THE TREND IS YOUR FRIEND (wave 3 in motion)

[Bottom Line]: The stock market remains in a third wave down at several degrees of the trend. Third waves are most often the strongest waves in an impulse sequence. Elliott called them “Wonders to Behold”.

With both presidential candidates espousing “change” as one of their main campaign themes, once again it’s the financial markets that are leading the way. I cannot stress strongly enough how truly historic the current shift is from extreme optimism to a movement toward extreme pessimism and the current “change” that it is causing.

Imagine the U.S. government (i.e., taxpayers) taken an equity stake in a private global insurance company (AIG), the single oldest money market fund breaks the sacred $1-per-share threshold (Reserve Money Fund), three-month US T-bills fall to their lowest level since World War II, Russia suspends trading on its stock exchange “indefinitely,” a former Secretary of the US Treasury says the market’s almost “frozen,” the largest bond fund manager in the world has one of his biggest up days ever (Sept. 8 ) and then just six days later (Sept. 16) has one of his biggest down days (PIMCO), Gold soars the most in nearly 10 years in a matter of days, while Platinum falls 50% in a matter of weeks. All the while, the U.S. Senate majority leader says “no one knows what to do.” This latter statement may be the most honest one from a politician that we’ve ever heard.

In a bull market, the psychology attending these events would represent a tremendous buying opportunity. Whereas in a bear market, they represent the recognition phase of a third wave down. As I’ve been discussing, we are starting a third wave sequence in what appears to be the beginning of a long period of DEFLATION.

By now you should all be positioned in the short ETF’s I recommended in my last update on July 31. Again hear are the entries:

SH = 67.07 or better
DOG = 65.23 or better
SDS = 64.64 or better
DXD = 59.85 or better

This trend is so strong that it failed to fill the GAP I discussed in my last update (1322.37/1316.29) an uncommon thing to occur and it also failed to pivot to the Fibonacci 50% in minor wave 2. This type of behavior in the price structure of the trend is signaling that this third wave could really extend beyond the guidelines (see charts 1 and 2).

CHART 1

CHART 2

Bailout is the name, “change” is the game.

As the geniuses in Washington continue to bailout their Wall Street buddies with the uncollected tax money that our children and grandchildren will have to pay for the next two generations, the two presidential candidates are selling “change” as November 4th approaches.

Change with what? By the time you’re sworn into office in January of 2009 there will be no money to finance any change. There is $5.3 trillion of treasury notes outstanding, and we’ve just been put on the hook for another $5.3 trillion dollars owed in bonds by Fannie Mae and Freddie Mac in their reckless lending scheme. Not counting the already 500+ billion the Fed has loaned out through the discount window and accepting CDO’s “aka” toxic waste as collateral.

What they should be campaigning on, that they will be the one to hold accountable the people that have put us in this mess (jail time please…..thank you). Then, maybe you might restore some confidence in the American capital markets.

Washington you are a disgrace! The corruption has reached such monumental levels that they go hand in hand with the levels of optimism that were reached during the bubble years of the housing market, they where and are of historic proportions.

You can’t give a license to any entity without regulating it? If you are going to issue a license to a chartered bank or an investment bank to do business you must regulate it COMPLETELY, Not half ass.

Washington and Wall Street have allowed hundreds of trillion of dollars in derivatives to be negotiated in some dark room without any supervision or transparency. The SEC, FED, FDIC…etc did not have a clue of what was going on. Or were they just turning a blind eye while this hanky panky was going on so their bodies on Wall Street could make fortunes. And now that it has blown up in their faces they want our children and grandchildren to pay for it.

Many need to go to jail and we should start with the members of the Creature from Jekyll Island (the Federal Reserve System). At the rate they’re spending they will no longer be a reserve.

Stay safe

Until next time

Leo