Archive for November, 2008

Markets and Terror

What happened was sad. But unfortunately such actions of terror are created by the society itself. Though extreme, terror is human expression of revolt. Terror is a mass psychology event as it influences masses, creating panic and despair in them. One of our members mentioned that he was sorry about the state of the world. Though painful, social mood is not just expressed in markets, it’s also expressed through politics, war, terror and in many other forms.

Terror could be explained from a social mood perspective (negative mood) and from cycles. International battles, wars and terror activities are cyclical too. And social mood has a strong bearing on economic cycles, rather they drive them. Extreme terror actions and war’s historically suggest extreme social mood and reversals rather than otherwise. We see more wars and terrors at market bottoms than near tops.

Though the large cycle on terror unfortunately continues to point up, the current terror action in INDIA, comes at a time when we are looking at equity market intermediate bottoms. How this shameful event translates in market tomorrow remains to be seen. But any bounces on market (if any) will not be a classical Mumbai resilience, but extreme social negativity which coincided with a broad market low.

GOLD a crisis commodity will also be effected by the large cycle of terror or negative social mood. But the current upside on GOLD SPOT India has weak links with the onging activity. We compare two Gold assets from different regions, viz. GOLD spot India against GOLD international. As the local financial crisis gets mixed with a large scale terror violence in the city. But GOLD India spot has been outperforming GOLD international spot since MAY 2008 and seems to be heading into a cycle performance high against it’s international peer.

This suggests that local GOLD performance maybe a weak proxy for start of a sustained uptrend on international GOLD prices. The signal might be premature. The performance cycle between local and international prices (illustrated) of Gold suggest that INDIA GOLD may find some tough resistance ahead at INR 13,362 prices. Till prices break the respective level, we will continue looking at the current bounce back as a counter trend bounce on Gold INDIA spot. Regarding international GOLD spot, prices moved up as anticipated to our projected targets near 800 levels and higher. The bounce back seems incomplete and could see XAU pushing higher till 850 levels.

Silver on the other hand held above our anticipated supports and a support at RSI 40, NON CONFIRMATION and extreme oversold momentum, all suggest that our SILVER positive case continues to hold firm. SILVER INDIA spot also has hit a key primary channel support and has made a weekly KEY REVERSAL bar. XAG push up above dollar 10.5-11 would give us further positive price confirmation. Platinum, ZINC and Steel prices last week action was also as anticipated.

On the large time frame, if GOLD dollar 3000 still seems a distant projection, look at what a handful of boat terrorists can do to a city. A multifold projection of this event and you will understand the respective projections on International GOLD. The price of the crisis asset is linked with an impending large degree social crisis that may manifest in an alternate form or as a war. This will bring back to life the famous words of Edward R Dewey, “Till humans live, they will speculate and war”.

Enjoy the latest [a href="http://www.or-phe-us.com/orpheus/page.php?tabid=7&categ_id=323"]WAVES.GOLD[/a]

WAVES.GOLD is a perspective product published on Monday and Wednesday. The report highlights GOLD and other precious and base metals. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

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Gold vs Oil - II

In a world of failing banks and historical unemployment, hedge funds are organizing more go to Jesus meetings (Bloomberg News). Conventionalism has hit a low and news is lost. However, even in these times markets continue to deliver superior returns, only that the approach is not conventional. It was using the ALTERNATIVE RESEARCH approach we wrote about Gold vs. Oil, on 30 Jun 2007, when we said

“Current intermarket situation seems skewed in favor of gold, as its the underdog of multi years. So it’s ‘Long gold, short oil’ strategy.”

The intermarket cycle strategy pair delivered 60% in little over 15 months. These were spot returns in a time when markets around the world have collapsed by a similar amount. The illustration of BRENT vs. GOLD (slide 1) clearly highlights the BRT collapse against GOLD.

We got such returns because of the faster fall on OIL compared to GOLD. BRENT has pushed to 50 dollars as anticipated last time (SPEED LIMIT AT 50). But prices broke the anticipated support at 49 and pushed lower till 44.59. Why did such a key level break? The only answer we have for this is that the 4 primary circle wave (slide 2) is a large preferred primary corrective. And correctives are tricky, so if this is indeed leg A of a large triangle (A-B-C-D-E), prices could indeed move in an overlapping complex structure disobeying any conventional support or resistance. Moreover, 4 primary circle support is a guideline and no rule, the guideline was marginally breached this time. But OIL is back above 50.

XLE, XOM, CVX also seem to have hit primary bottoms and might be headed higher to projected targets. The GOLD VS OIL equation also seems to be hitting Intermediate lows. This means that it might be too early to call the GOLD primary Bear trend over (FOOL’S GOLD) and too soon to call OIL sub 50 a certainty. A sustained move up above 50 would mean that the anticipated multi week bounce might be in.

Enjoy the latest WAVES.OIL

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ORPHEUS GLOBAL RESEARCH

WAVES.OIL - WAVES.OIL is a perspective product published once a week. The report highlights the BRENT, WTM, XLE (Energy SPDR), top energy stocks, Natural Gas and related FUTURES. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools and sentiment indicators.

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Gold vs. Oil - II

In a world of failing banks and historical unemployment, hedge funds are organizing more go to Jesus meetings (Bloomberg News). Conventionalism has hit a low and news is lost. However, even in these times markets continue to deliver superior returns, only that the approach is not conventional. It was using the ALTERNATIVE RESEARCH approach we wrote about Gold vs. Oil, on 30 Jun 2007, when we said

“Current intermarket situation seems skewed in favor of gold, as its the underdog of multi years. So it’s ‘Long gold, short oil’ strategy.”

The intermarket cycle strategy pair delivered 60% in little over 15 months. These were spot returns in a time when markets around the world have collapsed by a similar amount. The illustration of BRENT vs. GOLD (slide 1) clearly highlights the BRT collapse against GOLD.

We got such returns because of the faster fall on OIL compared to GOLD. BRENT has pushed to 50 dollars as anticipated last time (SPEED LIMIT AT 50). But prices broke the anticipated support at 49 and pushed lower till 44.59. Why did such a key level break? The only answer we have for this is that the 4 primary circle wave (slide 2) is a large preferred primary corrective. And correctives are tricky, so if this is indeed leg A of a large triangle (A-B-C-D-E), prices could indeed move in an overlapping complex structure disobeying any conventional support or resistance. Moreover, 4 primary circle support is a guideline and no rule, the guideline was marginally breached this time. But OIL is back above 50.

XLE, XOM, CVX also seem to have hit primary bottoms and might be headed higher to projected targets. The GOLD VS OIL equation also seems to be hitting Intermediate lows. This means that it might be too early to call the GOLD primary Bear trend over(FOOL’S GOLD) and too soon to call OIL sub 50 a certainty. A sustained move up above 50 would mean that the anticipated multi week bounce might be in.

Enjoy the latest WAVES.OIL

ORPHEUS GLOBAL RESEARCH

WAVES.OIL is a perspective product published once a week. The report covers BRENT, WTM, XLE (Energy SPDR), top energy stocks, Natural Gas and related FUTURES. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools and sentiment indicators.

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SHARP 3/C UP TO BEGIN…

We captured the move up from OCT LOW (CYCLE II), then we wrote about THE FIRST FIVE up and this was followed by our report on sector leaders (who is leading the pack?). We said in our 06 NOV report that “A minor trend takes time to become intermediate. And an intermediate trend takes time to become primary. This anticipated upmove was of a MINOR degree and we expect it to become Intermediate. The strategy remains partial spot accumulation as its better to be patient with more price confirmation than otherwise.”

Now that prices have dipped and put the conventionalism back in doubt whether we have a bottom here or not, the current wave structure tells us that we are at the start of the next leg up. This could either be a C or 3 wave up, both suggest that there is furtherupside pushing us back to anticipated targets of 100% from the OCT lows. RSI NON CONFIRMATIONS and support at 40 tell us that prices have momentum support also. Even KEY REVERSAL bars made during OCT lows are firmly in place and unbroken. Above 13,000 we are looking at 30,000 for BETFI (nearly 100% upside). The other indices viz. BETC, BET and BETNG are also in the positive territory. The blue chips, BRD, TEL, TGN and SNP also suggest further upside. If we indeed are in the 3/C up, get ready for some fast action.

This should be the time to step up on accumulation and play the real trend. We will review if BETFI breaks below 12,500-13,000.

Enjoy the latest WAVES.ROM

ORPHEUS ROMANIA RESEARCH

WAVES.ROM is a perspective product published on TUESDAY’S and THURSDAY’S. The report highlights Romanian Stock Market top three Equity Indices viz. the top ten blue chip BET Index (.BETI), BET Composite (.BETC), the Financial Index BETFI (.BETFI) and the local currency RON (EURRON=, RON=). The products covers the top ten BET component stocks. (ROMP.BX, SNPP.BX, BATR.BX, BRDX.BX, TSEL.BX, ATBE.BX, BRKU.BX, BIOF.BX, IMPT.BX, TUBU.BX) and all the components of BETFI Financial Index(SIF2.BX, SIF5.BX, SIF3.BX, SIF1.BX, SIF4.BX) are covered in the report. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers. WAVES.ROM, CHANNELS.BVB and CHANNELS.RASDAQ are bundled together as PERSPECTIVE products. Unlike WAVES which focuses more on blue chips, CHANNELS covers all the BVB and RASDAQ stocks.

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SELLING THE TROUGH

Conviction is a strange thing, it tests you, your determination, your home work, your skill, how individual you are and how patient you are wearing the FOOL’s CROWN. It does one more thing, it makes you extremely individual, probably alone (when you are right), screaming sell at a top and buy at a bottom. But then markets are strange beings, the top is followed by another top and bottom by another low. The line between conviction and foolishness becoming blurred every time the prices move against you.

Against all odds, we continue to believe, selling in such times is like ‘SELLING A TROUGH’. It is poor risk management, to sell the prototypical bottomless pit. Every pit has a bottom. And the 10 year bottom of DOW is 6% away. If you think that makes you rich, you are fooling yourself. After falling for nearly 12 months with extreme oversold momentums, S&P 500 hitting an underperformance low against DOW, markets moving into positive annual seasonality, oscillators mildly over reactive, it’s too late to sell on fundamentals or technicals anyway.

Just to be sure that we can continue to hold our POSITIVE CALL across the globe for a while more, we inverted the DOW charts. We really don’t see a collapse of DOW below 7,500. It’s an ending five, accompanied by failing momentums. Above that we are still above OCT LOWS on INDIA, ROMANIA, RUSSIA, CHINA, BRAZIL and JAPAN. Even if we are wrong, and markets do indeed push more than 10% lower from here, we rather wait for this collapse than SELL NOW.

Last time we looked at S&P vs. DOW cyclicality. This time we had a look at BSE 500 vs. SENSEX (India). And we see the same thing yet again. The broad market is turning up against the blue chips. Our positive call stands negated below DOW 7,500.

Enjoy the latest WAVES.GLOBAL

WAVES.GLOBAL - WAVES.GLB is a perspective product published on Monday. The report highlights top GLOBAL indices and emerging market indices viz. Dow Jones Industrial (.DJI), S&P 500 (.GSPC), German DAX (.GDAXI), Russian IRTS (.IRTS), Shanghai Composite (.SSEC), Nikkei 225 (.N225), Brazil BOVESPA (.BVSP), Indian Sensex (.BSESN). The product covers all the DOW 30 stocks. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers and market trends.

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American market hits bottom

This is a harsh reality, but masses don’t understand cycles and the uncanny asset linkages. The fact is that we at Orpheus too are also scratching the surface. Though there are market timing models, timing the market in future with a small time window of a few days, is a skill we look up to. As of now, we know only a few who can do this consistently. We attempted timing the market with a calendar month in JULY, when we talked about OCT LOWS. And it was only in our last mail that we mentioned that the cycle low was still unwinding and OCT lows could be marginally breached. The reality is that DOW 10 OCT low still stands firm. And the marginal breach we talked about did not happen on DOW but on S&P.

The 27 OCT Low on INDIA pushed Index prices up 45%. A similar time window saw ROMANIAN Indices pushing up 70%. And this also happened on many other indices across the globe. We witnessed ‘first five’ in many our assets and regions we tracked, and INDIA with all its B MINOR wave uncertainty continues to show a lot of resilience. Even NIKKEI seems to make a PREFERRED ‘first five’ up. With all this activity and non confirmation between INDICES like S&P and DOW, engulfing bullish formations on FTSE and CAC, positive moving average crossovers on many emerging market stocks, KEY REVERSAL BARS across INDICES on weekly time frames, decade high volatility panic just behind us, most DOW 30 stocks suggesting that ADVANCE-DECLINE data is too skewed on the negative side, OIL and GOLD still on the negative territory and the primary bear more than a year old, we continue to believe that the multi quarter bounce back is here. The current entry points remain a low risk entry point and AMERICAN markets and global markets have hit at least an INTERMEDIATE BOTTOM. Primary? Maybe.

If there is any BULLISH REPRIEVE, it should be now. And I don’t think BULLS would like to waste their few quarters of chance they need to survive in an otherwise long secular bear market. There is one more intermarket reason. Though S&P has historically underperformed DOW, the index has a performance – underperformance cyclicality against DOW. The pair has also hit a CYCLE low, both on an intermediate and primary basis. This suggests that the broad 500 blue chips can’t underperform the top 30 blue chips of the world any more. And what do we need for a turn around? We need the broad market to rise. And this is what we feel should happen.

The report carries anticipated and happened cases on INTEL. “We highlighted Intel anticipated case in WAVES.GLB.050808 issue when at 22.52 we said that Intel should move up in an A-B-C corrective up till 26 before turning down. Correctives are counter trends which are short-lived. After which the trend resumes. This is what happened as prices moved back below 18.5 and are now pushing lower potentially till Oct 2002 low at 12.95. These are the last support standing for Intel. A break here can see Intel push lower till 10.” Prices hit a low of 12.87 yesterday. This was below the 09 OCT 2002 low. We have also carried another anticipated and happened case on BANK OF AMERICA.

Enjoy the latest WAVES.GLOBAL

WAVES.GLOBAL - WAVES.GLB is a perspective product published on Monday. The report highlights top GLOBAL indices and emerging market indices viz. Dow Jones Industrial (.DJI), S&P 500 (.GSPC), German DAX (.GDAXI), Russian IRTS (.IRTS), Shanghai Composite (.SSEC), Nikkei 225 (.N225), Brazil BOVESPA (.BVSP), Indian Sensex (.BSESN). The product covers all the DOW 30 stocks. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers and market trends.

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THE FIRST FIVE - PART II

We wrote about the first five on 3 NOV (THE FIRST FIVE). The BETFI is up 50% for month to date and most of the stocks and indices have registered gains. Prices have also hit initial targets on BETFI (RIGHT). Though prices could continue to extend higher, but markets have this innate ability to not let everybody ride. Only the patient, the cautious and the skilled can do it.

Though we don’t have MINOR exhaustion signals yet, the first five impulse seems to complete. After this market could retrace a part of the gains, regroup and consolidate again. We also observed that unlike many Asian emerging markets, ROMANIAN fractal structures are more clear. This means two things. One that the exaggerated collapses may lead to sustained bounces for multiple months and second that Romanian market structures are loosely linked with other emerging markets like INDIA.

Overall, the accumulation story remains valid. Any dip now should not be too deep. A deep retracement will put us on the back foot again. We don’t think that should happen. But we will take it a step at a time. As of now the first MINOR UP seems completing so some exhaustion or supply pressure might not be too far up.

The current issue of WAVES.ROM carries multiple ANTICIPATED and HAPPENED cases along with the regular tracker of UP-DOWN TREND perspectives on most of the BET majors, BVB INDICES, SIFs and their futures.

Enjoy the latest WAVES.ROM.111108

THE FIRST FIVE AND 100% UPMOVE

3 NOV 2008

What is a five? A five wave structure defines the human impulse across time frames, one min to multiple decades, the fractal structure is the same. What is a three? Three waves are counter trend structures and just like five waves they manifest across time frames. Three waves are generally overlapping structures. Fives are part of threes and three are part of fives. Just because it all looks so complex, fractal structures remain unpopular and accurate at the same time.

Differentiating a five from a three and understanding how the two structures mesh with each other across time frames, is the visual skill needed to see through the maze. For example now, we have five wave structures emanating from the base for many blue chips and for a few indices like BETC (RIGHT). What does this mean? This means that even if BETFI takes a few more trading sessions, our ANTICIPATED UP view remains on solid grounds. And all dips remain accumulation dips. One should keep in mind that broad base rallies from key bottoms are rare. Markets will move up selectively, non confirming one up trend on an asset from another. This is what is happening now. A section of the market is still bottoming while the other has shown resilience and continues to move up. We talked about TEL, TGN, BRD and SNP. The trackers below remain positive on the same.

About 100% moves? Such subdued prices are not just about extreme sentiments but also about subdued prices. This is why we had a 100% move up after the great depression lows in 1932 on DOW. BETFI basing near 10,000 gives similar opportunities. We are looking at 30%, 100% and 200% gains respectively from turn points, which should arrive soon. About OCT lows? As we said, a section of the market has already bottomed and moving up and OCT lows are already in.

Enjoy the latest WAVES.ROM

ORPHEUS ROMANIA RESEARCH

WAVES.ROM is a perspective product published on TUESDAY’S and THURSDAY’S. The report highlights Romanian Stock Market top three Equity Indices viz. the top ten blue chip BET Index (.BETI), BET Composite (.BETC), the Financial Index BETFI (.BETFI) and the local currency RON (EURRON=, RON=). The products covers the top ten BET component stocks. (ROMP.BX, SNPP.BX, BATR.BX, BRDX.BX, TSEL.BX, ATBE.BX, BRKU.BX, BIOF.BX, IMPT.BX, TUBU.BX) and all the components of BETFI Financial Index(SIF2.BX, SIF5.BX, SIF3.BX, SIF1.BX, SIF4.BX) are covered in the report. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers. WAVES.ROM, CHANNELS.BVB and CHANNELS.RASDAQ are bundled together as PERSPECTIVE products. Unlike WAVES which focuses more on blue chips, CHANNELS covers all the BVB and RASDAQ stocks.

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Psychology of a SELLER

Just like always it is the buyer’s psychology that gets all the attention, and when it’s time to study what goes on in the seller’s mind we have all crash and crisis news all over. There are more reasons why the thoughts of a seller rarely hit the headlines. First a buyer is more emotional than the seller. Human beings are emotional beings and so most businesses are built around that emotion. A seller is less emotional. The very reason his psychology is not pandered too. Second, he is sharp and fast, which leaves little time to create news. Third, sellers are generally outnumbered by buyers, so they don’t make a sizeable target audience. Fourth, a seller does not buy, the very reason there is not much he can contribute to the industries and sectors, the buyer helps create. Fifth, market crashes require more time to nurse the buyer’s pain. Who cares of the sellers anyway?

If you think, this view is wrong, think again. Value creation needs many market players. Value destruction can be done by few. And only a few buyers can switch roles, becoming a seller from a buyer. Majority of the masses, just move with the wave, excited at a cycle high and inert after losses at a low. My India visit has actually left me a bit surprised. Almost everybody I met asked me about the economy, the market, the crisis. A few talked about actual losses and few about foregone profits. What they could have made had they got out early. Most of these people were buyers, or potential buyers. Where are the sellers? A seller is a low profile entity. He shirks attention. He is just there in one corner, sitting easy, waiting patiently for his next move. Unlike the emotional, impulsive, self pitying, greedy, attached, consuming, overestimating, blaming, oscillating from one extreme of love to the other of hate, inflexible buyer, the seller is detached, unbiased, cool, accepting, quiet, calculated, ruthless, pound wise penny foolish and down to earth.

But if there are so many virtues in the seller, why don’t we sell before the markets fall 60%. Why some of us can never sell? Why going 100% cash is so hard? The majority of us don’t sell because we need the cash. It’s the intention of investing the cash that oscillates. Just like our intention to buy increases with increasing prices, our intention to sell accelerates as markets fall. Just like we like buying as things get more expensive, we like selling when things become cheaper. 0.1% of the India (listed Market capitalization) was worth nearly 500 Million Euros at the Jan 2008 top. Now it’s nearly worth 200 million Euros. But we were more excited then and not now. We sell because we panic, which blinds us and we fail to comprehend that there is a limit down to where prices can go. We forget that markets always give another chance. We sell because we think that’s our last chance to exit and save the pennies left to salvage.

Why despite so much sharp skill, one big fall and we see hedge funds packing up. Hedge fund, a misnomer can’t hedge themselves. Is the hedge fund industry itself skewed with buyer’s bias? One hedge fund manager’s letter recently said, “I made money in this market and I am now tired and calling it quits”. This lack of energy is linked to the excitability A J Tchjevsky talked about in the 12 year excitability index. We move from a passive society to an inert society as we move ahead in the economic cycle, a classic buyer psychology cycle. We are no more excited and feel tired as the cycle ends.

Warren Buffet’s, Berkshire Hathaway on the other hand is most active when markets go awry and companies dip below their ‘intrinsic value’. Even with their buy - hold strategy, the institution has a seller psychology. How else could you explain that one of the biggest financial institutions of the world known for its buy and hold hypothesis survives a historical credit crisis? The institution never says it’s tired and so closing up. The seller’s psychology is to conserve. The seller conserves energy because he has less time unlike a buyer, who feels he has all the time. A seller’s psychology by very nature is contrarian. And it’s the buyer’s bias which forces us to exit after a 60% - 90% fall. A real seller exits near tops not near bottoms.

At a recent meeting with a researcher from Ecoenergy, I was asked how to create perception about value. The professor was addressing the green idea. How to increase awareness in market players for green assets and green markets and specifically carbon trading? This question of value might appeal the seller more than the buyer. The seller’s psychology understands that value and perception feeds on itself. Make water 15 times more expensive from here and every green asset will become valuable the buy. This value perception is broken when we consider the buyer. How can you otherwise explain no demand for a dividend at the market top and scampering for dividends at a market bottom? How can you explain that retail participants are sleeping the whole secular trend and wake up near a market top to buy, just to see their savings crash? How does a buyer invariably get surprised all the time, be it OIL, GOLD, Sensex or the Dollar? Anybody can buy seeing an attractive asset. But it’s the timely selling action that completes the transaction. The seller psychology is hence more about timing and exit than the buyer’s psychology.

Despite all this skew towards the buyer’s psychology, the sell psychology plays a very important economic role. It brings in the balancing force. The “Seller” is instrumental in bringing change, by bringing in the NEW. If it was not for the seller, the David’s would have never got a level playing field against Goliath’s. No small business would have survived and entrepreneurism would have never existed. And E Schumacher’s’ book ‘Small is beautiful’ would have never been read. And we would not have registered the fact like Hammer and Champy said, “Change is never slow, it’s dramatic”. Maynard Keynes ideas with money supply failed to work during the Japanese slowdown. But his idea of digging holes and filling them elucidates the beauty of our economic cycle, which is incomplete without the hole sellers dig in the market. If you cannot enjoy a 60% crash, you are suffering from a buyer’s bias, which is omnipresent. Try cherishing the collapse, thinking of all the great opportunities that come with it. And don’t be surprised with anything whether it means a new high on DOW, Gold at 3000, Oil at 500, Sensex back at 2,800 or comatose equities for a decade.

About the market now, the preferred positive seasonality is here. The Yale Hirsch cycle is turning up from November and April. But the sustained primary multiyear positivity should only start after the 2010-2011 lows. Till then get ready to trade, up and down. Meanwhile, just think about all the buying opportunities across global assets which would not have existed without the seller. ‘Seller is smarter than the buyer’ is also a summary which won the Nobel Prize in economics in 2002. But then maybe the father of behavioral finance suffers from a seller’s bias.


Ouch! it's the smelter - Part II

Historical Call - It was at the FIA (Futures Industry Association) CONFERENCE on OCT 17-19 2006, Hilton Towers, Mumbai, we were asked about ZINC. For us it was a euphoric move up and unsustainable. The five wave up were complete and prices coiling up in a B wave retest back to previous highs. We saw the C crash pending on Hindustan Zinc. And so this is what we said, “ZINC is coming down”. This evoked a shock in the Hedge Fund, Researcher who starting telling us numbers linked with Demand and Supply. Basically he was trying to debate, “How can it fall?” The classic question asked to cyclists, alternative researchers and fractal watchers.

Well! we came out with our ZINC special on 1 NOV 2006. And this is what we said. “Even if ZINC and related assets have some upside left we should see a multi month easing before a real move up re-exerts itself”.

14 Nov (Ouch It’s the smelter), we came with the second update. “At this stage it seems Hindustan Zinc (HZNC) has turned. Now if you were a traditional researcher you would be waiting for ZINC to turn before selling HZNC. This is extrapolation. For us HZNC can tell you more about ZINC reversals than vice versa. And below 900, its 840 for HZNC and below 840, its 660.” The stock was falling despite a rising market. 14 Feb 2007, (Zinced on Valentines) we came with the third update. If you bought ZINC because of the Zinifex-Umicore merger, thinking the largest ZINC producer in the world (Reuters-12 Dec) might give you some portfolio efficiency…we are sorry…you might have to wait. Another 100 or 200 points, HZNC at 500 or 400 should be more attractive.

It’s two years, since our Nov 2006 call on ZINC. After making a low of 238 on 30 OCT, the prices are now at 315. Zinc international spot prices and Hindustan Zinc have retraced 78.6% of it’s all time rise. Now what? Just like, “How can it fall?” mass psychology also suffers from the “How can it rise syndrome?” And deep 78.6% retracements are capitulation collapses characteristic of CYCLE II waves. How can we be sure this is CYCLE II wave and not a SUPERCYCLE II, which should keep prices suppressed for more than a few years? The answer to this can be given by intermarket relationships. First. Gold, the sector leader has not collapsed and suggests a sectoral premium. Second. Gold cycle of 30 years can’t get over in 10 years. Third. Rise of Gold creates more reasons for a hyperinflationary depression than deflationary depression. The former pushes metals and commodities higher. Fourth: If Oil is rising to 500 (OIL in 2012), it reinforces the commodity, Gold and metals case. Fifth: The 30 year commodity cycle coinciding with the 90 years Strauss and Howe cycle in 2024-2030 is when we should head for a SUPERCYLE crash. Till then all base and precious metals collapse seem to be a low risk entry points for multi years till 2012-2015.

There is nothing wrong with conventional reasoning, it’s just that the conventionalism is colored by euphoric and panic drivers. Emerging markets have a lot of incomplete infrastructural projects that will take years to complete. Even if the conventional auto manufacturers will die (if not already dead), green car manufacturing will keep the need for metals high. Zinc has a high linkage with Steel, Rubber, Paints, Shampoos, Cough Drops etc. The base metal also has a strong biological role. Hence the question “How can it rise?” is a self created mass psychology illusion. Silver continues to lead the rest of the metals. Barring Gold, which still seems to have downside left, the rest of the metals complex remain a ‘DOWN BUT BOTTOMING’ scenario for us.

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Obama n the Yale Hirsch cycle

Though we stayed out of political forecasting, predicting the elections, we know a few who predicted it right. Bill Meridian of CYCLES RESEARCH was on top of events with his Obama call. Now of course one can analyze why it happened. Maybe the anti incumbent factor, or the age factor, but market technicians saw it coming quite a while ago. Bob Prechter’s socionomics was also on dot. Socionomics, the science of history and social prediction talks about women being in power, as the social mood changes. This was the reason Bob stuck to his Hillary call over Obama. But a closer observation and one can see that women in power is a mood change. And so is the choice of the first African American president. It is rather more unconventional than a woman president. So social mood is about different choices. A positive mood could translate to a conventional choice and a negative mood is unconventional or shocking. We are in a large bear market already so the Obama choice had already sunk in. No wonder the election results were unequivocal.


Speculators could have betted on the results, the Obama or the McCain CALL option, the latter being cheaper than the Obama in the money option (Obama was consistently leading). But there was a limitation when you had to use the understanding or knowledge of the political landscape on the DOW futures. ‘The DOW reprieve’ we carried on 29 OCT highlighted 9,600 as an ending C wave and not the start of a 3 wave. The election result had no impact on DOW and it is where it was on 29 and did not move out of the FLAT A-B-C formation (RIGHT) we illustrated.

And now if we see the formation correct, the new president won’t be able to halt the slide of DOW to a new low. Presidential cycles are bigger than presidents and even a great leader can not change the course of the market, short term or long term. The Yale Hirsch presidential cycle has worked with uncanny precision since 1954. The cycle challenges the straight line theory of prosperity and growth of market and the theory of bottomless markets. Business and economy move in cycles. The US presidential cycles have been studied for over 60 years. Yale Hirsch also wrote about winter gains and autumn crashes. The 3RD-4TH year witnesses gains 3 times more than the 1ST and 2ND year. There were of course exceptions when the cycle did not work like that in 1986.

The reason for exceptional gains in the later part of the term is owing to heroic steps made in the 2nd and 3rd years. No heroic steps are made in the second term. The cycle also talks about no economic or market correction in the first 2 years. The crash happened in 1987 in the Regan era, for Clinton it was in the fourth year, in 2000. For Bush it was in the 3 year starting Oct last year. And most times market forms significant lows in the 2nd year with average gains at 50%.

The current presidential cycle projects a 2010 rise. Then comes the BENNER cycle lows in 2011. The Clement Juglar business cycle also seems incomplete and 2008 is too early for a decade low. All these cycles overlapping together in the last few years of the decade suggest a complex structure rather than a simple unending collapse.

The only positive four DOW 30 stocks in our tracker also seem to exhaust. So a marginal new low below OCT lows can not be ruled out. On the positive side, the only stock positive for the last 3 months is J P MORGAN at a positive 5%. When the financial crisis throws up a banking stock as a winner, markets are definitely discounting all negativity. Any leg lower from here should be the final one for atleast few quarters.


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