Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
WAYS TO SECURE YOUR FINANCIAL FUTURE - 20th Aug 19
Holiday Nightmares - Your Caravan is Missing! - 20th Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Stock Market Reversion to the Mean and the Risk of Ruin

Stock-Markets / Stocks Bear Market Feb 12, 2009 - 12:07 PM GMT

By: Joseph_Russo

Stock-Markets Best Financial Markets Analysis ArticleThe Silver Bullet Band - Groping in the dark for the golden gun with silver bullets, should they get their hands on it- the Fed, Treasury, and the political bodies at large, may soon discover they have been on their knee's pleading to engage in a willfully ignorant round of Russian roulette with a fully loaded revolver. 


Inevitably, we envision this high-level failure of leadership bringing about an unprecedented opportunity for the US to raise the white flag on its irreparable financial system, and place disciplines from the Austrian school of economics to task in rebuilding its financial markets.  In the interim, it is our hope (or fantasy) that the real (peoples) economy is somehow able to survive with vim and vigor while old school Wall Street deservedly crumbles amid a period of historic restoration. 

Before a grand momentous occasion of this sort can save the street, the financial sphere must first hit the very bottom of the barrel.  Where IS the bottom of such an epic and calamitous event?  History suggests clearly that 80% to 90% declines from peak values are the norm.  The sooner it hits rock bottom the sooner it is able to embark upon restoring prudent and sustainable growth path.  It is scary, but that simple.

There IS no meaningful floor under the market – only the very bottom
Quite honestly, even we did not think the floor would fall out as quickly as it has.  Below is an updated chart we presented nearly a year ago in a piece entitled V-for Vendetta.

Revisiting the Wilshire 5000
If one opens the “Vendetta” link and looks at the March 2008 version of the chart below it will become clear that we got it right, but failed to anticipate the gravity and speed in which the floor under the broadest representation of equity markets would collapse.  As the updated chart graphically expresses, the “risk of ruin” is nearer than one might have conceived previously.  Moreover, should it play out, we have now defined its target zones.

Below are a few of our prescient quotes from a segment within the Vendetta article, which provided briefings on the state of various markets at the time:

On the S&P 500: from March 10, 2008
The S&P is struggling franticly to hang onto its five-year reflationary uptrend from 2003.  Despite a potential breach (and apart from an all-out-crash) this beloved benchmark equity index is likely to get some sort of reprieve from its most recent five-months of bear whipping.

On the NASDAQ-100: from March 10, 2008
The NDX is one of the first widely followed equity indices threatening to post an ominous five-month closing low beneath its five-year uptrend.  The presidents “working group” must now do whatever necessary to insure a March close back above the mandated perpetuity of inflationary growth, or risk watching all of its fiat-managed equity indices stumble and fall.

On Gold: from March 10, 2008
Gold is frantically holding above its upper trend-channel eyeing the $1000 milestone, telegraphing to all of financial civilization the necessity to change its ways.  So far, no one is paying serious attention. 

Prescient Quote Outcomes:
On the S&P- After registering in an interim low of 1256.98 the week of 17-March, the S&P recovered more than 180-pts or 14.5% by mid-May.  This was the rather generous and anticipated reprieve mentioned in our timely status briefing.  The all-out-crash is still unfolding.

On the NDX- After registering in an interim low of 1668.57 the week of 17-March, the NDX recovered more than 380-pts or 23.2% by early-June.  Whether or not this occurred with the aid of the presidents “working group” by September, all were watching in awe as fiat-managed equity indices stumbled and fell.

On Gold- From its 7-March 2008 close of 974.20, Gold went on to surpass the $1000 dollar milestone.  In the week ending 17-March, Gold registered an interim high of $1033.90.  Ironically, since the US Fed and Treasury still hold all the games poker chips gratis the reserve status of its fiat currency, Gold dipped 34% testing the 681 level in October 2008 as a combination of deleveraging and lemmings rushing to dollars reanimated signs of life in the otherwise dead US currency. 

And still scratching our heads
We simply cannot comprehend the logic of leadership.  In fostering an egregious 30-year span of hyper-like inflation, they suddenly stop the game, decree rule changes left and right, and then claim that we are facing a threat of a massive deflation, thereby mitigating any negative effects of their current radical plan, which is to embark on the largest inflationary effort ever attempted in the history of humankind.

Four months after its initial pounding, Gold is knocking on the door of $950, up some 40% from its lows, and is again approaching the $1000 milestone despite the continued surge in an otherwise worthless paper currency.     

A reversion to the mean spells RUIN
The new normal, not yet defined, has potential to be truly incomprehensible.  The old, so-called “normal” growth path that leadership is betting the ranch to salvage was an artificially created erroneous paradigm that is now just beginning to implode.  By default, the US will take down the rest of the Globes financial markets in this extraordinary process of vile but necessary cleansing.  The irreparable financial sphere is now poised to deliver itself a tsunami of forced-cleansing simply because of leadership's failure to exercise the wisdom and discipline to allow the system to cleanse itself. 

And they all fall down
Many if not all Global Equity Indices now sport trendline trajectories, which if breached, portend total collapse.  Contrary to the false paradigm of what we are now bombarded with as an essential kick-start quest to getting things back to the “old normal”, a simple reversion to the mean will equate to a serious breach for many of these “risk of ruin” trendline trajectories.  It is indeed time for truly radical about-face change.  Radical enhancements to what caused the problem in the first place constitute no change whatsoever.

Thus far, all seems eerily calm as the powers that be have yet to find the golden gun laden with silver bullets.  We should become more concerned after a convincing market rally, which gives off the appearance that their convoluted efforts are actually starting to work.  Such a feat would indicate that they finally found their golden gun, and have begun spinning its big shiny barrel frantically, and with hubris of old, awaiting their turn to pull the trigger in the fatal game of fully loaded Russian roulette.  

Trade the Super-Cycle IV -Wave
To safely speculate on, and effectively trade the endless array of unfolding subdivisions forthcoming in SC-IV, one may subscribe to our premium technical publication.

The express focus of Elliott Wave Technology's Near Term Outlook is to help active traders anticipate price direction and amplitude of broad market indices over the short, intermediate, and long-term.

Communications 2009: To more effectively convey dynamic trading conditions relevant to our technical publications; we are soon planning to launch complimentary E-letter briefings for anyone interested in following our work. E-letter dispatches will briefly summarize tactical trading postures across various time horizons and trading strategies. The theme of our maiden E-letter will reveal how to sell at major tops, and buy at critical bottoms. Those interested may email us to get an early seat on our mailing list.

Trade Better / Invest Smarter...

By Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology
Email Author

Copyright © 2009 Elliott Wave Technology. All Rights Reserved.
Joseph Russo, presently the Publisher and Chief Market analyst for Elliott Wave Technology, has been studying Elliott Wave Theory, and the Technical Analysis of Financial Markets since 1991 and currently maintains active member status in the "Market Technicians Association." Joe continues to expand his body of knowledge through the MTA's accredited CMT program.

Joseph Russo Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules