“While worries about the U.S. economy and the Iraq conflict may have weighed on stocks in recent sessions, Jack Ablin, chief investment officer at BMO Private Bank, believes the market can resume its ascent.

“Up ’til now, most geopolitical developments, namely Crimea and Ukraine, have had very little impact on the U.S., but now because Iraq and oil are involved — oil prices rising with the potential for higher pump prices crimping demand — that is starting to spill over into the markets,” Ablin told Yahoo.

“Even though we have these issues and the market is relatively expensive, we have an enormous amount of liquidity flowing into the market,” he stated….”

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[youtube://http://www.youtube.com/watch?v=pa4LRo9L-Dg 450 300]

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“The Federal Reserve received some further cause for discussion at its policy meeting this week with a report of a surprising jump in consumer inflation.

Yet most economists aren’t altering their view that the Fed’s first interest rate increase is at least a year away. Analysts cautioned that that time frame could change if inflation were to accelerate. The consumer price index rose 0.4 percent in May, the government said, and has risen 2.1 percent over the past 12 months — roughly at the level of the Fed’s target rate for inflation.

It’s why the Fed might actually welcome the news of slightly higher inflation: It will help ease long-standing concerns that inflation might be too low. For the past two years, inflation by one key measure has remained under the Fed’s 2 percent target.

“I don’t think the Fed is going to express concern about the May price increase,” said Joel Naroff, chief economist at Naroff Economic Advisors.

When the Fed issues a statement Wednesday after its meeting ends and updates its economic forecasts, and then Chair Janet Yellen holds a news conference, investors will be seeking clues about when short-term rates will finally rise. They will also be looking for hints about how and when the Fed will start unloading its vast investment holdings…..”

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[youtube://http://www.youtube.com/watch?v=ey9tExYbjm8 450 300]

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“Stocks have scored decent gains this year, with the S&P 500 minting 19 records to date. That has prompted some market participants to call for the S&P SPX  to hit 2,000 in 2014.

But it’s just when investors start to feel complacent that they should turn around and consider the chance of a correction, according to Jim Paulsen, chief investment strategist at Wells Capital Management.

“Throughout this year, our best guess has been to expect the S&P 500 to reach as high as the 2000ish level sometime this year, but for the stock market to also experience a correction at some point perhaps ending the year about where it began,” he wrote in a note. “Since the stock market is closing in on the 2000ish level, it’s time to consider whether it will simply continue higher throughout this year, or if in the second half, the stock market finally struggles with a more difficult environment?”

Of course, there’s no immediate risk of a correction, he says. But that could all change quickly. He lays out five gauges to watch for that could signal correction pressures in the market:

1. More aggressive stock-market gains: The S&P has traded mostly in a 100 to 125 point range around its uptrend since the beginning of 2013. That’s a “controlled and methodical” upward move, Paulsen said. These gains need to accelerate to a more unsustainable pace in order for the risk of a correction to increase, he said.

2.  Decline in correction calls: Even as stocks have gained this year, stock-market bears have continued to broadcast their views about the likelihood of a correction. While that has slowed somewhat — investors are more comfortable than at any time in this recovery, Paulsen said — there isn’t a broad feeling of euphoria. “For correction risk to truly become elevated, most have to believe a correction is not likely,” he wrote….”

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Related article: Is the Bull Market Topping 

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“It’s FOMC week.

On Wednesday, the Fed will give its next policy update. Its widely expected to continuing its “tapering” of monthly asset purchases by $10 billion, which is the pace that it’s been going on.

The best preview is from economist Tim Duy, whose post you should read here.

But we wanted to pull out two of Tim’s charts, because they’re particularly important.

The first shows the trajectory of the unemployment rate vs. what economists estimate as the “natural” rate of unemployment, if the economy were operating at full capacity.

 

 

The next chart shows inflation against the Fed’s stated goals…..”

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“The global economic system is near collapse, according to Pope Francis.

An economy built on money-worship and war and scarred by yawning inequality andyouth unemployment cannot survive, the 77-year-old Roman Catholic leader suggested in a newly published interview.

“We are excluding an entire generation to sustain a system that is not good,” he toldLa Vanguardia’s Vatican reporter, Henrique Cymerman. (Read an English translation here.) “Our global economic system can’t take any more.”

The pontiff said he was especially concerned about youth unemployment, which hit 13.1 percent last year, according to a report by the International Labor Organization.

“The rate of unemployment is very worrisome to me, which in some countries is over 50 percent,” he said. “Someone told me that 75 million young Europeans under 25 years of age are unemployed. That is an atrocity.”

That 75 million is actually the total for the whole world, according to the ILO, but that is still too much youth unemployment.

Pope Francis denounced the influence of war and the military on the global economy in particular:

“We discard a whole generation to maintain an economic system that no longer endures, a system that to survive has to make war, as the big empires have always done,” he said….”

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“Cramer has expressed concerns about the market for a while. He’s advocated watching developments as well as price action very closely. But now, he says, if you haven’t already, it’s time to act.

“If you have big profits, ring the register,” Cramer said. “If you’re already in cash, sit tight.”

Largely the “Mad Money” host is very worried about sudden developments out of Iraq, with militants seizing control of major cities, some of which are in important oil producing regions.

President Obama said on Thursday that he was watching the rapid developments with “a lot of concern,” and that the United States stood ready to provide increased help to the Iraqi government, though he did not specify what kind.

“So what will it be? Airstrikes? Drones? Soldiers? Boots back on the ground in Iraq? That’s uncertainty writ large. And if the market hates anything it’s uncertainty,” said Jim Cramer.

These developments change the game….”

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FRUSTRATION AGRESSION HYPOTHESIS

“Fear is the Parent of Cruelty” ~ James Anthony Froude

—

“….When people perceive that they are prevented from receiving just rewards their frustration is likely to turn to agression.

A 1941 study where toys were placed, but children could not touch them resulted in destructive and agressive behaviors when they were finally allowed to play with the toys.

In the hands of polticians and demagogues, frustration agression can be a potent  way of placing  displaced agression onto scapegoats…” From the Documentary Human Resources

—

So all these school shootings and displaced agression is a direct result of how our society is run and the world we live in. Marketing contributes to the frustration of not being able to obtain objects of materialism. Many people work hard all their lives and have nothing to show for it. Thus there is subconscious frustration building within all of us.

The  Santa Barbara shooter Elliot Rodger displays in his manifesto exactly what theorists and experiments show to be the case. He was completely frustrated with not being able to have relationships with women.

Jerad and Amanda Miller who recently went on their Las Vegas Rampage on the surface show frustraion about the world we live in by stating in their social media outlets that too much money is being spent on useless things like war, banksters, etc. instead of feeding, housing, and creating jobs for people who could improve thier lives.

I’ll bet if you look into any mass shooting case we will find aspects of the Frustration Agression Hypothesis.

So i say again do not take away the guns of the people, but change the root causes that make some people crack and go off on a rampage. Solve the problem of over medicating our kids with dangerous psychotropic drugs.

—-

Definition

“Frustration–aggression hypothesis is a theory of aggression proposed by John Dollard, Neal E. Miller et al. in 1939,^[1] and further developed by Miller, Roger Barker et al. in 1941^[2] and Leonard Berkowitz in 1969.^[3] The theory says that aggression is the result of blocking, or frustrating, a person’s efforts to attain a goal.^[4] 

The frustration–aggression hypothesis, otherwise known as the frustration–aggression–displacement theory, attempts to explain why people scapegoat.^[5] It attempts to give an explanation as to the cause of violence.^[6] The theory, developed by John Dollard and colleagues, says that frustration causes aggression, but when the source of the frustration cannot be challenged, the aggression gets displaced onto an innocent target.

There are many examples of this. If a man is disrespected and humiliated at his work, but cannot respond to this for fear of losing his job, he may go home and take his anger and frustration out on his family. This theory is also used to explain riots and revolutions. Both are caused by poorer and more deprived sections of society who may express their bottled up frustration and anger through violence.^[6]

According to Yale Group, frustration is the “condition which exists when a goal-response suffers interference,” while aggression is defined as “an act whose goal-response is injury to an organism (or organism surrogate).” However, aggression is not always the response to frustration. Rather a substitute response is displayed when aggressive response is not the strongest on the hierarchy. Furthermore, this theory raises the question if aggression is innate.^[7]

However, this theory has some problems.  First, there is little empirical support for it, even though researchers have studied it for more than sixty years.^[5]  Another issue is that this theory suggests frustrated, prejudiced individuals should act more aggressively towards outgroups they are prejudiced against, but studies have shown that they are more aggressive towards everyone.^[5] The theory also has limitations, for example it cannot say why some outgroups are chosen to be scapegoats and why others are not.

Experimentation….”

Full Definition and Theory

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“NEW YORK (MarketWatch) — Oil futures are surging as al-Qaeda-affiliated militants continue to sweep across northern Iraq. Financial markets are taking the news largely in stride but investors should be on alert. Here’s a rundown of what it all could mean:

What is happening?

Iraq is on the brink of civil war after Kurdish forces took control of Kirkuk, a provincial capital city and oil-production hub in northern Iraq.

The move by Kurdish forces comes after Sunni militants took nearby Mosul, Iraq’s second-largest city, earlier this week. They’ve threatened Baghdad and have vowed to march on two cities held sacred by Shiite Muslims. Western parts of Kirkuk province are reportedly still under the control of other militants from an al Qaeda offshoot called the Islamic State of Iraq and Al-Sham, or ISIS. The militants have vowed to advance on Karbala and Najaf, two cities revered by Shiite Muslims, who make up 60% of Iraq’s population and dominate the Iraqi government.

Why is Iraq important?

Iraq is the world’s eighth-largest producer of oil and ranks No. 2 in the Organization of the Petroleum Exporting Countries, or OPEC, behind Saudi Arabia. Production has been on the comeback trail since the height of the Iraq war. Production hit 3.6 million barrels a day in February, its highest level in more than 30 years. Production has since fallen back, slipping to 3.3 million barrels a day in May, analysts say.

Iraq’s production growth has been a welcome development for oil consumers as Libya struggles to come back online amid persistent violence and turmoil. But the fighting casts big doubts over the government’s aim to boost output to 4 million barrels a day by the end of this year and to 7 million barrels a day by 2016, note economists at Capital Economics.

A sustained surge in oil prices would be unwelcome as the global economy struggles to build some momentum.

“Although the situation is some distance from the oil fields, the reality is that a $20 a barrel spike in crude prices could well prove sufficient to derail the global economic recovery. Ultimately with markets so toppy and repeatedly looking for a reason to sell, this could all make a lot of sense,” said Joao Monteiro, an analyst at Valutrades in London.

What’s the threat?

The underlying fear in the oil market is that the fighting will spread to Iraq’s main oil-producing areas in the south. Meanwhile, Iraq’s biggest refinery at Baijii in the north remains under government control , Iraqi oil minister Abdul Kareem Luaibi said Thursday, according to Reuters. Luaibi said Iraqi crude exports from its southern terminal at Basra were running at an average of 2.6 million to 2.7 million barrels a day on Wednesday.

What does it mean for oil markets?….”

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[youtube://http://www.youtube.com/watch?v=mKTORFmMycQ 450 300] [youtube://http://www.youtube.com/watch?v=RQkQXyiynYs 450 300]

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“Adieu, Sweet QE, Adieu

The FOMC should (and might) accelerate the pace of QE reductions to $15 billion on Wednesday (June 18th).  Furthermore, at its meeting on July 30th, the FOMC could – and should -announce a similar-sized reduction for the subsequent two months.   Hence, the Fed would not have to wait until its September 17th meeting to announce the final leg. QE would then end two months earlier at the end of August rather than the end of October as markets currently expect.  Such a path would generally afford the FOMC more freedoms, particularly at the September17th press conference meeting.

There are of plenty of reasons to justify such a move:  global interest rates are near historical lows levels; equity markets are at record high levels; the FTSE All-World index closing at an all-time high yesterday; the decade-low in volatility indices; the 6.3% Unemployment Rate; employment gains averaging 250K over the last two months; GDP forecasts for the remaining three quarters of 2014 fluctuating around 3% following the ‘transitory’ Q1 weather-induced slow down; the current lull (or temporary decline) in Ukrainian and Geo-political tensions; and lastly, the ECB accepting the stimulus baton.

Remember, FOMC guidance last year prophesied that QE was expected to come to an end when the unemployment rate hit 7% and the first hike would occur when the rate hit 6.5%.  In regards to this measurement, even the most dovish members have surprised themselves.

The Fed has indicated that it is “not of a pre-set course”.   There are advantages of keeping investors on their toes and having them believe that the FOMC is nimble and flexible.  In addition, it is likely that the Fed does not want to make the same mistakes made from 2004-2006 when it had become too predictable….”

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“What if all the low-hanging fruit of outsourcing jobs and financialization have already been plucked by Corporate America?

The connection between soaring corporate profits and stagnant wages is both common sense and inflammatory: common sense because less for you, more for meand inflammatory because this harkens back to the core problem with the bad old capitalism Marx critiqued: that capital dominates labor and thus can extract profits even as the purchasing power of wages declines.

(What Marx missed because he was early in the cycle was capital’s dominance over the central state’s political machinery–a topic covered here in The Purchase of Our Republic.)

New good capitalism generates wealth for everyone via soaring profits which drives the valuations of stocks ever-higher, enriching workers’ pension funds and boosting spending, some of which trickles down to those who don’t own any stocks, either directly or indirectly.

Bad old capitalism trumps new good capitalism if the soaring profits are basically wages diverted to the few who own most of the financial capital. In Marx’s analysis, this gradual impoverishment of labor eventually erodes capital’s ability to sell products, undermining capital’s ability to reap profits.

The endgame of this is obvious: once capital can no longer make profits selling goods and services and wage-earners can no longer afford to buy goods and services, the system disintegrates.

The magic “solution” of the past 40 years is to enable labor’s continuing consumption with debt. And when labor is over-indebted and can no longer service more debt, then the central state (government) borrows and spends trillions of dollars to replace sagging private consumption….”

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“Business mogul Steve Forbes says that not only is a return to the gold standard a realistic option, but “circumstances” in our economy will necessitate it.

“We were on the gold standard for 180 years in this country’s history — did very well with it,” Forbes told J.D. Hayworth, John Bachman and Miranda Khan on “America’s Forum” on Newsmax TV on Monday.

“If we’d been on a gold standard since 1971, when Richard Nixon took us off the gold standard, today our economy would be 50 percent larger if we’d just maintained historic growth rates we had for the first 180 years of our existence,” the chairman and editor-in-chief of Forbes Media explained.

The gold standard is a monetary system in which the value of currency is equal to a fixed amount of gold. The currency can also be converted into gold.

“Gold gives money . . . stability just like the ruler measures length, the clock measures time, a scale measures weight,” Forbes added. “A dollar measures value and when the value is stable, you get a lot more investment, a lot more growth, a lot more opportunity.”

Without the gold standard in place, the dollar has grown increasingly unstable, even though there have been “periods of strength,” Forbes says. ….”

Full video article 

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“The key of the ABCT is that economies operate in cycles, they go through ‘booms’ and ‘busts’, ‘expansions’ and ‘recessions.’ A ‘crisis’ should not come as a surprise. Austrian School economists argue that central banks don’t help in smoothing the amplitude of the cycles, but are actually the root cause of the business cycle. While some may view that the expansionary monetary policy can mitigate the adverse effects of a crisis, the Austrian School begs to differ.

The paper does an outstanding job in explaining the ABCT and applying it on the major business cycles of the modern US economy. It also answers the question whether we have seen the end of the current crisis (“bust”). Although Barack Obama believes that “we have cleared away the rubble from the financial crisis and begun to lay a new foundation for stronger, more durable economic growth”, this report will tell you otherwise.

The Austrian Business Cycle Theory

Mises and Hayek believed that business cycles are a direct cause of excessive credit flow into the market, which is facilitated by an intentionally low interest rate set by the government. The supply of credit gives the false impression that money originally saved for investment has increased. By doing so, banks mislead borrowers into believing that the pool of investible funds is bigger, and therefore they tend to do what entrepreneurs do: invest in larger production facilities or projects they originally could not afford to finance. These investments bear what economists describe as a “longer process of production”, or capital good industries that stimulate a shift of investment away from consumer goods. This shift is unsustainable, and eventually a correction ensues. The reason is that you have a market that is out of balance and falsely directed to a level of investments that is far from reality. In other words, the state has instigated unsustainable growth.

What happens when the central bank comes in and artificially lowers the interest rate? To explain we take a look at the chart below prepared by Roger Garrison. In this chart, which relies on the Hayekian triangle depicting the different stages of production, Garrison illustrates how a change in the economy’s money supply affects its structure of production. The curve of the Production Possibility Frontier (PPF) shows different combinations of consumption and investment for any given economy (chart on the top right). Any point on the PPF curve is a sustainable mix between consumption and investment (savings).

There are three main scenarios:

1. In a pro-savings economy: Investments go up, encouraged by a drop in interest rates. This point on the PPF corresponding to this lower interest rate shows that the economy directs its investments to earlier stages of production. As a result, the triangle expands horizontally.
2. In a pro-consumption economy: Savings and investments (discouraged by the rise in interest rates) decrease. As a result, the triangle becomes shorter from the horizontal axis as investments go to lower order consumer goods.
3. In the case of a policy-induced credit expansion: This scenario is depicted in the graph as S_aug. Here we have two opposing factors at play as a result of the drop in interest rate. As it appears in the graph, the new interest rate encourages both an increase in investment as well as discouraging savings. The low interest rate intersects with both S (the real supply of money by savers given that low interest rate) and S_aug (the supply induced by the central bank). These are basically the “mixed signals” we were talking about earlier. Both points are located on the PPF, but meet outside the curve, implying this level is neither efficient nor sustainable.

Who is behind the boom and hence responsible for the bust?

According to the ABCT and the Austrians, it all starts with the primary engineer of the cycle: the government. Any form of state intervention is an attempt to influence markets to prolong the process of needed adjustment and reallocation of resources to more productive uses. Therefore, by manipulating interest rates, governments negatively impact the economy as creators of the growth bubble– which in essence is artificial, distorted and imbalanced.

The illusion behind the boom

The illusion lies in the misallocation of investments or ‘malinvestment’, using Mises’ terminology. This mismanagement involves two concepts: “time preference” and “forced savings”. We recommend readers to go through the explanation of these concepts in the paper (embedded at the bottom). But for now, we highlight the following: It is a play on consumer behavior: Present consumption carries more value to individuals than future consumption. When interest rates are intentionally lowered, consumers are misled to thinking more money is available, and ready to be spent – when in fact their purchasing power, as per forced saving, has weakened. In this inflationary environment, everything is an illusion. Everything has become more expensive, whether wages, commodities, services, even assets and real estate.

From boom to bust….”

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“Friday’s highly anticipated U.S. jobs report sheds light on a crucial question for the economy: How much more can the Federal Reserve do to stimulate growth and push down unemployment before it runs into undesirable inflationary consequences?

Economists have long been engaged in a discussion about the nature of unemployment in the U.S.: Is it more short-term and cyclical, or is it more structural and long-term? In the former case, accelerating growth can bring the unemployment rate back down to where it was before the crisis. In the latter case, the “natural rate” of unemployment would be higher, impairing the economy’s ability to create jobs and grow without stoking inflation beyond the asset markets.

Until recently, the debate was largely academic: Given the depth of the economic downturn, everybody recognized that there were lots of jobs to recover before unemployment fell anywhere near its natural rate. Moreover, with political polarization on Capitol Hill undermining a comprehensive policy response, there wasn’t much interest in figuring out how the natural rate itself could be improved.

Now, though, the question is gaining urgency. The widely followed U-3 unemployment rate has fallen to 6.3 percent, down from a 2009 peak of 10 percent and approaching — albeit frustratingly slowly — the pre-crisis low of 4.4 percent. Yet economists have yet to agree on a threshold beyond which inflation (outside the asset markets) might become a problem. Nor have they converged on a narrative about an important determinant of job creation — the level and composition of economic growth.

One group is quick to point to…”

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“For five years it’s been the fate of American short sellers to be wrong, as the biggest rally since the Internet bubble steamrolled defensive trades.

They’re loading up again, sending bearish wagers in the SPDR exchange-traded fund tracking the Standard & Poor’s 500 Index (VIX) to almost 11 percent of its shares, the highest proportion since 2012, according to data compiled by Bloomberg and Markit Securities Ltd. Bets against atechnology ETF are 67 percent above the 12-month average.

One of the best things you could do in the stock market over the last three years has been to buy shares from short sellers, who borrow stock with the aim of replacing it once the price falls. After bearishness peaked in 2011 and 2012, theS&P 500 rallied more than 14 percent within six months. With U.S.valuations approaching levels not seen since 2007 and the Federal Reserve scaling back stimulus, the bears are back again.

“That, from a trader’s standpoint, is a bullish sign, because you don’t have too much optimism in the market,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham,Alabama, said by phone. “That there isn’t unbridled optimism shows that there could be more upside.”

Bearish Bets

Frontier Communications Corp. (FTR), a voice and data services company in Stamford,Connecticut, and Boise, Idaho-based chipmaker Micron Technology Inc. are among companies with the highest bearish bets. Their shares have soared more than 22 percent this year. A Goldman Sachs Group Inc. measure of the hedge fund’s biggest short holdings has risen 7.8 percent this year, compared with a 5.5 percent gain for the S&P 500.

More than $1.6 trillion has been added to American share values since the end of January amid accelerating economic growth and actions by central banks to stimulate the expansion. The S&P 500 advanced 1.3 percent to a record 1,949.44 last week as the European Central Bank cutinterest rates and U.S. unemployment stayed near a six-year low.

While the S&P 500 has rallied for 10 of the last 12 days and advanced each of the last four months, investors have been withdrawing money from the market. About $4 billion was pulled last month from the S&P 500 ETF, the world’s biggest with $164 billion in assets, data compiled by Bloomberg show. Funds that buy domestic shares have received $4.8 billion this year, compared with deposits of $25 billion in bonds.

Market Hiccup….”

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[youtube://http://www.youtube.com/watch?v=adIH1asfnVM#t=379 450 300]

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“Hmmmm….

An interesting paradigm shift is happening here.

I monitor lead times and vendor fill requirements on a fairly regular basis, including from some big e-Commerce folks.

In the last couple of months I’ve noted a rather dramatic shortening of inventory lead times from them — that is, expectation that if you are a vendor you will be able to ship product to them much faster than before.

Some of these shortenings are really dramatic — 50% or more.  Amazon, in particular, is getting extremely aggressive in this regard.

This implies that the inventory drawdown we saw in 1Q GDP revisions is going to continue.

That’s the macro-level impact.

But at the more-granular level, why becomes the question.  Inventory that is rapidly sold through is not much of a cost, other than the physical space to hold it.  That is a big deal, of course, but the trade-off is that if you have inventory in stock you are then able to fulfill customer demand more-quickly.  That’s the good part and what customers expect.

So what is leading to these rather-significant reductions?

We don’t know as of yet, but I can speculate…”

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“It’s not timing the market but time in the market”. Yep, we’ve all heard this refrain from market commentators on TV disguised as experts. Some go even further saying it’s impossible to time the market. Well, what a load of codswallop! Anyone that says this to you is a happily oblivious member of the Flat Earth Society (FES). Sure, FES members can still function well and be successful in their one dimensional world. Ignorant bliss can be extremely satisfying. However, in the analysis I’ve undertaken of the Dow, there is clear evidence presented that the market can, despite the naysayers, indeed be timed.

Let’s leave the timing aspect aside for the moment and using my top-down analysis approach begin with the yearly chart.

YEARLY CHART

That massive upmove in 2013 absolutely slaughtered the bears, possibly close to the point of extinction. Claws holding white flags of surrender were raised. Just the sign required that a significant top is close at hand. A big, positive candle such as the 2013 candle should normally see a little follow through action which we are experiencing right now. The 2013 high was 16588 while currently the 2014 high is north of 16700. Years of looking at charts has shown me that big candles like that generally need to be consolidated which may involve just a simple correction, which we have already seen, but can often be a reversal of trend. In a moment we’ll move on in a bid to determine which scenario is more likely going forward.

Before that I wanted to do some more long term work. I have added Fibonacci retracement levels of the whole upleg from the 1974 low of 570 to the current top. Now I don’t think we’ve seen the final top but I expect it to be only marginally higher so using the current top won’t have any significant effect on this analysis.

Firstly, we can see the 2009 low is close to the 61.8% level bottoming just under that level. (Using Fibonacci in this forward looking manner is a way to predict future tops and lows). This adds significance to that low and is an argument against the megabears predictions that the 2009 low will be taken out. My personal opinion is to look for a low around the 50% retracement level which is currently just above 8650. The 50% level is also one of Gann’s key levels. Another of Gann’s discoveries was that lows are often 50% of the high price. Currently, 50% of the high price is a bit above 8350. Of course, as the Dow rises higher so too will these Fibonacci and Gann levels.

My personal opinion is that the coming plunge will see most, if not all, of 2013’s gains wiped out before a rally into the end of the year. Then an even more bearish 2015 before final low in 2016 close to the levels I just outlined. Now this, of course, is purely speculation on my own part.

But we’re getting ahead of ourselves here. Let’s slow it down and move onto the monthly chart and see what that tells us.

MONTHLY CHART

This chart is very revealing. Firstly, I have drawn trendlines from consecutive lows starting from the March 2009 low, then the October 2011 low, the November 2012 low and finally the February 2014 low. It can be seen that each new trendline is getting steeper and steeper. We are now onto the fourth consecutive steeper trendline. That folks, is undeniable evidence that the bull market is in its last throes.

Secondly, I have added a Relative Strength Indicator (RSI) whereby a downtrend line can be seen. This shows that the recent Dow tops are declining in strength. A bearish divergence. Generally after the third bearish divergence a significant down move can be expected. (There’s the magic number three again.) We are now just awaiting the next Dow high to coincide with a weaker RSI reading than its previous two tops. Now keep in mind we are dealing with the monthly chart and the longer the timeframe the stronger the indication.

You will also notice I have drawn horizontal lines on the chart which refers to the levels of the 1998 high, 2000 high and 2002 low. Assuming the bull market since 2009 is just about finished, I wanted to look at potential correction ending levels. As Gann noted, old tops often become support in the future. So that brings into the frame the 2000 high of 11750 and the 1998 high of 9367. Now going back to the yearly analysis, the 2000 high appears too high. Sure there may be a short term reaction off that level but I still favour a lower level for the final correctional low. That brings us to the 1998 level. Corrections generally push into the old high levels giving them a decent test so we could assume a little below this level. That would also conveniently be close to the Fibonacci/Gann 50% level and Gann’s 50% of high price level as mentioned in the yearly analysis. Now if the 2002 low were to be taken out then the probabilities of breaking the 2009 low would increase dramatically. While not out of the question, it is a scenario I just don’t favour at all to be quite frank.

Let’s move on and view the weekly chart……”

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