the indexes have hit 1150/00. Most interesting at that point, will be the reaction in the precious metals market. Both Gold and Silver are arguably under-valued by a factor of 3 (or 15x if you consider monetary base since 1980), without any doubt, we are going to see both explode to the upside at some point.

I'll certainly be returning to this chart in the months to come.

Goodnight