The Great Stocks and Commodities Deleveraging Crash of 2009
Stock-Markets / Financial Crash Dec 21, 2008 - 02:26 PMBy: Eric_Chevrette
Should you not really have or bear the time with me to go thru technical explanations, which is most likely to happen under the given Christmas mood, here is an appropriate overall rundown on current issues:
• The past 8 weeks are building a common “wave 4” corrective pattern for global stocks and currencies (mind the YEN/Euro cross-rate)
• the last 2 days of the week finishing Dec 19 did most likely mark the end of this common “wave 4” and build the innings of a new upsurge of global deleveraging
• a new wave of deleveraging should bring about 8 weeks with falling prices for raw materials, especially OIL as well as for common stocks (expect the oil service sector to display extreme weakness)
• this new wave of deleveraging should register a rising US $ as well as a rising YEN/Euro cross-rate
• these 8 weeks should be the final green wave 5 for global stocks within blue wave C extended as green 12345 from the July 2008 tops ; as a consequence, a major common bottom is due for global stocks and raw materials within the same time frame
• the peak to be expected in about 8 weeks with the US $ should mark the end of the temporary relief from hyperinflation after it was nurtured worldwide over the last months by massive bailout plans with TRILLIONS of paper money printed out of thin air and passed on to future generations thru governmental indebtedness; in other words, any global counter rally with global stocks taking place at the end of blue wave C should be eaten away by self inflicted inflation
So far, the table below is giving you reasonable estimates for some key indexes and their respective targets at the end of blue wave C in about 8 weeks from now.
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| indexes | july 08 | last quote | TARGET | july tops | drop % | drop % | %2OXH | slide % | TARGET |
| OXH | 220 | 72 | 40 | -67,27 | -44,44 | ||||
| OSX | 350 | 117 | 65 | -66,57 | -44,44 | ||||
| OIL | 140 | 43 | -69,29 | 23,89 | 23,89 | ||||
| CRB | 475 | 219 | -53,89 | 80,11 | -35,61 | 141,02 | |||
| ADR | 900 | 615 | -31,67 | 47,07 | -20,92 | 486,34 | |||
| NYSE COMP | 8500 | 5615 | -33,94 | 50,45 | -22,42 | 4355,91 | |||
| SNP500 | 1250 | 888 | -28,96 | 43,05 | -19,13 | 718,10 | |||
| DJ COMP | 4200 | 3000 | -28,57 | 42,47 | -18,88 | 2433,72 | |||
| DJIA | 11000 | 8580 | -22,00 | 32,70 | -14,53 | 7332,94 | |||
| NIKKEI | 13000 | 8590 | -33,92 | 50,43 | -22,41 | 6664,84 | |||
| HK HS | 22000 | 15130 | -31,23 | 46,42 | -20,63 | 12008,59 |
World table for green wave 5 target_Dec 22, 2008
This “world table” is pretty easy to use: take for example the DJIA line, the DJIA fell 22% from the July tops at 11,000; as OXH fell 67.3% from the same tops, the DJIA “%2OXH ratio” is at 22/67.3=32.7% (meaning that 1% lost by OXH would lead to 0.327% lost by the DJIA ); should OXH fall further to 40, that would be a 44.4% drop from the latest close at 72 on Dec 19. The DJIA “%2OXH ratio” does then lead to a 44.4*32.7/100=14.5% drop for the DJIA until the final low of green wave 3 is reached in about 8 weeks. Why the oil sector is taken here as a pivotal reference for other indexes ( NYSE, SPX, DJ COMP, DJIA, NIKKEI, HK HS ) and why OXH (alternately its twin index OSX ) should be expected to fall to 40 (alternately OSX down to 65) can be gathered from the complementary technical explanations to be found later in this article.
Chart #1
To begin with, chart #1 is showing how both the US $ index and the YEN/Euro cross rate still stick to their respective 5 wave pattern as red 12345 thru blue wave C. Alternately, chart #2 is an easy way to view how the YEN/Euro cross-rate and the Japanese NIKKEI index have been caught together in a “wave 4” corrective pattern over the past 8 weeks (please count 8 bars from the top of red 3 for XJY2XEU and 8 bars from the low of green 3 for the NIKKEI ): while everybody around the world can be expected to focus on US markets, there is no other better place than Japan to become aware of the “wave 4” pattern and shape currently in the making.
Chart #2
Once this eye catching “wave 4” shape has definitely been acquired from Japan, US markets should become easier to grasp under EW terms: as it is shown in chart #3 , the NYSE Composite index registered an irregular abc as green wave 4 over the past 8 weeks (the abc is irregular because the b wave did trigger an absolute new low); as to the highly praised DJIA , it is a more complicated case, because YES we do get the same irregular abc shape BUT there was previously a failure thru green wave 3 as red wave v did miss to break below red wave iii ; in other words, would you only track the DJIA index, you would most likely miss the true global EW pattern and maybe wrongly regard the low reached 4 weeks ago at 7,500 as the final low of blue wave C .
Chart #3
Chart #4
Chart #4 is another example of the benefits obtained from taking Japan as a pivotal reference: after it is accepted that the true low of green wave 3 did take place exactly 8 weeks ago, it does appear that the oil sector (here featured thru OXH ) is to be counted among the weakest sectors in global stock markets; as a matter of fact, green wave b did cause new lows under the peak of green wave 3 but 3 weeks ago OXH did register new lows under the peak of green wave b, which is definitely making the entire corrective process thru green wave 4 much weaker with OXH than with any other index you may consider.
Chart #5
Once you have become aware of this tremendous local weakness with oil related companies, you are in a much better position to understand what's going on with OIL : considering the past 8 weeks in chart #5 for both OXH and OIL , it is becoming all too clear how OIL is caught in a vicious downward spiral; indeed, the reason why OXH had such a weak behaviour over the past 8 weeks is to be found in the even weaker performance in oil prices (consider that OIL prices fell from $ 70 to $ 40 over these past 8 weeks).
This is when you should keep an eye on the really long term EW scope for oil related companies with chart #6 : though it may seem tempting to buy oil related companies right now at seemingly low prices after they have broken below red wave 4 , you should keep BIG and LARGE at the forefront of your mind that the TRUE and FINAL purpose of blue wave C is to fully erase blue wave 5 with a dip below blue wave 4 (please remember XBD with chart #3 from “What happens next?” on Nov 8) ; after we know from a global tour that we do miss green wave 5 within blue wave C , it should be surmised that the current downward pointing “consolidation” in oil related companies (as well as in any stock market around the globe) is a true LURE for investors before the REAL bargain does materialize in a few weeks with a 40 to 60% discount ( OSX@50 is 57% down from the close at 117 on Dec 19).
Chart #6
As the break below blue wave 4 with oil related companies is a HIGHLY probable if not unavoidable event in the coming (8) weeks, it is quite reasonable to take the price level of this break as a pivotal reference for any other index: as OXH (a twin index for OSX ) has its blue wave 4 located exactly at 40, that is giving a 44% drop from current price levels for both indexes to reach into their respective blue wave 4 at the far end of blue wave C .
We will now consider more detailed explanations about the “world table” presented at the beginning of this article.
In the first instance, you should mind the purpose of this “world table”, which is to analyse the interconnections between various markets thru the course of blue wave C while taking the 44% drop of oil companies as a pivotal reference. The main idea behind the “world table” is that interconnections in relative % terms should prevail until the final peak of green wave 5 .
With regard to this interconnection in relative % terms, it does look like a must to start with the link between oil related companies and oil prices; as you can read from the “world table” featured (again) below, OSX fell 66.57% while OXH gave up 67.27% and oil prices nose dived 69.29%. In not too many words, 1% lost by oil companies is linked to approximately 1% lost by oil prices.
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july 08 | last quote | TARGET | july tops | drop % | drop % | %2OXH | slide % | TARGET |
OXH |
220 | 72 | 40 | -67,27 | -44,44 | ||||
OSX |
350 | 117 | 65 | -66,57 | -44,44 | ||||
OIL |
140 | 43 | -69,29 | 23,89 | 23,89 | ||||
CRB |
475 | 219 | -53,89 | 80,11 | -35,61 | 141,02 | |||
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ADR |
900 | 615 | -31,67 | 47,07 | -20,92 | 486,34 | |||
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NYSE COMP |
8500 | 5615 | -33,94 | 50,45 | -22,42 | 4355,91 | |||
SNP500 |
1250 | 888 | -28,96 | 43,05 | -19,13 | 718,10 | |||
DJ COMP |
4200 | 3000 | -28,57 | 42,47 | -18,88 | 2433,72 | |||
DJIA |
11000 | 8580 | -22,00 | 32,70 | -14,53 | 7332,94 | |||
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NIKKEI |
13000 | 8590 | -33,92 | 50,43 | -22,41 | 6664,84 | |||
HK HS |
22000 | 15130 | -31,23 | 46,42 | -20,63 | 12008,59 |
World table for green wave 5 target_Dec 22, 2008
With a 44% drop to be expected with oil related companies, oil producing countries are faced with an oncoming 44% drop in oil prices from current price levels: as oil closed at $ 43 on Dec 19, this is meaning oil around $ 24 in a few weeks……….
Applying the same simple concept, we get precise targets for various stock market indexes at the end of green wave 5 (read the “green wave 5 target” column). One of the most interesting factors in this computation is that it does not lead to devastating new lows BUT just to marginal new lows for any stock market index: the DJIA had a green wave 3 at 7,500 while the estimated target for green wave 5 is around 7,330; alternately, the NIKKEI average had a green wave 3 at 7,000 while the computed target for green wave 5 is around 6,660. As to the global ADR index, it had a green wave 3 peak at 500 while the computed target for green wave 5 is around 486…………
In other plain words, talking of OIL@25 should not be regarded as an overstatement. But it may change the world for many oil producing countries, especially for those where low oil prices are making costly oil extracting techniques non profitable. Meanwhile, the fact that cheap oil will not likely jump start consumption afresh in early 2009 is casting some light on the severity of the recession/depression bound to materialize harder next year.
By Eric F.M. Chevrette
France
eric_chevrette@yahoo.fr
Fone: 00.237.9.660.53.59
© 2008 Eric F.M. Chevrette
Eric Chevrette translated Bob Prechter's “Elliott Wave Principle” in 1989 after graduating in 1984 from the ESCP (Ecole Supérieure de Commerce de Paris, see http://www.escp-eap.net ) which has been ranked 6 best business school in Europe by the Financial Times in 2006. He since has become interested in “market forecasting” and “global economical analysis” since 1987 and is currently helping people to protect and grow their assets while anticipating the big trends.
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