Posted Aug 22, 2015 by Martin Armstrong
Dear Mr. Armstrong,
Thank you for all your writings. I may not understand them all, but certainly appreciate what you are doing to inform those of us you care what is happening in this world economy. Question: With the dow tanking, is this considered the FALSE move you wrote about previously. That in essence the dollar will go up as well as the stock market due to a flight from other countrys’ currencies?
ANSWER: I understand it may be difficult for many to understand professional analysis versus the traditional promotional analysis. Real money does not want huge risk so you ABSOLUTELY MUST define where you are right and wrong at ALL TIMES. Big money does not invest based upon “trust me”, “I think”, or any other subjective analysis. People often ask if we use Elliot Wave — the answer is no way. Two people using the same thing reach different conclusions because it is all subjective. It is like looking at this photo. Some people will see a face, while others will not
Take this famous drawing. What do you see? How old is the woman? There is no correct answer. It is all a matter of perception and your eye will see what you are biased toward and expect to see. This is either the old mother-in-law or the attractive young girl looking away from you.
This illustrates the entire problem with personal interpretation, yet 99% of analysis and forecasting is conducted this way. The usual pitch is something along the lines of “See how great I am at forecasting? You better buy my letter now!” Then they fill the air with claims that if you had subscribed to them, you would have made some outrageous amount of money. They are like politicians — all promises and no reality. This has led to the saying that you are only as good as your last call. I get the typical comment how I am never wrong, because I cover both sides. This stark example of people blindly looking for some analyst who is never wrong illustrates their indoctrinated belief in analysis is really just traditional promotional analysis. They wouldn’t understand real analysis if it smacks then in the face.
BIG MONEY does not invest by listening to what amounts to sophistry. You cannot forecast the future with personal opinion. I get hate mail from people who seem to argue against the wind for they are lost in the nonsense. “Why does oil go down because of supply buy a decline in supply of gold does not make it rise? You are wrong. It is always a claim of manipulation.” They cry manipulation whenever the market does not do as they expect.
So many people are lost in this idea of supply and demand and rational market behavior. The bulk of people are generally delusional for they make the fatal common mistake supported by TV and the talking heads of assuming that the markets are always rational. They cannot see that the driving forces behind markets are NEVER the fundamentals, because markets move in ANTICIPATION. The “rumor” never actually needs to become NEWS. Markets move simply on what people believe, nothing more. Yet TV, business news, and the analysis promoters always try to explain market movement and in doing so propagate this idea that the market moves on some rational explanation. They offer that as news to try to explain why something takes place because of some related logical fundamental, furthering this myth that markets are rational when they are not. How many are calling for a depression right now because that is all they understand and want to see because the stock indexes were near record highs but trading flat and gold was being called the “pet rock”. To them, their world was upside down.
I have explained that in all markets the MAJORITY must be wrong. This is the actual engine that propels markets to change trend. Lows are never made by some big long trying to catch a falling knife, but rather they are made by short covering. Conversely, the majority being long makes tops. They always blame some huge short, but it is the longs trying to get out, and there is no bid when confidence collapses.
So while the gold promoters are always bullish, conversely, all we get from the analytical crowd and the talking heads is how the stock market is overpriced and in a bubble. The Fed will raise rates and the market must therefore crash. They are now going to yell, “See I told you so!” but is this a real break in trend, or the false move required to propel the market higher in the months ahead?
The vast MAJORITY of market forecasters were calling for a crash. The common tune was that this was a bubble. They looked only at price and assumed the Fed would raise rate, which would then destroy the market. But exactly where does capital go? Back to bonds at negative rates? This is by no means the classic textbook market top. You do not have to worry about the press quoting me for they prefer their personal opinion gurus who put on a show like Mike Myers in the “Love Guru”. Serious money expects serious forecasts and does not support what the press wants to use to make headlines.
When we look at the global capital flows, they explain the trend better than the fundamental nonsense in papers and on TV. This is a tool we developed that the BIG MONEY and some central banks pay attention to. Note that there was a sharp outflow of capital from the USA back to Europe. Russia actually saw the strongest inflow as oil declined, requiring more capital repatriation.
This map reflects overall what the markets were doing in the middle of the confusion. Yes, the dollar rose against emerging markets thanks to China slowing down, but the dollar declined against the euro because as the U.S. share market declined, the biggest investors were Europeans parking in dollars in fear of the fate of the euro. The Dow reflects the BIG MONEY that is typically internationally driven; the S&P 500 is more domestically focused; and the NASDAQ is more retail. So the Dow elected two Weekly Bearish before the event, showing it was indeed a capital flow shift internationally; the S&P 500 elected just one Weekly Bearish; the NASDAQ elected none as its high was in July and the former two highs took place during May. Hence, the Dow was the leader on the way down because this move was set in motion externally rather than domestic. This is consistent with our warning that there is no bubble as the U.S. domestic retail investor is not in this market the way they typically have been at major highs.
Now, let’s look at the computer for a moment with respect to the broader term in the Dow. You will immediately notice that the computer draws your attention to this being a FALSE MOVE for it states “BUY NEW LOW”. It does this when assessing the overall trend, and has concluded that it is not over yet.
From a technical perspective (not system models), next week we have support below the market at 16169 and 16295 with resistance forming at 16582 and 16648. The top of the channel resistance is not really within reach, but that stands at 17353.
When we look at the array for the daily level, it shows Monday as a Directional Change. So we should be aware that a low could form on Monday intraday, but if Friday’s close is exceeded for the close of Monday, then a bounce is possible.
Looking at the Weekly level, we can see that there has been some damage done to the trend short-term. We can see that the broader support lies at the 15878-15776 on a technical basis, but on our system models it lies at the 16319, 16134, and 15960 levels on a weekly basis.
Turning to the Weekly Array, comparing it to the array we published in early July, we see that the turning point of 7/20 was spot on in the top row which was the reaction high. From that target, moving to then the lowest bar was the week of 8/24. Volatility should now perk up next week, which is typical after a move like this, as people will be jockeying back and forth. The empirical cycles (fixed transverse) were clearly warning that the week of 8/17 may produce at least the lowest weekly closing for it was a clear trend from 7/20 into 8/17 was warning caution. The week of 8/24 can be the intraday event, leaving the week of 8/17 the closing event. So next Friday should be important to watch.
Looking at the top Weekly Array, we can see a Directional Change has now appeared for next week, which fits to some degree with the Daily. Obviously, pay attention. This is further supported by then turning to the next higher level, the monthly, which has been warning of a possible pattern for a FALSE MOVE low as shown in the video above. Looking here at the Monthly Array, we see that this has been looking for a Directional Change back to back with August/September, with a trend thereafter forming into December. This is why we have been warning that if the May high held, then we should have move down.
This is more important than making a single forecast for the direction of the Dow. In order for that to happen, a scare would then send cash fleeing into government paper completing the BUBBLE in government (bonds) and then we should begin to see the ultimate confusion — the shift from public to private.
Confirming that forecast was not simply price action in the Dow, to complete that forecast we needed the rally in gold, despite the collapse in commodities with the rally in the euro because the Europeans would take their money home out of U.S. equities. We did NOT elect any bullish reversals in the euro, so that sustainability remains in question.
We can see that next week is the focal point in the euro. This is reflecting just how interconnected everything is which has defined the flow of capital globally.
Gold is not a “pet rock”, for it too has a role within the financial landscape. It is just not what the gold promoters portray. Here too, we did not elect a Weekly Bullish Reversal, which warns the rally may not be sustainable.
Here we have the weeks of 8/17 and 8/24 as Directional Changes, warning that we may not be in a position to move high beyond next week. If the week of 8/17 is the highest closing, then caution is still advisable.
On the Daily Level in gold, the target resistance is at 1170 and 1205 on our system models with technical resistance at 1181 area. The closing on Friday at 1159.60 implies initial support should begin at 1151. If this holds, then we can see the pop up to the 1170—1188 area.
The Daily Array warns of Monday, so be careful. A failure to close higher on Monday above 1159.60 will warn of a tempt high.
The markets are not acting in a “rational” manner because of a specific event. Far too many people were shocked by the Chinese devaluation and the realization that their economy was in fact declining. Why were they so surprised? Generally because of all the promotional analysis of China amassing gold to defeat the dollar, creating the image that their economy was still booming, highlighted by a reaction rally in stocks.
Then we had the people fearing the euro collapse who had moved capital to the States. Combine that with FATCA forcing Americans to bring their money home and you ended up with a stock market holding near the highs, but everyone screaming it’s a bubble while retail participation was at a low.
Then we had the Fed watchers looking for the Fed to raise rates because the economy was doing well. When China’s reality sank in, they said the Fed would not raise rates and we would go into recession.
There is no one fundamental answer. It is always a combination of the trend driven by diverse personal interests from different regions. The bottom line — we are all connected.