December 12, 2008

We continue in the Christmas Rally

It is now evident that the recession began in the 3rd Q 2008. From the charts, which are transitioning to the upside, we know that we are at least six months away from a recovery, which brings us to the 2nd Q 2009.

In the monthly Dow chart you see that once the Diag II completes, it swiftly retraces to at least where it began. The key word here is swiftly. As you see to the left the recovery that began late in 2002 moved up almost vertically until it got past the beginning of the top Diag II in the A wave, denoted by the green dashed line. Likewise we can expect a similar climb until we reach the analogous point in wave C above 11,500. By deduction, and as we see in the many Diag II formations we can see that this climb should be more powerful and swift than the previous. In effect we seem to be accelerating as we progress. What’s more the subsequent top should be higher than those previous (in the Dow) and suck in the greatest number of investors near the top, as do most bubble markets. This would set the stage for the Crash. Like the a-b which kicked off the B wave, we are on our way up to a once again.

In the near term it looks as though the Christmas rally will materialize early as everything is set to move up, as demonstrated by smaller Diag II’s evident near the close on Friday, indicating the beginning of a move. As I mentioned last week this transition to the upside is huge, and should be proportional to the subsequent upside, so it all coincides with the Mother of all Rallies materializing. However, after this Christmas rally, a prelude to the big move, we will likely drop back once again in a disappointing correction likely to a new low, before the real move gets underway. A Diag II begins a move; three of them compound the energy and force of the next upside.

As you see in the Financials chart, the b moves counter the trend needed to complete the move below 195 on the index.

In gold we have the 5th wave up to go before reversing down below 210 on the index.

In Real Estate we appear to be forming another Diag II where wave III is nest above 145 on the index.

In Basic Materials we are also on the way up to a wave iii of yet another Diag II.

In Emerging Markets the upside also begins with a Diag II as part of wave iv which must subsequently drop below 22, if my count is correct. Again here we have multiple Diag’s indicating a forceful rally ahead.

DHI is tracing out a complex wave iv where the b up is next

As you see the charts have various patterns, however all indicate a move up for the next couple of days. Pension accounts should go 50% long near the opening. Traders are already positioned. By now you should see the folly in Long-term Bear Market Investing. That category is intended to make a point, please do not use as a model for investing, as I’ve said over and over, it is a losing proposition.

Eduardo Mirahyes

Exceptional Bear