Getting technical…

090731induaIn general we try not to try our readers’ patience with the intricate details of our sausage making machine.  And besides it’s usually not that complicated anyway.  Simplicity is a universal virtue.  Given the magnitude of the Bush Bear disaster and its literally history making character some ingenuity is required to make sense of it.  Here it is in all its glory.  You’ll be able to tell your grandkids that you survived it.  (You will survive it.  Basic common sense and reasonable judgment will out in the end. It may be painful at times, but that will end too.  And at least you know enough — presumably, if you are a reader of this letter, to set a stop and honor it.)


By a rare bit of serendipity the stop we calculated 9663.34  coincides beautifully with the top of the bottom pattern here.  In point of fact this bottom pattern is not resolved until this level is definitively penetrated — on strength.  By further serendipity as you see from the note just above that stop level is the  line indicating resistance from 2000.

Now here is the technical part.  We calculated that stop from the Basing Point you see identified.  It is an algorithmic stop with a mathematical parameter.  This methodology is very powerful and has proven effective over long experience and back testing.  And, algorithmic and mathematical methods are not as good as the human brain and chart analysis.  So, while the system says get long at that point the chart analysis says that the overhead resistance must be cleared for any sort of bull market.

Experience says that this market is likely to see saw wildly up and down for some time.

We understand that 3,000,000 mortgages are in trouble (admitted to be in trouble).  Reportedly 500,000 houses in California are supposed to hit the market in the next year.  If you believe the real unemployment rate is radically higher than government statistics admit — maybe 20%.    Those stories you hear about multiple offers on foreclosed houses are disinformation.  Banks are playing games, testing the market.  They put a house on the market at a bargain price and when they get offers they withdraw it only to put it back on the market a month later at a higher price.  And you wonder why people hate banks?

We are not Elliott Wave practitioners.  But there is definitely something in the Elliott Wave model of three waves down — an A wave down, followed by a B wave up (which makes the market think the downwave is over) and a subsequent C wave down.  We think the foreclosure mess is in the B wave.  What happens to the market when the C wave manifests itself is anybody’s guess.  Our guess is it won’t be good.  In the meantime keep those stops well analyzed and entered in the market.

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